Tuesday, 4 September 2012

Is Ontario Ready For Public Auto Insurance?

I was pretty surprised when I saw Toronto Sun columnist Alan Shanoff propose that Ontario consider public auto insurance in his column on September 1, 2012. There have been similar columns over the years since Bob Rae tried to introduce such a system after his election win in 1990. However, they have never appeared in the Toronto Sun which has always criticized big government and shown a strong preference to private enterprise over government bureaucracy. After all, if the government can't properly regulated the price of auto insurance, will it be more successful at delivering the product?

So has the Ontario auto insurance system fallen to such a low level of disrepute that the Sun is calling for public auto?

I happen to have a lot of interest in the topic having worked on the public auto insurance project until Bob Rae pulled the plug on it in 1991. Those auto insurance reforms continued and concluded with the passage of the ill-conceived Bill 164.

Shanoff points to the success of government-run systems in British Columbia, Saskatchewan, Manitoba and Quebec. It's true that drivers in those provinces are not lobbying to return to private-delivered insurance. For the most part premiums have been stable in those jurisdictions while in Ontario we seem to go through a cycle of rising rates every 5 years or so.

I personally believe government-run auto insurance could succeed in Ontario - under the right circumstances. However, it is also possible that public auto insurance could fail to deliver lower rates or a fairer system. The Workplace Safety and Insurance Board (WSIB) is not a shining example of a stable government-run insurance system. That system has undergone benefit cuts and underfunding for the past two decades. Would a public insurer be more like the SAAQ in Quebec or the WSIB in Ontario?

Shanoff points to the presentation made by Howard Pawley, former premier of Manitoba, to Ontario’s Standing Committee on Finance and Economic Affairs in July. According to Pawley, “administrative costs of public plans avoids costly administrative duplication and are only one half as much as those incurred by private insurance companies.” That also happens to be one of the advantages our OHIP system has when compared to private health insurance in the U.S. - i.e., lower administrative costs.

Ontario auto insurance companies collect about $10 billion in premiums annually. If administrative savings could reduce costs by just 5% that could translate into an overall saving of $500 million. If a government-run insurer could take advantage of such things as preferred providers and beter control over health care pricing, as is the case with the WSIB, there could be additional savings. Other savings could be achieved by integrating vehicle registration and auto insurance renewals. Perhaps higher benefit levels could be restored.

I don't see government-run auto insurance happening in Ontario. Too much strong opposition from interest groups and other more important priorities for the government. But more than a few people must be wondering what would have happened if Bob Rae had gone forward with his public auto insurance initiative.


  1. Mr. Handler it's a question on everyone's mind! Public vs Private? "We" are taught from a young age, "if it's broken, fix it." The private sector isn't showing it can be fixed. When "We" can't fix it, "We" has humans, replace it! Is it about time that happens to auto insurance before more legitimate claimants just sucked into the insurance void?!

  2. I don't think public auto insurance is necessarily a panacea. The Ontario auto insurance is very complex with very entrenched stakeholders and introducing a government-run system may not fix it either. Anyway a public system is not an option at the moment with a $11 billion provincial budget deficit. The capital necessary to create a government-run system isn't available without putting the province deeper in debt. However, I do believe that a public system can bring about marketplace efficiencies that can't be possible under the current system.


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