Fraser November 2003 AUTO INSURANCE SERIES Alert Market solutions to public policy problems Two hundred bucks more: The premium cost of public auto insurance

Introduction It is commonplace to assert that public auto insurance is Main Conclusions cheap. Research published by the Consumers’ Association of Canada (CAC) has gained wide coverage in the media and is • The four public auto insurance quoted by various interests on all sides of the political spec- provinces collectively have the trum.1 The public insurers all post premium comparisons on highest average premiums in their web sites and in their annual reports that purport to Canada. show that public insurance is cheaper. • Next year, they will be 18 percent This Alert proves that such assertions are false. It is a myth more expensive than private sector that auto insurance in the public insurance provinces (British provinces if legislated rollbacks Columbia, , and ) is relatively inexpensive. occur—and will take four of the top five highest premium slots. In fact, the three western provinces with dominant public insurers are currently 11 percent more expensive than the • in 2004 will be the private insurance provinces. Quebec, with a mixed system, most expensive (27 percent higher is presently cheaper (by 11 percent). Next year, partly due to than the national average) and PEI government-mandated premium rollbacks in other provinces, and the cheapest (at the four public insurance provinces will all be more expen- 36 percent and 33 percent below sive—by 18 percent relative to private sector provinces. And that average). Alberta will be the drivers in the three near-monopoly western provinces will most expensive private insurance collectively pay over $200 more. province—but just 1 percent over the national average.

Mark Mullins is the Director of Ontario • It is a myth that the public Policy Studies at the Fraser Institute insurance provinces have in Toronto and is a columnist with cheap insurance. Appropriate globeandmail.com. He has a doctorate measurement and assessment of in economics from the London School hidden subsidies and inadequate of Economics and was formerly a chief financial reserves reveal the true economist in the financial markets and a picture. public policy consultant. trailers and ATVs. Such partial “A separate issue for the provinces with private insurance comparisons underestimate the is the role of legislated freezes and rollbacks in reducing magnitude of premiums paid and, again, owing to public insurance average premiums ... potentially dangerous policy if costs policies, by definition understate are not accordingly reduced, as it exposes insurers to the relative cost of basic insurance there. insolvency risk and may lead to policies being withdrawn Third, information is extremely dif- from the marketplace.” ficult to obtain from the public in- surers. Information requests to the three western public insurers have And this is not all. Financial re- First, other studies are hampered been regularly rebuffed, sometimes serves in all of the public insur- by comparisons of selected indi- by regulatory order.3 This has the ance provinces are too low to ad- vidual drivers that do not reflect effect of diminishing the amount equately cover potential insurance the overall driving population. of comparative research on insur- risks and the Quebec and Manitoba Since public insurers do not appro- ance costs by province, owing to reserve positions are deteriorating. priately price risk into premiums,2 the dominance of the Insurance Thus, along with the push of cost a comparison of riskier drivers Corporation of British Columbia pressures, average premiums in all across the systems will, by defini- (ICBC), Saskatchewan Government four provinces will very likely con- tion, favour the public insurers. Insurance (SGI), and Manitoba Pub- tinue to rise after 2004. There are also important methodo- lic Insurance Corporation (MPI) in logical issues in the various CAC their respective markets.4 A separate issue for the provinces studies that are discussed below. with private insurance is the role of legislated freezes and rollbacks Second, insurers sometimes The Results: in reducing average premiums. present premium estimates using Comparing Public and This is potentially dangerous only basic insurance for private Private Premiums policy if costs are not accordingly passenger cars, rather than includ- reduced, as it exposes insurers to ing full coverage of optional or Tables 1, 2, and 3 show the various insolvency risk and may lead to extension insurance, the commer- premium calculations for last year, policies being withdrawn from the cial market, and smaller markets this year, and next year, along with marketplace. Like the public insur- like those for trucks, motorcycles, an average of the four measures ance system, where state involve- and a ranking from most expensive ment is complete, partial market intervention using price controls Table 1: Premium Levels by Province – 2002 can actually end up causing insur- ance to cost more. It is assumed Per Per Per Per Average Capita Driver Vehicle Insured Premium Rank here that the premium rollbacks can be supported by cost savings, BC $883 $1,059 $1,245 $1,100 $1,038 1 something claimed by every ON $729 $832 $1,019 $1,041 $864 2 government contemplating such MB $736 $924 $1,041 $818 $863 3 changes. AB $812 $866 $861 $882 $850 4 NB $727 $836 $958 $942 $838 5 For now, this Alert simply presents SK $736 $850 $818 $696 $781 6 the basic facts on average premi- PQ $603 $796 $853 $1,023 $779 7 ums by province, leaving a discus- NS $567 $702 $798 $814 $692 8 sion about explanations for the NF $495 $638 $826 $870 $661 9 relative levels to future research. PEI $580 $592 $819 $736 $650 10 However, we do answer one ques- Quebec $779 tion here: Why is it that the con- Public ex Quebec $974 clusions of this Alert are so at vari- Private ex Quebec $847 ance with received opinion? Note: Per capita is age 16+; Policy is either insured vehicle or car-year equivalent; Constant $2003 Source: IBC, ICBC, SGI, MPI, SAAQ, IGIF, OSFI, author’s calculations

