Canada on auto insurance

How Insurance Works
While it may seem complex, insurance is really quite simple: The payments (or premiums) of the many pay for the losses of a few. Your premiums go into a large pool, if you will, at your insurance company. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims – even large single claims like when someone is permanently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster. (The 1998 ice storm that hit parts of Ontario, Quebec and New Brunswick resulted in an estimated 700,000 claims for damage totalling $1.4 billion.) However, large disasters (such as the ice storm) do come close to emptying the pool.
Insurance for insurance companies
Even when the pool comes close to emptying, there is another pool from which insurance companies can draw to pay claims. Some of your premiums are used by your insurance company to buy reinsurance – insurance for insurance companies. Sometimes losses are so big – like those resulting from an earthquake – that there is no way that an insurance company can cover the costs. Reinsurance is an extra layer of protection against large losses.
Annual replenishing
Your insurance is an annual contract, so the pool operates for only one year at a time. Your premiums and the premiums of others are based on how much money the insurance companies think they will need to pay the coming year’s claims. Your premiums do not build up over the years – unlike the premiums for some types of life insurance.
How premiums are calculated
Within reasonable limits, some of which are prescribed by law, your premium is calculated to reflect the probability that you will make a claim – that is, that you will draw funds from the insurance pool. Those who are unlikely to draw from the pool pay less than those who are more likely to draw from it.
Insurers take many factors into consideration to determine the likelihood that you will make a claim. A common misconception is that a policyholder who has never made a claim should pay less, little or nothing for insurance. While it is true that past claims history is important, a more reliable indicator of how likely a person or business is to make a claim is the statistical group to which he/she/it belongs.
Industry earnings
Insurance companies generally do not make money on the premiums gathered from policyholders. In 2005, insurance companies paid more than $21 billion in claims while taking in $35 billion in premiums. The difference between the premiums and claims, in this case $14 billion, is used by the companies to pay salaries and taxes ($6.2 billion in 2005), and to cover the overhead costs (such as electricity bills) of running a business. It is also used to pay the administrative costs of settling a claim.
Insurance pays for …
Insurance pays for only those types of losses described in your contract. It is very important that you read your policy and/or talk to your insurance representative about what you are covered for and what you’re not. Insurance will not pay for every problem that you may encounter, nor is it a maintenance contract. Insurance is generally intended – and priced accordingly – to help policyholders cope with the financial consequences of unpredictable events that are "sudden and accidental." If, for example, you live on a floodplain by a river, flooding of your property in the spring is not sudden or accidental; it is inevitable and, therefore, uninsurable.


What My Insurance Company Does With My Premiums
There are some common and persistent misconceptions about what insurance companies do with the money they collect from you and every other policyholder. Some people think it sits in the bank until someone makes a claim. Not true. Others believe that premiums go to pay for claims that have already happened. Not true either.
Your premium dollar travels a long and winding road, but, in the end, most of it goes to assist consumers in one way or another. For example, if you suffer a loss, a portion of your premium dollar and those of several other policyholders finds its way back to you, to help you recover.
For the record, this is what happens to your premiums:
In the insurance system, money is always moving. On a daily basis, there are claims to be settled, taxes to be paid and other costs related to running a business (paying salaries, buying equipment, paying rent, etc.). Some money is always set aside so that the company can respond quickly to catastrophes, when a large number of claims will have to be paid in a short period of time. This is called a reserve.
Any money that is not needed for day-to-day expenses or reserves is usually invested by insurers.
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Here are a few things you should know about insurers’ investments:
Contrary to what some people think, insurers have never had a year when they lost money on investments. Some years are better than others, but the industry has always generated positive investment returns.
Insurers are among the most careful investors in the country. On average, approximately three quarters of their investments are in government bonds.
In order to make sure that insurers are able to pay claims, the federal government monitors the industry’s investments to make certain that they are low-risk.
Insurers strive to maintain a portfolio that allows for quick liquidation of investments to pay claims.
