government-run insurers

government-run insurers Private insurers are among the shrewdest and most careful investors in the country। In fact, they are required by regulators to invest safely। In 2004, private insurers invested 79% of their portfolio in bonds, more than two-thirds in government bonds. This compares to ICBC’s 65%, MPI’s 78% and SGI’s 65%. Private insurers across the country invested over $13 billion in


provincial and municipal bonds in 2004. In Nova Scotia, these types of investment had a value of almost $175 million.

Furthermore, while private insurers are required to maintain capital if they invest in risky assets, government-run insurers are not. In ICBC’s 2003 annual report, the corporation reported a $141 million write-down on an aging shopping mall and office tower. This is just one example of its questionable investment outcomes. 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.

ICBC made a number of dramatic changes to its rating territories in 2002. Unsurprisingly, in 2003, the relatively small growth in claims costs reported by ICBC (0.7%) was accompanied by a reduction of 141,000 claims in the system. Based on the average cost of an ICBC claim in 2003, this move effectively transferred over $300 million in the cost of repairs from the government-run insurer to policyholders. This was on top of a rate increase in 2003.

According to ICBC’s most recent results posted on their website for the year ending 2005, their claims costs 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 OSFI’s site. In light of this, how can it be said that government-run auto can better control costs?