2 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 3 province (rated a 1) to cheapest to limited availability of insured percent more. As a whole, these (rated a 10).5 drivers or vehicles data by prov- provinces count over 600,000 more ince. The public insurance policy policies than registered vehicles. In terms of data reliability, the per numbers are particularly puzzling, capita calculation is the most solid. Some suggest that this is explained as all three western provinces self- Licensed driver and registered by excessively high out-of-province report many more insured vehicles vehicle numbers are next most reli- commercial fleet policies written in than registered vehicles: MPI has able, based upon provincial data these provinces. However, a look at 27 percent more insured than reg- for drivers and a central Statistics the proportion of total commercial istered, SGI has 18 percent more, Canada database for vehicles. policies written in the provinces and ICBC has 13 percent more. with private insurance and Mani- The insured vehicle or policy num- PEI also has a high proportion of toba (the only public insurance bers are much less reliable, owing insured to registered vehicles: 11 province with sufficiently detailed data) shows that commercial pre- mium proportions and growth Table 2: Estimated Premium Levels by Province – 2003 rates are actually lower in the Per Per Per Per Average province with public insurance. Capita Driver Vehicle Insured Premium Rank There are two key conclusions to BC $900 $1,081 $1,271 $1,123 $1,059 1 draw from the tables. ON $770 $878 $1,075 $1,098 $911 2 NB $780 $887 $1,016 $1,000 $892 3 First, premiums are rising this year AB $857 $905 $899 $921 $891 4 for every province. This trend will MB $751 $925 $1,042 $818 $869 5 be arrested only in private sector PQ $621 $812 $870 $1,044 $797 6 provinces in 2004, with legislated SK $745 $857 $825 $702 $789 7 premium freezes and rollbacks, NS $607 $747 $849 $866 $737 8 taking their combined average pre- NF $532 $679 $879 $926 $705 9 PEI $616 $630 $873 $785 $692 10 mium level back to 2001 levels. All of the public insurers will be more Quebec $797 expensive next year. Public ex Quebec $991 Private ex Quebec $893 Second, BC is always the most Note: Per capita is age 16+; Policy is either insured vehicle or car-year equivalent; Constant expensive province in which to in- $2003 sure an automobile, and PEI, New- Source: IBC, ICBC, SGI, MPI, SAAQ, IGIF, OSFI, author’s calculations foundland and Labrador, and Nova Scotia are always the cheapest. Alberta will stay in the top tier and Table 3: Projected Premium Levels by Province – 2004 will move from Per Per Per Per Average relatively expensive to relatively Capita Driver Vehicle Insured Premium Rank inexpensive next year. The oppo- site will occur for Saskatchewan BC $906 $1,091 $1,282 $1,133 $1,068 1 MB $790 $956 $1,077 $846 $902 2 and Quebec. Manitoba will become AB $826 $862 $856 $878 $852 3 the second most expensive prov- PQ $648 $841 $901 $1,081 $827 4 ince and Ontario will move down SK $766 $877 $844 $718 $808 5 to mid-pack with a lower average ON $666 $757 $928 $948 $787 6 premium. NB $609 $682 $781 $769 $689 7 NF $523 $661 $855 $901 $687 8 The remainder of the paper discusses NS $472 $577 $655 $668 $570 9 how the premium estimates are PEI $475 $495 $685 $616 $540 10 calculated and compares the results Quebec $827 to other studies and other premium Public ex Quebec $1,005 measures. The technical details may Private ex Quebec $783 be of less interest to the general Note: Per capita is age 16+; Policy is either insured vehicle or car-year equivalent; Constant reader. $2003 Source: IBC, ICBC, SGI, MPI, SAAQ, IGIF, OSFI, author’s calculations