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Insurance Myths
(Click on the arrows to find the truth.)
Car Insurance
MYTH: When I’m injured in a car accident, all my medical expenses are paid for by my government provincial health plan.
FACT: Car insurers pay out more for medical rehabilitation costs in Canada than do government health insurance plans, workers’ compensation plans or private health care plans combined.
Helping you return to health if you are in a car collision is one of the most important things car insurers do. Every year, car insurers pay at least $2 billion for the medical rehabilitation of injured Canadians. Insurers pay in three ways:
Through the Accident Benefits portion of car insurance policies. Accident benefits (or no-fault benefits) are paid directly to a person injured in a car collision, regardless of who caused the injuries.
Through the tort system. If you're in an accident that was caused by someone else and your medical and other needs are more than what is covered by the Accident Benefits portion of your policy (the amount of coverage differs from province to province), you may be able to sue the at-fault driver for the additional costs. The insurer of the at-fault driver pays for what you receive as a result of your court case.
Through health care levies. Often, medical costs resulting from car accidents are paid through government health care plans rather than car insurance policies. But car insurers pay governments back for these costs through provincial health care levies. In total, Canadian car insurers paid about $200 million in health care levies last year.
MYTH: If I’m in a car collision (in NB, NS, PEI), for all that I have to go through all I get is $2,500.
FACT: This cap on court awards for pain and suffering continues to cause some confusion. Here are the facts:
The cap does NOT apply to payments made by your own insurance company (regardless of who caused the accident) for medical treatment of your injuries or for lost income if you miss work.
The cap does NOT apply to awards for medical and/or other economic losses that you might recover in court if you sue the at-fault driver.
The cap applies ONLY to awards for pain and suffering, and only if the injury is minor. Pain and suffering awards compensate you for any loss of enjoyment of life you may have suffered because of your injuries. Minor injuries are those that will not have a serious effect on your life, such as neck or back pain that doesn’t linger too long.
So, to sum up, the cap would not necessarily apply if you were in a car accident and it would not limit what you would receive to help you heal from your injuries.
MYTH: No-fault insurance eliminates responsibility and fosters bad driving.
FACT: No-fault insurance is a system in which those injured in a car accident receive compensation and benefits from their own insurance company, regardless of fault. It is designed to reduce the delays of an adversarial legal (or “tort”) system and provide treatment and benefits to injured victims as quickly as possible. Most provinces in Canada have some form of no-fault accident benefits that are paid to all accident victims. The difference is the degree to which tort (the right to sue) or no-fault (access to accident benefits) is emphasized. For example, Quebec has a pure no-fault system that eliminates the right to sue, but provides substantial accident benefits. Ontario has a “hybrid” system, which blends no-fault and tort.
No-fault insurance does not mean that drivers are never at fault in accidents. There are still fault-based rules of the road, which are enforced by police. If you are at-fault in an accident, your insurance premiums will be affected and, depending on the nature of the accident, you may be charged with an offence. These offences are governed by either provincial motor vehicle legislation, or federal legislation, such as the Criminal Code of Canada.
There is no evidence that no-fault insurance leads to increased numbers of accidents or fatalities/injuries. While some argue that a tort system provides a deterrent against poor driving behaviour, there is no correlation between the type of insurance system and the road safety record of the jurisdiction. Ontario, Quebec, Saskatchewan and Manitoba all have either pure or hybrid no-fault insurance systems. Ontario has one of the best road safety records in North America. British Columbia, Alberta and the Atlantic provinces have tort-based systems. BC has consistently had one of the highest incidences of highway injuries and fatalities of any province in Canada.
MYTH: No-fault insurance treats injured victims unfairly.
FACT: There are trade-offs in any system of auto insurance among rates, claims costs, the right to sue and access to medical treatment. There are also strengths and weaknesses in any auto insurance model. In no-fault insurance systems, the objective is to provide money and treatment to injured victims as quickly as possible. Once an injury is diagnosed, victims receive benefits and treatment paid for by their insurance company.
