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 saw a steady decline 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 would be wrong about government-run insurance, not what would be right about it. This is not how to run a business.
Finally, dividends are not unique to government-run insurers. Policyholders in private insurance markets can also receive policyholder dividends, where the financial situation of the company warrants, if they are policyholders with mutual companies.
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