2 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 3 Methodology plate revenues from the Société de published for ICBC and SAAQ—but l’assurance automobile du Québec it is not possible to find the in- This Alert calculates average premi- (SAAQ) and private sector premi- formation for either SGI or MPI in ums by province by estimating to- ums tallied by the provincial regu- their various reports or in provin- tal earned premiums (those attrib- latory body, l’inspecteur général cial public accounts or web-based uted to insurance services within des institutions financiers (IGIF). health ministry documents. Health a given year) and then dividing by levy payments for Saskatchewan Premiums for the other provinces several relevant divisors: numbers or Manitoba may occur—but if were obtained from the Insur- of registered vehicles, population such payments are not part of ance Bureau of Canada (IBC). They of driving age, numbers of licensed their operating activities, then include private passenger totals, drivers, and numbers of insured their premiums are understated in commercial vehicles, motorcycles, vehicles or policies. The resulting this Alert. rates are scaled to constant prices and miscellaneous premiums for using provincial consumer price all classes of vehicles. Third, private sector insurers are deflators. expected to hold reserves against Hidden Public Subsidies insolvency and other financial All of the divisors have problems— risks. The federal Office of the Su- owing mostly to data quality—but The public auto insurance mono- perintendent of Financial Institu- an average of the results, and or- polies have several hidden cost tions (OSFI) sets minimum capital dinal rankings by province, should advantages. requirements that must be adhered reduce the degree of inaccuracy in First, the institutions, as crown to at all times. The four public the estimated premiums. It should corporations, do not pay most tax- insurers are well below these lev- be noted that the resulting average es. This cost advantage means that els, and so taxpayers at large are is dimensionless, as it is calculated taxpayers elsewhere in the pro- bearing insurance risk that appro- over different types of divisors. vincial economy are paying higher priately belongs in the premium Total earned premiums are ad- taxes to compensate for this lost structure. justed for various factors in several revenue. The main exception is the I have raised the public insurers’ provinces. premium tax, levelled at rates be- premiums by the cost of meeting tween 3 percent and 5 percent by The BC numbers exclude the cost these capital requirements. The province. that ICBC incurs for non-insurance cost is calculated using the re- operating services, mostly due to I have added the cost of taxes serves required to match the aver- licensing and compliance. BC pre- (excluding premium tax) to total age for the entire Canadian proper- miums include the private sector premiums for the public insurers ty and casualty insurance industry, optional market, estimated from using rates outlined in Chen and presently just over 12 percent of rate filing submissions that declare Mintz (2003). This likely under- total assets. Actual public insurer an 87 percent market share for states the tax subsidy, as their reserves are subtracted from these ICBC.6 study excluded payroll and prop- required reserves, and the cost of erty taxes. The tax rates are also holding the inadequate reserves Saskatchewan premiums include somewhat lower than those found is the deficient amount times the both Saskatchewan Auto Fund by the Council of Atlantic Premiers cost of capital. (basic insurance) and SGI Canada (2003) for the Atlantic provinces extension auto insurance policies. That cost of capital is a weighted and the IBC (2003) for Canada as a An estimate of the private sector average of debt and equity returns. whole. optional market was unavailable The debt portion is based on an- there and this information gap will Second, there is a potential subsidy nually averaged ten-year Canada understate average premiums in item specific to Saskatchewan and bond yields and the equity portion that province. The Manitoba num- Manitoba. Private insurers pay is that yield plus a beta-adjusted bers suffer from the same absence health levies to provincial govern- equity premium (beta equal to 1.2 of private sector optional market ments to compensate for the costs times and the equity premium estimates and are also therefore of vehicle collisions in the public set at 4.5 percent). The weights understated. health system. These are typically are based on the present industry in excess of 3 percent of total pre- average debt-equity ratio of just Quebec premiums are a combina- miums by province. These costs are under 50 percent.7 tion of driver licence and vehicle