No-fault insurance usually places restrictions on an individual’s right to sue. In several no-fault provinces, people injured in car collisions by an at-fault party can sue only in specific circumstances, typically those involving serious injury. This restriction is balanced with quick access to medical treatments and benefits.
MYTH: Insurance companies are the only ones who pay for high or excessive legal settlements.
FACT: Insurance companies collect premiums from consumers and use these funds to pay for claims. Money to pay for large legal settlements comes directly from these funds, or in other words, directly from the pockets of each and every policyholder. If claims costs increase, insurers adjust premiums to keep pace.
Until limits were put in place recently, pain and suffering awards for minor injuries, such as sore necks or backs, exceeded $20,000 in many tort-based provinces. This may have benefited a few claimants, but it cost the majority of policyholders in the form of higher premiums.
MYTH: No-fault insurance will increase your premiums.
FACT: There is no evidence that no-fault insurance is more costly to consumers; there is no conclusive proof that insurance rates are less expensive in a tort-based system. Insurance premiums are a reflection of a number of different factors, including driver’s experience, driving record, and geographic location, to name a few. Insurance companies use these factors and deductible levels selection to determine the appropriate premium for the coverage. Comparisons of premiums in tort and no-fault systems across different provinces and cities in Canada are often misleading because they don’t take into account factors such as where a driver lives, levels of coverage, driving experience and driving record.
MYTH: Most provinces that have experimented with no-fault insurance have repealed it and reintroduced tort-based systems.
FACT: In Canada, Quebec, Saskatchewan and Manitoba have the “purest” no-fault auto insurance systems. Quebec’s no-fault system was introduced in 1978, with Manitoba following in 1994 and Saskatchewan in 1995. (In 2003, Saskatchewan introduced an option for persons in the province to recover as though within a tort system. A very small number have requested that option.) In 1990, Ontario introduced a no-fault insurance system that is a “hybrid” system that blends no-fault insurance with the legal right to sue in certain circumstances. All of these provinces have retained strong, no-fault characteristics in their insurance systems.
MYTH: Insurance companies keep changing the rules on what's covered and what isn’t.
FACT: The business of car insurance is actually highly regulated by provincial governments, who set the minimum coverage levels. Governments also keep tabs on how much insurance companies charge for their products. Insurance companies can change neither the basic coverage nor premiums without government approval.
MYTH: Being caught without a seatbelt doesn’t make me a dangerous driver, so my insurance premiums shouldn’t go up.
FACT: It may be true that you do not pose a danger to other drivers when you don’t wear a seatbelt, but you do pose a serious hazard to yourself. If you are in a collision and you are not wearing a seatbelt, you are much more likely to be injured. For example, think of the difference between the whiplash injuries you may experience if you are wearing a seatbelt during a collision and the more serious injuries you might sustain if you are not wearing a seatbelt and get thrown out of a flipped car or go through the windshield.
When you are injured in a car crash, it is your insurance company that pays your medical expenses. The cost of the rehabilitative care for a whiplash-type injury is lower than the cost of treatment for injuries sustained as a result of getting thrown out of a car during a collision. Therefore, if you do not wear a seatbelt you are a greater risk to your insurance company because you are more likely to submit high-cost claims. This is why insurance premiums may increase when you are convicted of driving without a seatbelt.
As far as your insurer is concerned, driving without a seatbelt does make you a more dangerous driver.
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Government-run Auto Insurance
MYTH: Government-run insurance would be "driver-owned."
FACT: Government-run auto insurance is often referred to as “driver-owned” auto insurance. A truly “driver-owned” auto insurance company would sell shares, have open elections for its board of directors and have annual general meetings. This does not happen with the existing “driver-owned” auto insurance systems in BC, Manitoba and Saskatchewan.
Truly “driver-owned” auto insurance companies already exist within the private sector. Mutual insurance companies are owned by their policyholders. If, at the end of a fiscal year, the mutual insurance company has a profit, the profit is shared among the policyholders. Conversely, if a mutual insurance company suffers a loss, there are provisions for all policyholders to be assessed a levy to make up for this shortfall.
