Car insurance and government incompetence - high taxes, fraud and regulatory waste.

Car insurance. A recent study maintains that in the good Canadian Democratic Republic [D.R.] car insurance rates are only 30% higher than in the US, and only, [in the industrialized heartland of the communal paradise], running at $1300 per year. Sure they are. I don’t know of one single person amongst say 100, which has a car insurance rate that low in Canada’s urban heartland. Car insurance rates are far higher than some accounting â€~mean’ average and as government regulation increases, so does fraud, rates, and consumer frustration. In Canada alone I counted 59 regulatory bodies and agencies involved the car insurance market â€" am I to believe that all of these are to protect me and to benefit me? Doubtful.

Maybe 85 year-old Pastor Paul living in nowheresville driving a 1960 Ford tractor, or a Sherman tank pays these so-called average rates. No one in an urban center under the age of 60, driving anything newer than a 1988 Dodge pays anything close to $1300 per year. La raison? C’est simple â€" in most provinces and states, car insurance is a massively regulated and government controlled market. This leads to nothing but higher costs and misery. Where there is government, there is consumer pain.

Car insurance rates vary by state and province and by urban and rural center. Some jurisdictions have stateâ€"owned insurance firms providing coverage [the socialists in British Columbia prefer this]; a mixed private â€" government regulated system [most US states and Canadian D.R. provinces have this]; or a free-market unregulated system [Texas, South Carolina].

Guess which ones has the best rates and most competitive pricing markets? Well done. Texan rates for car insurance average about $800 US per year. South Carolina after 30 years of regulatory nonsense, went to a free market system. Rates plummeted to $760 on average. Texas and South Carolina have pretty much the lowest car insurance prices in the US. Big surprise. [For teeth gnashing Marxists these low rates are of course calibrated to the death penalty.]

It should be said that lower car insurance rates are not even indicative of a good system â€" but lower regulatory, bureaucratic and fraud costs are. Texas and South Carolina have the lowest rates of fraud, abuse and regulatory oversight in the US. They also have real market-set prices, not government managed â€~ranges’.

For the average urban Canadian â€" the fictitious one from the Fraser Institute study â€" who paid â€~$1300’ in Toronto, the average big hat Texan paid $350 CDN less per annum for his car insurance. There are many reasons why rates might differ between 2 locations. Rate calculation factors such as age; urban density; number of accidents in that jurisdiction; the number of claims in that area; ethnic demographics; and individual driving and payment history all influence rates of course. Common sense stuff.

But is a driver in Dallas, a $350 per annum better driver than some guy on the outskirts of Toronto? Maybe he is, maybe the laws in Texas for bad driving are tougher, maybe the Texans have a lot more of those studly looking Highway Patrol officers on the look out for fast driving cowboys. Maybe the average Texan drives slower than the average maniacal Canadian zooming in to town on ice covered roads. But then again maybe some other factors are driving the differential in rates.

A key factor never covered by the media and one which most consumers don’t consider is the cost of state interference and fraud. Do you see on your insurance bill, â€~taxes collected by government’? Or, â€~your share of this year’s fraudulent claims’? Or, â€~regulatory fees paid by you to the insurance industry’? Or, â€~amount paid to support government employees regulating the workers in the insurance regulatory agencies’?

Of course not.

Like socialized health care, the costs of big-mommy state regulation are never disclosed to the poor schmuck writing checks to insure his car. For socialist health care recipients it is the same - have you ever received a statement saying, â€~this is what you paid in a health tax, and this is what you consumed in health services’? Such transparency is not even discussed within government regulated markets.

A large component of government burden in regulated markets? All the little fees and taxes included in your car insurance price, which are never disclosed. In almost any regulated, non-market competitive jurisdiction, insurance rates only go up â€" they never go down. And there is very little price competition between insurance vendors.

As Doug McClelland of the Insurance Corporation of B.C., which has a monopoly on basic car coverage recently stated: "It's not the private sector that sets the insurance rates in any province, it's the regulator that does." This is not entirely true since in some Canadian provinces the market does help set rates. But his point is valid. Across Canada and most of the US it is the government that is defining the car insurance product and rate â€~ranges’ or tables of acceptable pricing. Included in these prices are the costs of regulating the industry. These costs add up to billions each year.

In most areas there are hidden taxes, usually around 2-5% of the premiums value that are paid directly to the government. Regulatory costs to pay for the massive bureaucracy to manage the industry are added but never disclosed. In non-state owned jurisdictions, car insurance firms must pass on fees and regulatory costs to the consumer. They are never disclosed to the buyer.

The consumer is being jerked around.

Another component of your insurance price that is never disclosed to you? Fraud of course. In the US about $8 billion in car insurance fraud is committed annually â€" with most of it coming from highly regulated states like NJ or Taxachusetts. The more regulation, the less competition, the higher the rates, and the greater the consumer fraud.

Witness New Jersey and Massachusetts which had to use government power to keep insurance companies in the state. Car insurers started to flee these states for the turnpike to avoid massive car insurance fraud which was sinking their profits. Since most insurance companies offer a wide portfolio [house, car, health, disability etc.] regulated jurisdictions have the power to force insurance companies to abide by government rules. Keep in mind that many insurance firms do not make a healthy return or market average profit on car insurance [contrary to media reports].

According to Insurance bureau’s in Canada and the US, on average only about 15 % of drivers made a claim or were accused of abusing the insurance system last year. Yet this varies significantly depending on how much government is involved. In British Columbia according to the Fraser Institute, 40% of drivers make a claim. Why? It is state owned and rates are capped ie. subsidized by someone else. In Ontario which has a quasi, semi-market based system only 10% of drivers make a claim. Why? They will be punished with higher personal rates.

