The insurance industry has long said that premiums are too high here in Newfoundland and Labrador. Drivers simply pay too much for insurance.
What Mr. Jones and insurers do agree on completely is that auto insurance is a heavily regulated product. That is why the government’s recently announced insurance review is an important first step in understanding what is driving the costs behind premiums and, more importantly, in finding a solution for N.L. drivers.
One of the issues that Mr. Jones neglects to mention is the reasons for the high cost. Newfoundlanders and Labradorians pay into a pool of funds, through their premiums, which must cover everyone’s claims and the cost of providing insurance in the province. Rising claims costs have overburdened the system, and higher premiums are the result.
In fact, premiums paid by Newfoundlanders and Labradorians have not been enough to cover the cost of providing auto insurance in the province for many years. This means that after claims are paid, it is costing insurers extra money to keep paying their employees in the province — that is not a sustainable business model. When a market is in this position, unfortunately, customers get the answers that Mr. Jones received when shopping around. It’s also a sign that the product is in need of reform.
In order to introduce effective reforms, the government needs to look at what is driving up costs. Currently, the frequency of claims is significantly higher in N.L. than in neighbouring provinces. In N.L., 13.08 out of 100 vehicles make an insurance claim. Compare that to a claims frequency of 10.8 in Nova Scotia, which has a larger market, and it’s clear that frequency is an issue in N.L.
Premiums in a competitive environment reflect the real cost of insuring a driver. As of April 2017, the average premium in N.L. was $1,102, compared with an average of $780 in the other Atlantic provinces. What N.L. needs is a better balance between costs and benefits that works for everyone.
What does the solution look like? Mr. Jones’ call for government-run auto insurance is misinformed. Public auto insurance systems are not the silver bullet they might appear to be.
The initial setup of such a system is a multi-million-dollar proposal that would be funded by taxpayers. The additional reduction in private-sector investment, not to mention community partner projects (which many private insurers are quite proud of), would have a negative impact on the province. Additionally, it would mean lost tax revenue for the provincial government.
In 2015 alone, members of the home, auto and business insurance industry paid $87 million in taxes and levies within the province. And public auto insurance would mean fewer employment opportunities. Private insurers provide vital injections of investments, jobs and taxes into the N.L. economy.
A competitive market delivers more choice and value to customers. 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, some provincial governments have deregulated former public monopolies in recent years and consumers are benefiting from the increased options.
A review of auto insurance is overdue in this province. The current state of the product is unfair to customers and the insurers who are losing money trying to serve those customers. N.L. auto insurers look forward to the review. Finding a solution that provides available and affordable auto insurance for everyone in N.L. is something we should all be able to get behind.
Amanda Dean
Vice-president, Atlantic
Insurance Bureau of Canada