MYTH: Government-run auto insurance systems provide the lowest rates for drivers.
FACT: Insurers provide car insurance within a strict framework of provincial laws and, because of that, insurance systems cost what they cost whether they are owned by government or the private sector.
Premiums in provinces where insurance is delivered by private companies are competitive with premiums in those provinces that have government-run auto insurance systems. However, when it comes to what consumers get for those premiums, the people in the privately run insurance systems are better protected with richer benefits and higher claims payouts.
Government insurers also change rating territories as a way of increasing rates for consumers without applying for a rate increase. Rating territories have been changed in BC frequently in recent years. In November 2002, ICBC made a number of dramatic changes to its rating territories and moved thousands of motorists into higher-priced territories. This resulted in these motorists’ rates increasing dramatically, some by as much as 30%. These are the kind of backdoor rate increases given to the public by government-run auto insurers who have had their “front-door” rate increases capped or limited by regulations or the politics of an election campaign.
MYTH: Government-run auto insurance systems provide the most generous benefits for consumers.
FACT: In all cases, benefits paid by private insurers are richer than those offered by government-run insurers. For example, in the no-fault system in Manitoba, an accident victim who is catastrophically injured has no right to sue for economic loss that exceeds the maximum pre-set payments. The average claim paid in Ontario is nearly $9,000 but in BC the average is only about $2,400. That’s a huge disparity that shows that in Ontario, you get a lot more for your insurance dollar.
MYTH: Government insurers operate more efficiently. They have lower operational expenses.
FACT: The fact is that there are no economies of scale in government-run auto insurance systems. The 2003 administrative expense ratios for Saskatchewan Government Insurance (SGI), Manitoba Public Insurance (MPI) and the Insurance Corporation of British Columbia (ICBC) versus the national private industry (5.7%, 7.3%, 3.3% and 15.4% respectively) are significantly misrepresented.
For example, in ICBC’s 2003 annual report, its operating expense ratio is reported as 18.1%; the private industry’s operating expense ratio for the same period is reported as 28.1%. ICBC’s 18.1% operating expense ratio includes commissions and taxes, but excludes general expenses related to claims. In contrast, when the private auto insurance industry quotes operating expenses, it includes all expenses.
When these differences are accounted for, the operating expense ratios become 18.1% for ICBC and 21.2% for private insurers in BC.
Therefore, the private industry’s expense numbers compare very favourably to ICBC’s and, where they are higher, this can almost wholly be attributed to:
ICBC’s tax status as a Crown corporation;
accounting changes at ICBC that have moved items out of expenses and into claims; and
lower commission rates that ICBC can afford to pay brokers as a result of holding a monopoly on mandatory auto insurance coverage.
MYTH: Government-run auto insurance systems can better control claims costs.
FACT: Actually, no. Historically, not one of the government-run insurers has been able to contain claims costs. In fact, these insurers have resorted to increasing premiums and deductibles, changing rating territories and introducing significant product change, such as no-fault insurance, with greater frequency than private insurers.
The relatively small growth of claims reported by ICBC (3.2%) was accomplished by increasing deductibles and thereby eliminating an estimated 60,000 claims from the system. This move effectively transferred $160 million in the cost of repairs from the government-run insurer to policyholders. This was on top of a rate increase.
Further, according to ICBC’s 2005 year-end results posted on their website, their claims costs in the first nine months were up 11.5% from the same period last year. As a result, ICBC has filed for a 6.5% rate increase in 2006 to “manage” the rising trend in claims it is experiencing. Compare this to private insurers who saw claims rise only 0.2% between 2004 and 2005 according to Office of the Superintendent of Financial Institutions (the federal regulator of insurance companies) site. In light of this, how can it be said that government run auto can better control costs?
MYTH: A government-run insurance company can be started for $2 million. There will be no cost to the taxpayers. The system will be funded by drivers.