4 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 5 Financial reserve subsidies are “Public insurer reserve ratios are less than half of the calculated based on liabilities that private sector average level, indicating that the grow near 5.5 percent annually, a conservative assumption based government bodies are not held to the same standard on recent experience. Projected reserves are generated from rate as private sector companies.” filing information in BC, Sas- katchewan, and Manitoba. SAAQ reserves are assumed to remain Public insurer reserve ratios are Premiums for the private sector unchanged in nominal terms, a less than half of the private sec- provinces use first half 2003 an- conservative assumption consider- tor average level, indicating that nualized results for the industry ing the deteriorating reserve posi- the government bodies are not to calculate an average annual tion there. held to the same standard as pri- growth rate of almost 11 percent. vate sector companies. Some say Average premiums in 2004 are Why Do Other Premium that government backing justifies rolled back according to estimates Sources Differ? them maintaining these inad- of proportional savings from leg- equate safety margins—against islative changes available from Statistics Canada this notion is the fact that many public sources. Ontario premiums Auto premium prices are published international private insurers are are expected to drop by 10 per- by Statistics Canada. They are even larger than provincial gov- cent, New Brunswick’s and Nova consumer prices, based on a fixed ernments and may have greater Scotia’s by 20 percent each, PEI’s weight basket of expenditures and financial stability. by 19 percent, and Alberta’s and collected for specific models of au- Newfoundland and Labrador’s are Looking at the separate public in- tomobiles over time. This may not expected to remain frozen at exist- surers, one sees that both Quebec be an accurate reflection of aver- ing levels. and Manitoba have deteriorating age premiums because vehicle and reserve positions, with reserve Premiums are projected for public driver characteristics vary so wide- ratios falling every year since insurance provinces based on vari- ly and are not directly measured. 1999 and 2000, respectively. As ous sources. ICBC premiums are By comparison, the premiums well, on a forward-looking basis as projected using basic insurance from this Alert shown in Charts 1 discussed below, public sector re- and non-insurance operating cost through 10 are a combination of serves are likely to improve much information in the organization’s consumer and commercial market less than in the private sector. 2004 rate application to the pro- prices (though typically with over vincial regulator. SGI premiums 85 percent of premiums spent on Projecting Premiums increase by 4.4 percent per year, private passenger vehicles) and are equal to the five- and ten-year av- Average premiums are estimated averaged across the entire insur- erage growth rates excluding pre- ance market. and projected for each province for mium increases. MPI basic autopac 2003 and 2004. premiums grow according to rate The charts compare the relative The divisors for numbers of regis- submission information given to price of automobile insurance for tered vehicles, numbers of licensed the Public Utilities Board regula- specific models in each province drivers, and numbers of insured tor and extension premiums are (the premium index divided by vehicles or policies use three-year assumed to increase according to overall provincial consumer prices) average growth rates for the pro- historical market shares. Quebec’s with the average premium per reg- jection. Population of driving age SAAQ and private market premi- istered vehicle in constant dollars. is more stable year-to-year and so ums are assumed to grow at their These two concepts should theo- last year’s growth rate is used for three-year average growth rates. retically correlate well over time. the projection. Inflation for 2003 Tax rates are assumed constant in The charts show that this is not uses the Canadian annualized av- the projection, though part of next necessarily so. Relative CPI prices erage to September, the latest data year’s premium increase in BC is are habitually underestimating av- release, and an assumed rate of 1.5 a rise in the premium tax there. erage vehicle premiums over time, percent for 2004.

