Opinion: Ducking the solution to sky-high auto insurance

The Liberals and New Democrats vaguely promise to lower sky-high auto insurance rates. Yet for reasons of history and embarrassment, neither is promoting the obvious solution: public auto insurance.

Public auto insurance saves money for the same reason that public health insurance, also known as medicare, saves money.

First, it cuts back administrative costs by replacing a cacophony of competing private bureaucracies with one public system. Second, by spreading risk over the entire population – good drivers as well as bad – it reduces the average cost of insurance.

While rate comparisons are notoriously difficult, most studies show that drivers in public-insurance provinces face far lower premiums than those in provinces that rely on private insurers.

A 2015 report done by Deloitte LLP for the Manitoba government is typical. It found that drivers in British Columbia, Saskatchewan, Manitoba and Quebec paid hundreds of dollars less per year than those in other provinces.

What these four provinces have in common is that all offer some version of public auto insurance.

In all four, public insurance is so popular that it has withstood radical changes in government.

Why then is it not on the political radar in Ontario, where drivers pay by far the highest premiums in Canada?

The answer is that it was – once. Public auto insurance used to be the centrepiece of the Ontario NDP’s policy platform. The New Democrats contested any number of elections with a promise to bring in public auto insurance.

But when the party was finally elected to government it balked. In 1991, a year after winning power, then premier Bob Rae’s NDP government announced it was scrapping plans for public auto insurance.

Given that the scheme might have led to job losses at the head offices of private insurers, it was deemed too politically difficult.

Andrea Horwath’s New Democrats are understandably embarrassed to talk much these days about public auto insurance. Their platform in this election campaign promises to cut premiums by 15 per cent. But it doesn’t say how they would do this.

Liberal attempts to bring down auto insurance rates have been equally unsuccessful. Unlike the New Democrats, successive Liberal governments never flirted with public auto insurance. Instead, they took their cues from the insurance industry.

First, the industry told them that the lawyers were the problem and that expensive law suits were driving up rates.

So the Liberals introduced no-fault insurance to provide accident victims with a fixed set of benefits without their having to go to court. But rates continued to climb.

Then the industry told them that unscrupulous body shops and rehabilitation clinics that overcharged for their services were the problem. So the Liberals cracked down on them.

But rates still went up.

Then the industry told them that accident victims didn’t need all of the no-fault benefits they were being offered and would be content with less. The Liberal government obliged. Yet still rates went up.

In 2013, under pressure from the NDP, the Liberals promised to reduce auto premiums by 15 per cent. They didn’t deliver.

Now the Liberals and NDP are talking about postal codes. Both parties want to ban the industry practice of charging higher rates to drivers who live in areas where accidents are more likely to happen.

The industry will be agreeable. It will simply make up the difference by charging more to drivers who live in areas where accidents are less likely to happen.

All of this is playing around the edges. Regulation cannot drive down auto premiums significantly. Only reductions in the real cost of providing insurance can achieve that aim.

As drivers in four Canadian provinces know, public auto insurance can produce those real cost savings. Unfortunately, none of the parties in this election campaign seems to get that.

Thomas Walkom is a Toronto-based columnist covering politics.

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