FACT: The 2004 report of the New Brunswick Select Committee on Public Automobile Insurance recommended that the province adopt a Manitoba-based model of government-run auto insurance. KPMG, the independent actuaries hired to review the findings of the committee, determined that the cost of establishing a public insurance system would outweigh the claimed benefits.
At a very minimum, the cost of a government-run auto insurance system to taxpayers would equal the cost of operating expenses (such as occupancy, advertising, furniture and equipment, and head office overhead), acquiring office space, and foregone insurance taxes and health care levies, which a government would have to recoup elsewhere. In NB, these costs and lost taxes and health levies would have amounted to at least $140 million in 2004, potentially having an adverse effect on the funding of other public services.
In addition, despite paying back start-up loans, every government-run insurer in Canada has required a taxpayer bailout, whether through direct cash injections or through dedicated tax revenues. In early 1976, less than two years after its inception, ICBC required a 25% rate increase and a bailout of $181 million ($627 million in today’s dollars). None of that money was ever paid back.
MYTH: Government-run auto insurers pay dividends to policyholders.
FACT: The fact is that MPI in 2001, and ICBC in 2000, did pay dividends to policyholders. However, advocates of government-run auto insurance have failed to mention that MPI had a deficit of $97 million following that surplus distribution and had to transfer $93 million from its capital surplus reserves to pay for it. This reserve declined steadily from $143 million in 2001 to $42 million at the end of 2003. Increasing claims pressure (claims costs in 2001 were $30 million more than expected) and a severe weather event would drain this reserve very quickly. MPI estimates that a severe hailstorm could increase claims by as much as $50 million (2001 annual report).
In ICBC’s case, the corporation lost $250 million in the year following the dividend. It couldn’t afford the dividend but paid it out prior to an election. In exchange for the $100 each received, drivers had their deductibles doubled and premiums raised and many were transferred into more expensive rating territories. ICBC paid for this giveaway through a reduction in reserves, which are now at dangerously low levels. This dangerous, politically motivated "dividend" is a perfect example of what is wrong about government-run insurance, not what is right about it. This is not how to run a business.
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Insurance Industry
MYTH: Insurance companies are making a fortune on premiums.
FACT: Of every dollar insurance companies collect in premiums, 60 cents goes back to policyholders to pay claims, 18 cents goes to pay operating expenses and 16 cents goes back into communities in the form of taxes. Insurers keep 6 cents as profit.
From 2000 to 2004, the insurance industry’s earnings were substantially lower than the earnings of the rest of the financial sector. In 2002, the industry's earnings were at an all-time low. That year, investors got an average return of 1.7% on their money, which is unacceptably low for any business. Imagine if you bought shares in a company, a risky proposition at the best of times, and you got a smaller return on your investment than you could have gotten from a bank savings account.
In 2004 and 2005, financial results were generally much better, and car insurers reduced premiums in every jurisdiction where there was a privately run, competitive insurance system.
MYTH: Rates started rising because of the insurance costs of the events of September 11, 2001.
FACT: The terrorist attacks of September 11, 2001 are often cited as “The Cause” of the last round of rate increases, but in fact, the insurance industry has survived similar losses before. Although this event — at the time the world’s largest insurance loss ever — did not help the insurance picture, those within the insurance industry understand that the market had already become more difficult and strained prior to the attacks. The 1998 ice storm is the largest and most expensive natural disaster in Canadian history and, although it was bigger as a share of the Canadian market than September 11 was relative to the size of the US insurance market, it had very little impact on the price consumers paid for insurance afterwards.
What the events of September 11 did do is change how the insurance industry looks at risk and the cost of risk.
MYTH: Insurers don’t pay for damages caused by “Acts of God.”
FACT: The words “Act of God” do not appear in any home, car or business insurance policies in Canada. In fact, insurers frequently pay for claims stemming from events that some might call “acts of God,” such as hurricanes, wildfires, high winds and hailstorms.