Highly regulated industries always suffer from fraud. Not paying for one’s performance leads to abuse. A bad driver should pay higher rates. Those rates should be based on driving history; claim and fraud history; reasonable risk analysis premised on age, type of car, and where he/she drives to on a regular basis. In a competitive market the factors that determine price will probably average out to what is fair. In onerously regulated markets the actual price someone pays for car insurance, is never a real market rate. Ergo all sorts of distortions will occur including fraud, abuse, and people opting out of the system and stopping to buy insurance altogether.

The bottom line? Like other markets car insurance needs to be free of over-regulation. Some regulation might be necessary and some consumer protection is probably needed. But what is the point of having in a small place like Canada, some 60 government groups, all slopping like pigs on the gruel of car insurance premiums?

How does escalating fraud, rising prices and price discrimination based on sex, age, skin color, and location, controlled by government benefit me the consumer? The average, young, white, urban male is not paying some fictitious amount of $1300 â€" he will be paying double or triple that even if he has a good driving record. [Try discriminating on those criteria in the private sector â€" before a human rights group starts beating on you, good luck].

Open up the car insurance market and watch rates and government stupidity decline. State ownership only leads to fraud and abuse.

Notes:
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Report by Mark Milke for the Insurance Bureau of Canada
http://www.ibc.ca/en/Media_Centre/documents/2006releaseattachments/Report_mythsfact_nrDec27-06.pdf

Cato on the regulatory costs in the US:
http://www.cato.org/pubs/regulation/reg15n2c.html

Canadian bodies involved in Car Insurance:

1. Canadian Insurance Industry Organizations
2. Canadian Life and Health Insurance Association (CLHIA)
3. L'Association canadienne des compagnies d'assurances de personnes (ACCAP)
4. Canadian Association of Mutual Insurance Companies (CAMIC) / L'Association canadienne des compagnies d'assurance mutuelles (ACCAM)
5. Ontario Mutual Insurance Association (OMIA)
6. Insurance Bureau of Canada (IBC)
7. Bureau d'Assurance du Canada (BAC)
8. Insurance Institute of Canada (IIC)
9. Institut d'Assurance Canada (IAC)
10. Center for Study of Insurance Operations (CSIO)
11. Le Centre d'etude de la pratique d'assurance (CEPA)
12. Canadian Institute of Actuaries (CIA)
13. Institut Canadien des Actuaires (ICA)
14. Insurance Broker Association of Canada (IBAC)
15. Association des courtiers d'assurances du Canada (ACAC)
16. Advocis - The Financial Advisors Association of Canada
17. Canadian Coalition Against Insurance Fraud (CCAIF) / La Coalition Canadienne Contre la Fraude (CCCFA)
18. Canadian Life and Health Insurance Compensation Corporation (COMPCORP)
19. Societe canadienne d'indemnisation pour les assurances de personnes (SIAP)
20. Property and Casualty Insurance Compensation Corporation (PACICC)
21. Societe d'indemnisation en matiere d'assurances IARD (SIMA)
22. Canadian Life and Health Insurance OmbudService (CLHIO)
23. Service de conciliation des assurances de personnes du Canada (SCAPC)
24. The General Insurance OmbudService (GIO)
25. Service de conciliation en assurance de dommages (SCAD)
26. Insurance Broker Association of Ontario (IBAO)
27. Registered Insurance Brokers of Ontario (RIBO)
28. Insurance Brokers' Association of Saskatchewan (IBAS)
29. Canadian Insurance Accountants Association (CIAA)
30. Canadian Insurance Laws
31. Insurance Companies Act (i-ii.8) and related regulations
32. Alberta: Insurance Acts & Regulations
33. British Columbia: Insurance Act & Insurance Corporation Act (Chapter 226-232)
34. Manitoba: Insurance Act (I40) & Insurance Corporations Tax Act (I50)
35. New Brunswick: Insurance Act (i-12)
36. New Brunswick: Insurance Act (i-12) - Regulations
37. Newfoundland and Labrador: Insurance Act (i10), Insurance Contracts Act (i12), Life Insurance Act (i14)
38. Nova Scotia: Insurance Act (Chapter 231) & Regulations (81/2000, 94/96, 142/90)
39. Nunavut: Insurance Act
40. Nunavut: Insurance Regulations
41. Ontario: Insurance Act (I8) & Regulations
42. Prince Edward Island: Insurance Act (i-04)
43. Quebec: Lois sue les assurances (A25..A32) et Reglements
44. Saskatchewan: Insurance Act (s-26) & Regulations

Canadian Insurance Regulators & Councils
1. Office of the Superintendent of Financial Institutions (OSFI) Le Bureau du Surintendant des Institutions Financieres (BSIF)
2. Canadian Council of Insurance Regulators (CCIR) / Conseil canadien des responsables de la reglementation d'assurance (CCRRA)
3. Alberta: Alberta Superintendent of Financial Institutions
4. Alberta: Alberta Insurance Council
5. British Columbia: Financial Institutions Commission of British Columbia (FICOM)
6. Province of Manitoba: Consumer & Corporate Affairs - Financial Institutions Regulation Branch
7. New Brunswick: Department of Justice - Insurance
8. Newfoundland and Labrador: Department of Government Services and Lands - Insurance & Pensions
9. Nova Scotia: Superintendent of Insurance
10. Nuavut: Government of Nunavut
11. Ontario: Financial Services Commission of Ontario
12. Prince Edward Island: Office of the Attorney General - Consumer, Corporate and Insurance Division
13. Quebec: Autorite des Marches Financiers
14. Saskatchewan: Financial Services Commission - Financial Institutions Division
15. Saskatchewan: Insurance Councils of Saskatchewan