4 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 5 Charts 1-10: Premiums by Province

Alberta Premiums BC Premiums Manitoba Premiums 130 120 120 120 110 110 110 100 100 100 90 90 90 80 80 80 70 70 Year 2000 = 100 = 2000 Year Year 2000 = 100 = 2000 Year 70 100 = 2000 Year Per vehicle Per vehicle Per vehicle 60 60 Relative CPI 60 Relative CPI Relative CPI 50 50 50 40 40 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 40 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Newfoundland Premiums New Brunswick Premiums Nova Scotia Premiums 140 140 140

130 130 130

120 120 120

110 110 110

100 100 100

90 90 90

80 80 80 Year 2000 = 100 = 2000 Year Year 2000 = 100 = 2000 Year Year 2000 = 100 = 2000 Year 70 70 70 Per vehicle 60 Per vehicle Per vehicle Relative CPI 60 60 Relative CPI Relative CPI 50 50 50 40 40 40 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

PEI Premiums Ontario Premiums Quebec Premiums 130 130 140

120 120 130 120 110 110 110 100 100 100 90 90 90 80 80 80 Year 2000 = 100 = 2000 Year Year 2000 = 100 = 2000 Year Year 2000 = 100 = 2000 Year 70 70 70 Per vehicle Per vehicle 60 60 60 Per vehicle Relative CPI Relative CPI 50 Relative CPI 50 50 40 40 40 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Saskatchewan Premiums 130

120

110

100

90

80

Year 2000 = 100 = 2000 Year 70

60 Per vehicle 50 Relative CPI

40 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

6 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 7 except for Ontario where the oppo- table, not total system premiums. placing the 4.4 million persons in site is true. As well, price changes Second, premiums for Ontario, Toronto on an even footing with in 2001 were underestimated in Nova Scotia, and Newfoundland the 103,000 residents in Thunder all provinces—and then those for and Labrador are higher than Bay in the same province, or the 2002 were dramatically overesti- the totals in this Alert. Third, as 7,800 people in Lloydminster, Sas- mated for Alberta, Quebec, and the discussed above, the numbers of katchewan. Further, the rates are Atlantic provinces. The CPI indices insured vehicles are greater than quoted, not transactional, and may for Saskatchewan and Quebec those registered for BC, Saskatch- not therefore represent true mar- indicate a drop in relative prices ewan, and Manitoba. Fourth, the ket conditions. Finally, fully half over time, while average vehicle numbers of insured vehicles for of the hypothetical drivers are in premiums have actually increased the private sector provinces seem higher risk classes—a grossly dis- somewhat. to be those for private passenger proportionate number. The higher vehicles only. All of these factors premiums appropriately charged It appears that using representa- overestimate private sector prov- such drivers in private sector prov- tive model prices, rather than ince average premiums and under- inces biases their averages higher average prices, produces these estimate public insurance province under this methodology. differences. Another factor may be average premiums. expenditure shifts, as consumers Second, the sample is not at all opt for different amounts of op- Consumers’ Association of Canada representative. Thirty-four driver tional coverage or upgrade to ve- classes, with specific age, gender, Probably the worst example of hicles with higher insurance costs driver record, driver experience, inappropriate statistical usage over time. vehicle year, vehicle make and comes from the CAC. Their latest model, and vehicle use character- Council of Atlantic Premiers report purports to show that aver- istics cannot possibly reflect the age premiums in the private sector The Council of Atlantic Premiers insurance holders of an entire city provinces, with the exception of released a report in September that or province. Exactly half of the PEI, vary between nearly $1,800 recommended against introducing driver classes indicate past claims and $2,500 (for Ontario), while the public insurance in that region.8 or convictions, well above the public insurers vary between $800 Graph 15 of that report is a table of driver population share as a whole. and $1,100. Premiums in Toronto earned premiums per insured vehi- Using Ontario as an example, at (the costliest city in the report) cle. It purports to show that public most only 11 percent of drivers are seen to be almost four times insurance premiums are $522 (in- would be represented in these higher than those in Brandon (the cluding $38 in government costs) driver classes, assuming that every cheapest city).9 in BC, $549 in Quebec, $566 in Sas- driver of the same age, gender, and katchewan, and $721 in Manitoba. The study uses 10 rate quotes for collision probability is included. Private sector province premiums 34 driver classes in 24 private sec- Of course, only a very few drivers range from $731 in PEI at the bot- tor province cities and one quote with these attributes drive the tom end to $1,027 in Ontario at for each driver class in 17 public same vehicle or have the same ex- the top end. Thus, all public insur- sector cities. A quick calculation perience or vehicle uses. ance provinces are cheaper than yields over 8,700 quotes, not 7,000 Finally, an average premium of the private sector ones, and BC is as claimed in the report, but that is just over $2,500 in Ontario would the cheapest of all. a minor criticism compared to the imply total premiums there of over rest of the methodology. Although there is a caveat to the $16 billion—more than the Cana- table, noting that the western There are two serious analytical dian total—or a number for insur- public insurance province numbers mistakes in this and earlier CAC ance policies that keeps one-third could not be independently vali- premium reports. of vehicles idle in the province. dated, it does leave a completely First, averages purport to rep- Neither of these implied conclu- contrary impression to this Alert. resent total provincial and city sions is anywhere close to being There are several reasons for this results, while really just averag- reasonable. result. ing a few rate quotes for a limited The CAC results should not be number of driver classes. The First, BC and Quebec use only pri- quoted beyond their very limited averages are equally weighted, vate passenger premiums in the result of reflecting quotes for a