It’s true that some natural events are excluded from insurance policies, but there are sound reasons for this. One example of a natural event that is excluded from insurance policies is overland flooding. This type of flooding is not insurable because it only happens in very specific areas – that is, flood plains – where it is almost inevitable. Because people tend to avoid living in areas prone to this type of flooding, very few people have a need for overland flood insurance. If it were offered to those few people seeking it out, overland flood coverage would be very expensive for insurers to provide (due to the almost inevitability of costly claims), so premiums would be unaffordable for most policyholders.
Insurance is about spreading risk among many people. It only works for perils that are unexpected and that could happen to anyone. Naturally occurring events such as overland flooding do not meet these criteria.
What the events of September 11 did do is change how the insurance industry looks at risk and the cost of risk.
MYTH: Natural disasters like Hurricane Katrina cause insurance premiums to go up everywhere.
FACT: Major catastrophes have a direct impact only in the areas where they occur. Elsewhere, they may have an indirect effect. Here’s how it works:
Insurers also buy insurance. Just like you, your insurance provider buys insurance to help cover unusually big losses that it couldn’t handle on its own. The insurance that insurers buy is called “reinsurance.”
Reinsurance companies operate all over the world and pay when there is a major disaster, such as Hurricane Katrina. If, based on experience, reinsurers predict a year with exceptionally high losses, they may raise their rates.
When reinsurers raise rates, insurance companies here in Canada may have to pay more for their reinsurance and that, in turn, could affect the premiums that you pay. The most important factors affecting your home insurance rates are local risk factors such as where your home is located, how much it would cost to rebuild it, how it’s heated, etc. Your claims history is also important.
For more information on what providers of homeowner’s insurance look for, click here
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Claims and Premiums
MYTH: It's difficult to get paid for a claim.
FACT: Home, auto and business insurers wrote cheques for more than $20 billion in 2005 to help Canadians get the care they needed, to replace lost income, and to repair cars and other property.
MYTH: You'll always get less than you ask for, so inflate your claim
Why do insurance companies invest the money?
The nature of insurance is such that your insurance company holds your premium until it is needed to pay claims. By investing the money in the interim and making a return, your insurance company is able to offset the cost of claims and charge you less than you would otherwise pay.


How Car Insurance Premiums are CalculatedCar insurance premiums, like all insurance premiums, are determined based on risk. That is, how likely it is that a customer – and a group of customers with the same set of circumstances – will make a claim, and how much those claims will likely cost. Actuaries (those with mathematical training in the principle of large numbers and the theory of probability) must also predict how much it will cost to settle these claims, the company’s overhead, selling costs, industry taxes and the amount that must go into reserve funds to cope with catastrophes.
These factors affect what you pay for automobile insurance:
Where you live: If you live in a bustling city, for example, accidents and vehicle theft are more likely, which may translate into higher premiums.
The type of vehicle you drive: Insurers consider the make and model of your vehicle in terms of what the risk factors associated with it might be. For example, some makes and models fare better in collisions than others, meaning injury to the occupants and damage to the car end up being less severe. Also, newer, more expensive vehicles cost more to replace, so they are more expensive to insure. In determining your vehicle’s risk and expected claim severity, your insurance company may rely to some degree on IBC’s Canadian Loss Experience Automobile Rating (CLEAR).
How you use your car: The more time a car spends on the road, the higher the chance of an accident. That means higher premiums if you drive a lot, you drive long distances or you drive to work everyday.
Your driving record: Your driving record has a big impact on the premiums you pay. For example, a long driving history with no accidents can help keep your premiums down, and every accident where you're at-fault may push your premiums up. Speeding tickets and other moving violations may also increase your premiums, but parking tickets will not.
Your statistical group: Depending on what province you live in, your insurer may consider the claims history of the group to which you belong as a driver – for example, the group of drivers of the same age and in the same geographic location. If you belong to a group that is more likely to make claims, your premiums may be higher.
