In Canada, auto insurance is mandatory. It is a crucial aspect of responsible vehicle ownership, and aims to provide financial protection and physical recovery in the event of a collision or injury affecting you or others on the road.
In most provinces, auto insurance is sold in a competitive market. In three – British Columbia, Saskatchewan, and Manitoba – it is sold by a Crown corporation that has a monopoly over the mandatory coverages drivers must purchase. Quebec has a unique, hybrid model where mandatory injury coverage is provided through a Crown corporation, and material damage (the insurance that repairs your vehicle) and third-party liability coverages are provided through a competitive market.
Regardless of the type of auto insurance market, it is the provincial government that defines and legislates what a mandatory auto insurance policy includes and covers. Each province determines the amount of care and treatment those injured are compensated for after a collision and whether they have the right to sue for damages.
These differences are often missed in media coverage and political debates on this issue, which tend to focus solely on the premiums paid by drivers. But what you are buying is just as important as how much you are paying for it.
For example, in provinces with “no-fault” insurance systems (BC, Manitoba and Saskatchewan), the government sets strict limits on the benefits provided to those injured in a collision, and injured people cannot sue if they do not receive what they need to recover. These limits help keep costs and premiums down. However, in keeping claims costs low, those injured may receive far less in benefits and care than those living in a province with a competitive, tort-based auto insurance system. In short, you get what you pay for.
Comparison of Average Premium and Claim Amounts Across Canada (2022)
Five provinces (Alberta, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island) operate tort-based systems. Here, in addition to compensation or reimbursement for the care and treatment included in auto insurance coverage, those injured in a collision can sue for monetary damages for pain and suffering, additional benefits and other financial damages. These systems provide higher benefits than no-fault systems, but the cost of litigation and legal fees add to the cost of auto insurance premiums. In Alberta, for example, legal fees now account for 20% of the average driver’s premium for mandatory coverages.
The right to sue is paramount to ensure that those seriously injured obtain the treatment they need to recover, but clearly a balance is needed.
The Ontario government tried to achieve this via a hybrid tort system by limiting the right to sue for certain damages, while providing expanded benefits to those injured. Unfortunately, the Ontario system has been rife with fraud and because Ontario auto insurance provides claimants with the most generous benefits in the country following a collision, it also has the highest premiums.
Given the differences in what a driver’s auto insurance policy covers, comparing prices across public and private auto insurance markets is difficult and inappropriate in this context.
Instead, it is helpful to focus on the value that a policy provides. An easy way to compare this is to look at how much of the premium is going toward those injured in care and benefits, and how much goes to insurer operating costs. Government-run auto insurers have extremely high operating costs – far more than their private, counterparts in the private market. For example, in British Columbia, 33 cents of every dollar spent on auto insurance goes toward the internal operating costs of the Insurance Corporation of British Columbia. This is close to 30% more than that of private insurers, which average just 26 cents of premium dollar going towards operating costs.
Where Your Insurance Dollar Goes (2023)
Understanding how much of premiums are going toward an insurer’s operating costs paints a clearer picture of the value drivers are receiving for their money and shows the portion that is returned to them when they make a claim. By recognizing the unique characteristics of private and public auto insurance systems, we can help drivers understand how premiums in different provinces compare.