6 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 7 small subset of hypothetical driver tration fees and licenses. It seems Notes classes. They do not measure aver- that the premium estimates here age premiums in any valid sense are close to those from a limited 1 The CAC numbers were used in NDP election campaign literature in the recent Ontario beyond that. survey of household expenditures. election and were quoted by Lawrence Solo- mon in a Financial Post opinion/editorial on The second comparison is with US October 8, 2003. A table of CAC estimates of Additional Comparisons average consumer expenditures on average provincial premiums appeared most recently in a Globe and Mail article on October As a crosscheck on the work in this auto insurance, available from the 24, 2003. Insurance Information Institute. Alert, premium rates from two oth- 2 See “Public Auto Insurance: A Mortality er official sources were examined. Canadian average earned premi- Warning for Motorists,” Fraser Institute, ums in current prices from this September 2003. The Canadian Survey of Household Alert were $837 in 2002 and are 3 For example, the Insurance Council of Spending (SHS) in 1999 shows the estimated to be $896 in 2003. Us- Canada (now Insurance Bureau of Canada) proportion of household spending ing Statistics Canada’s purchasing was prevented by the Freedom of Informa- on premiums, tion Commissioner for reasons related to power deflator for personal con- “trade secrets” from obtaining information registration fees, and licences by sumption puts these premiums at on insured vehicles, premiums, and claims in province. Total 1999 provincial pre- British Columbia in 1999. Kroll (2000), a study US$712 and US$762, respectively. sponsored by the Joint Committee of the Law miums for private passenger vehi- Society of Saskatchewan and the Canadian cles in this Alert have been scaled By comparison, the average US Bar Association, Saskatchewan Branch, noted by household income and are com- written premiums in those years that “we were denied access to all but certain are US$781 and US$847, respec- public information relating to SGI Canada for pared against the SHS proportions reasons given that included keeping competi- in Chart 11.10 tively, roughly 9 percent more. tive sensitive information confidential.” Since Canadian written premiums There is a reasonable correspond- 4 The Quebec situation is somewhat differ- are 5 percent higher than earned ent, with the government-owned Société de ence between the two measures. premiums, the gap is only 4 per- l’assurance automobile du Québec (SAAQ) The notable exceptions are Sas- comprising approximately 20 percent of the cent in each year. The close cor- provincial auto insurance market. katchewan (where the private respondence for average premiums passenger market share assump- 5 The average uses half weightings for vehicle in each country, both generated premiums and insured vehicle premiums tion may be inaccurate), PEI, and mostly by market forces, suggests because they essentially measure the same Newfoundland and Labrador. Part that the estimates here are likely variable. of the gap for the latter two can be accurate. 6 See ICBC 2004 Rates Application. accounted for in the unmeasured 7 See Morin for derivations of various regula- cost of government-provided regis- tory costs of capital and Booth (2001) for an estimate of the appropriate equity risk premium. The beta estimate and debt-equity ratio were taken from the current average for Chart 11 American publicly-listed property and casu- alty insurers. Household Spending on Premiums, 1999 8 See CAP (2003). 3.6% 9 See Globe and Mail, “Auto Relief Too Little, Too Late?”, October 24, 2003 and CAC (2003). 3.4% 10 Such premiums are assumed to be 85 percent 3.2% of total premiums in BC, Saskatchewan, and Manitoba, owing to absence of publicly avail- able information in those provinces. 3.0%