Other factors: In the highly competitive field of insurance, prices are also affected by the interplay of market forces, government regulations, taxes at many levels, discounts and unpredictable catastrophic events.
Because insurers consider a policyholder’s individual history in combination with that of his/her group, there is no one-size-fits-all method of determining premiums. Therefore, it is not the case that all 30-year-olds driving Fords and living in downtown Calgary pay the same amount for their car insurance. If the factors listed above weren’t considered, lower-risk policyholders would be subsidizing the higher-risk ones.
These factors DO NOT affect what you pay for automobile insurance:
The colour of your car: The colour of your car does not affect your automobile insurance premium. You will not be asked to specify the colour of your vehicle on your auto insurance application.
Whether your car is foreign or domestic: Insurance premiums will not necessarily be higher for a foreign vehicle than they will be for a domestic automobile. See “The type of vehicle you drive” in the list above for more information.



The Reality of Government-run Car Insurance
Every once in a while, an individual or group suggests that having the government own and operate a province’s car insurance business is “The Answer” to the insurance problem of the day. These people tend to believe that a government-run monopoly would lead to cheaper prices and increased benefits. While it is true that the government-run insurers in Manitoba and Saskatchewan have lower premiums in dollar terms, consumers in these systems have far fewer benefits. In Manitoba, for example, an accident victim who is catastrophically injured has no right to sue for economic losses – including future lost wages – that are over and above a predetermined amount.
What few people realize is that insurers provide car insurance within a strict framework of provincial laws and that they are supervised by a number of government agencies, including rate review boards and both federal and provincial regulators. Car insurers deliver a product that is defined by these laws and regulations.
In many cases, thoughtful and far-sighted government reforms of these laws and regulations have reduced the cost to provide insurance in many provinces and, as a result, premium prices have reduced.
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What “government-run” really means
Huge start-up costs. Depending on where you are in Canada, the average cost to establish a government-run insurance company would be $300-$500 million. This is the money required to buy buildings, hire staff, obtain sufficient start-up capital and cover operating expenses. It includes the costs associated with providing the resources to handle all the claims, to provide insurance for all the cars in the province and to make up for the shortfall in funding for public services resulting from the withdrawal of taxes and health levies currently paid by the private insurance industry.
Huge bail-outs. All government-run auto insurers in Canada have required taxpayer subsidies as a result of charging too little in premiums and having insufficient start-up funds. In 1975-76, BC taxpayers had to bail out their government-run insurance company – Insurance Corporation of British Columbia (ICBC) – in the amount of $181 million ($645 million in 2006 dollars), just two years after it had begun operations. This money has never been repaid. At the same time, ICBC had been so mismanaged, with insurance being sold significantly underpriced, that the government was forced to increase rates by at least 25%.
Reduced private sector investment. Private home, car and business insurance companies directly invest in the provinces in which they do business. Direct investments include corporate shares, bonds and real estate. The size of the investment varies from province to province. In Ontario, for example, insurers’ investment in the province totals more than $6 billion.
Limited choice for customers and poor customer service. Government-run auto insurance provides limited choice for consumers and no incentive for good customer service. It offers a “one-size-fits-all” solution for consumers (e.g., fixed deductibles, no multi-vehicle discounts). A privately run auto insurance system provides powerful competitive incentives for insurance companies to offer the lowest possible rates, strong service delivery and a wider range of policy options.
Lack of product innovation. Government-run auto insurance companies have no incentive to understand the needs of customers. They have a captive market share. Product innovations such as first-accident forgiveness, replacement cost coverage, and roadside assistance were all available in privately run auto insurance systems long before they were adopted by government-run auto insurance companies.
Price volatility. Consumers in the government-run systems of BC, Manitoba and Saskatchewan have experienced repeated periods of sharp rate increases with intervening periods of rate stability. Because private insurers operate under regulatory oversight, and capital and financial adequacy requirements, “rate shock” for their customers is limited, primarily, to periods of very high inflation and claims cost pressure.
