The Fraser Institute

The Fraser Institute

October 11, 2006 06:00 ET

The Fraser Institute: Media Release; Government Auto Insurance Delivers Worst Value for Consumers

TORONTO, ONTARIO--(CCNMatthews - Oct. 11, 2006) - Government-run auto insurance programs in British Columbia, Saskatchewan, and Manitoba perform worst in terms of cost, affordability, fair pricing and consumer choice, according to a new study comparing auto insurance markets in 61 international jurisdictions released today by The Fraser Institute.

"Supporters of government-run auto insurance claim these programs produce lower costs for drivers. But our study shows the few jurisdictions with public auto insurance are consistently among the worst performers within almost all measures of market quality, including cost and affordability," said Brett Skinner, the Institute's Director of Insurance Policy Research and author of the study.

The report, Auto Insurance Market Quality Index 2006: Annual Comparison of International Auto Insurance Markets, assesses the performance of auto insurance markets in 10 Canadian provinces, 50 U.S. states and the United Kingdom using data from 2002, the most recent year for which complete data was available across all jurisdictions. Of the 61 jurisdictions examined, only BC, Saskatchewan, Manitoba and Quebec have public auto insurance.

This study is the first effort by The Fraser Institute to measure and compare the performance of auto insurance markets across international jurisdictions. Previous Institute studies only compared Canadian provinces with each other.

While Manitoba, Saskatchewan and B.C. had the three lowest scores in the overall market quality index, the scores from all ten Canadian provinces were ranked in the bottom 12 of the 61 jurisdictions measured.

When comparing the affordability of auto insurance premiums as a percentage of personal disposable income in each jurisdiction, all 10 Canadian provinces finished in the bottom ranks with B.C. dead last in the 61st spot, Saskatchewan ranked 59th and Manitoba 58th. New Brunswick joined this group of least affordable jurisdictions, placing 60th.

The top ten most affordable jurisdictions were all U.S. states led by Illinois, Texas and Wisconsin.

"The consistent, poor results and low scores of provinces with public auto insurance programs make it abundantly clear that consumers are not getting the choice or value for dollar that they deserve," Skinner said. "Furthermore, if the best Canadian jurisdiction can only achieve a ranking of 50th out of 61, that shows auto insurance policy in every province needs to be improved."

Saskatchewan, B.C. and Manitoba had the worst scores within a sub-index for the cost and pricing fairness of auto insurance premiums in each jurisdiction. The sub-index was made up of five variables that separately measured cost, affordability, pricing sustainability, pricing fairness and the special tax burden applied to auto insurance premiums.

Saskatchewan also ranked as one of the worst jurisdictions in terms of the pricing sustainability of its premium rates, finishing 60th of 61, the result of total insurance claims exceeding total premiums in 2002. This means that province's insurance market was in deficit and premium rates in the province should have been even higher than the already high levels relative to the 61 jurisdictions studied.

This study also tested for statistical correlations between regulatory variables and consumer outcomes measures for cost, affordability and pricing sustainability. The analysis confirms that in general, more severely regulated auto insurance markets are linked with worse outcomes for auto insurance consumers on cost, affordability, and pricing sustainability.

Important Note on Methodology

The study is based on publicly available data obtained from state government insurance regulators in the U.S., the insurance industry association and government regulators in the U.K., annual reports of public auto insurers in Canada, and data from the Insurance Bureau of Canada.

The data focused only on private personal auto insurance - excluding commercial and recreational vehicles. From the data, 15 variables were developed describing the regulatory policy environments and outcomes in each jurisdiction using comparable units of measure. From these 15 variables, five indices were constructed that comparatively measure market quality and regulatory severity across international jurisdictions.

Two indices measure market quality outcomes from the perspective of consumers regarding cost and pricing fairness, and choice; one index gauges market quality outcomes from the perspective of insurers regarding the business climate for auto insurance; a fourth index measures the regulatory severity of auto insurance policy in each market; and the fifth index measures overall market quality, combining the scores for each jurisdiction across all 15 variables.

Established in 1974, The Fraser Institute is an independent public policy organization with offices in Vancouver, Calgary, and Toronto. The media release and study (in PDF) are available at

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