2.8%

2.6%

2.4% Private Passenger Vehicles 2.2% Survey of Household Spending

2.0% BC AB SK MB ON PQ NB NS PEI NF

8 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 9 References

Chen, D. and Mintz, J. (2003). “A Comparison Consumers’ Association of Canada (2003). Insurance Corporation of British Columbia Chen, D. and Mintz, J. (2003). “A Comparison “Review of Automobile Insurance Rates: 40 (2003). “An Application by the Insurance Between Property and Casualty Insurance Canadian Cities 10 Provinces.” (September) Corporation of British Columbia for Approval Taxation in Canada and other G-8 Countries.” Consumers’ Association of Canada Auto of 2003 Revenue Requirements for Universal Tax Notes International. (July 7, 2003) 47-67. Insurance Rates Study. Compulsory Automobile Insurance.” (August 29) Insurance Corporation of British Columbia. Mullins, M. (2003). “Public Auto Insurance: Booth, L. (2001). “Equity Market Risk Premiums [Online] Available: http://www.icbc.com/ A Mortality Warning for Motorists.” Fraser in the US and Canada.”[Online] Available: Inside_ICBC/ICBC%202004%20Rates%20Applic Alert (September) [Online] Available: http: http://www.rotman.utoronto.ca/~booth/ ation.pdf, October 30, 2003. //www.fraserinstitute.ca/admin/books/files/ CIR%20paper.PDF, October 30, 2003. auto-insur.pdf, October 30, 2003. Morin, R.A. (2003) “Rate of Return—Capital Insurance Bureau of Canada (2002). “Facts of the Structure.” Board of Commissioners of th General Insurance Industry in Canada.” 28 Public Utilities. [Online] Available: http: Edition. Insurance Bureau of Canada. //pub.colabnet.com/nfpower03/Exhibits/RAM- Kroll Lindquest Avey, Kalesnikoff Martens 11.pdf, October 30, 2003. Want to Know More? Chartered Accountants and Associated Office of the Superintendent of Financial Economic Consultants Ltd.. (2000) “A Study of Institutions (2003). “Report on the Property Other relevant resources: the Automobile Insurance System (No-Fault) in and Casualty (P&C) Insurance Industry in Saskatchewan.” (August). [Online] Available: Canada.” (September). Government of Canada. • www.ibc.ca http://www.lawsociety.sk.ca/NoFault/intro.pdf, [Online] Available: http://www.osfi-bsif.gc.ca/ October 30, 2003. eng/documents/osfireports/docs/Report_on_ • www.ontarioinsurance.com Atlantic Insurance Harmonization Task Force PC_Industry_e.pdf, October 30, 2003. • www.insurance-canada.ca (2003). “Report to the Atlantic Premiers.” Parker Centre for Investment Research (1999). (September). The Council of Atlantic Premiers “Using Target Return on Equity and Cost of • www.fraserinstitute.ca [Online] Available: http://www.cmp.ca/default. Equity” (May). Cornell University. [Online] asp?mn=1.62.24.38, October 30, 2003. Available: http://parkercenter.johnson.cornell. edu/tools/basic/roe_coe.pdf, October 30, 2003.

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8 Fraser Alert Two hundred bucks more: The premium cost of public auto insurance 9