NDP proposals for government provided auto insurance in Alberta.

 If elected, the Alberta New Democratic Party (NDP) wishes to establish a publicly funded government operated auto insurance firm. If you live in Alberta, you probably aren’t surprised. The NDP, being a left-center party, encourages more government intervention in our day to day lives as well as the economy. According to studies by the Consumers' Association of Canada, rates charged from public auto insurance is lower than a private auto insurance system. However many economists, along with a new international study, presents additional indications that public auto insurance systems are actually among the worst performers within almost all measures of market quality, including the cost and affordability of auto insurance premiums and claim payouts.

The study, headed by the Fraser Institute of Canada, examines and compares auto insurance throughout Canada. In the study, titled Lemons and Peaches:

Comparing Auto Insurance Across Canada, it concluded that provinces with public auto insurance have the highest premiums and the lowest claims payout in Canada. The effectiveness of auto insurance can be calculated by comparing the average premium paid with the average claim amount. So, insurance has more value if the claims payment to premium ratio is somewhat elevated. It was discovered that claim payout levels in provinces with public auto insurance are significantly lower than those in the private sector. Payout levels in Quebec, a province with public auto insurance, are at least half of what payout levels are for Ontario, a province with private auto insurance. The worst offenders for public auto insurance are Manitoba and BC: who on average have 70 percent lower payout rates on a national level.

 The high premiums and the low payout rate is likely due to the high frequency of claims in the provinces with public auto insurance, as opposed to provinces with private which traditionally have low claims. “Lemons and Peaches” uncovered that drivers in public systems make two to four times as many claims as a driver would in a private system. According to Mark Mullins, director of Ontario policy studies and author of “Lemons and Peaches”, public auto insurance firms encourages excessive claims usage. In BC, accident claims per driver are as much as six times more than claims in provinces with private auto insurance. Comprehensive claims are as much as 20 percent to almost two times higher. In layman’s terms, the more claims - the more money they have to pay out. As a result, payouts are ultimately going to drop and, thus, premiums will increase. 

 The Alberta NDP would wish to establish a system of automobile insurance that, in theory, would be less costly for drivers. However, not unlike many socialist ideals, the very opposite result takes place. History and reality has shown us that provinces that launch public automobile insurance have higher premiums, lower claim payouts, and a higher number of claims per driver. It is with great confidence that many economists believe that due to the inferior insurance value created in the hands of the government, insurance firms should stay firmly in the hands of the private sector. De-politicizing the auto insurance industry is vital for economic fairness for the insured in Alberta, the provinces in Canada, and as well as any other free market economy.