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Private insurance works
Competition works. Auto insurance is purchased competitively in almost every jurisdiction in North America. Most people believe in the free market for nearly all the products they buy. In fact, governments have deregulated several former public monopolies over the last number of years, and consumers have won every time. Thanks to competition and choice, consumers now enjoy lower long-distance telephone rates and more choice and real competition in cable television services.
Insurance rates reflect true cost. Premiums in a competitive environment reflect the real cost of insuring a driver. Auto insurance premiums are set based on a host of factors that affect the frequency and cost of claims. The likelihood of being involved in a collision or having a vehicle stolen, geography, type and age of a vehicle, insurance claims records, other drivers in the household who use the vehicle, driver age, driving records, driver gender and traffic congestion all affect risk and claims. It's the cost of claims, more than anything else, that determines the premium level for consumers.
Unlike private insurers, government-run auto insurers have been able to increase rates without ever having to apply for a rate increase. Government insurers have increased the number of claims paid directly by the customer by increasing deductibles, and have moved more drivers into higher-priced territories by making changes to insurance rating territories.
Employment. Private auto insurance systems provide vital injections of investments, jobs and taxes into regional economies. The private insurance industry in Canada employs almost 100,000 people, either directly or through its support of a broker workforce.
The argument that is always presented by those promoting government-run monopolies is that the monopoly provides often much-needed jobs. This is simply not true; in fact, jobs and investments increase when more companies compete for business.
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Government-run vs. private insurance in your province
Click below for more information specific to government-run auto insurance and the role of the private sector in your province.
British ColumbiaNew BrunswickNova Scotia


Facility Association
Facility Association (FA) and its member companies ensure that car insurance is available to anyone who is entitled to it or is required to have it. FA is not an insurance company; rather, it is a not-for-profit organization made up of all car insurance providers operating in every province and territory in Canada except British Columbia, Manitoba, Saskatchewan and Quebec.
Who is insured through Facility Association?
FA ensures that any driver who can’t get car insurance in the regular market can ultimately get insurance. That being said, only a very small percentage of drivers is insured through FA.
Generally, you may have to buy insurance through FA because:
you have one or more moving violations on your record;
you have a poor, or no, driving record;
of something in your claims history;
of the type of car you drive; and/or
of how you use your car.
These are some of the reasons you might be considered a higher-risk driver – that is, at higher risk of having an accident. Insurance premiums are based on risk, so, higher-risk drivers insured through FA pay more for car insurance.
Getting out of FA
There’s good news: You are not destined to pay the higher FA insurance rates forever. If you are currently insured through Facility Association, you should be shopping around for insurance. Facility Association exists to make sure coverage is available for those unable to obtain it anywhere else. As the insurance marketplace improves, or if your situation changes, there is more chance you can find insurance in the regular market – at a lower price. Talk to your insurance representative.
There are other things you can do to make your insurance business more attractive to insurers and lower your premiums.
To learn more about FA, click here.


Borrowing or Lending a Car?
Under certain circumstances, you can borrow a car without worrying about whether or not the car’s insurance names you as an occasional driver, or lend your car without worrying about whether or not the guest driver’s name is on your insurance policy.
If you are borrowing a car
The person whose car you are borrowing must give you permission to use it.
The use of the car cannot be part of a regular pattern, such as driving to school every day. (If you regularly borrow the same car as part of a routine, you must be listed on the owner’s insurance policy as an occasional driver.)
You must be a licensed driver who is legally allowed to drive in the province.
If you have an accident while driving a borrowed car, the accident goes on the record of the person who has the insurance policy on the borrowed car.
If you are lending your car
You must consent to its use by the other driver.
The person who borrows your car cannot be using it as part of a regular routine. If your friend uses your car every Friday to go grocery shopping, then he/she must be named on your insurance policy as an occasional driver.
The person to whom you lend your car must be a licensed driver who is legally allowed to drive in the province.
If the person borrowing your car has an accident while driving your car, it goes on your insurance record. When you lend your car, you are also lending your good driving record.