Consumer advocate says public insurance doesn’t deliver the results

CBZ-AM Radio (New Brunswick)
November 12, 2003

Gary Mittelholtz: (Host) New Brunswick auto insurance rates have jumped substantially in the last few years, of course, and that’s led to the government capping settlements on minor injuries and, now, holding hearings on public auto insurance. Those hearings make their final stop in Fredericton starting today. Lawrence Solomon will be making a presentation on behalf of insurers. He’s the managing director of the Energy Probe Research Foundation and a consumer columnist for The National Post. Mr. Solomon, good afternoon.

Larry Solomon: Good afternoon.

Mittelholtz: What do you think of public insurance?

Solomon: Well, I’ve looked at public insurance in the different jurisdiction around the world where it exists. It doesn’t exist in very many places. New Zealand is the one country that has a national public insurance scheme, and then, apart from that, it’s really just a few Canadian provinces. But in these jurisdictions, and in fact in all the jurisdictions that stray from traditional insurance premiums, the traditional insurance approach, the result inevitably is a much higher fatality rate. Typically, the fatality rate is between five and 10 per cent more when the insurance system strays from the traditional approach. In the case of New Zealand, it actually went up by 16 per cent.

Mittelholtz: Fatalities. So we’re talking about car accidents? Fatality rates in accidents?

Solomon: That’s right. It goes up for the very reason that people demand public insurance. They don’t like to be held accountable for the risks that they incur on society. So, the typical situation are young males. They don’t want to believe that when they are 20 years old they represent a greater risk to society than they will when they’re 25 or 30 or 35 years old, so they put pressure on the political system to make it easier for them to get into the car earlier, and for them to get insurance for souped-up cars at a lower cost. So, even though a 20-year-old might be able to get affordable insurance for, say, a typical used car that isn’t souped up, that’s not what they want. They want to get insurance for a souped-up car, and our system obliges them . . . In fact, even under private insurance in New Brunswick, the way our system works is that there’s a hidden tax on the premiums of good drivers, so good drivers are overcharged by government order, and what the government does with the excess revenue that they earn is they . . . that money goes into a pool, and from that pool high-risk drivers receive subsidies. So, in New Brunswick, the high-risk drivers are getting their insurance at about 45 per cent below the actual cost, an actual cost that represents the risks that they really incur on society.

Mittelholtz: But here in New Brunswick, you know, it’s not just young people, or even seniors. Rates have gone up for everybody, and in some cases for good drivers who have got a spotless record, they . . . all of a sudden they can’t afford to pay their insurance, they can’t afford to drive their car. There’s something wrong there.

Solomon: There definitely is something wrong. There’s something the worst-regulated [missing text] insurance systems in the world, whether it’s public or private. In the United States, for example, insurance is not at all controversial. In the United States there’s a lot of competition, there are a lot of different products. Consumers have choices. Rates are kept reasonable. In the most recent survey in the United States, 86 per cent of consumers, of drivers, are happy with their auto insurance system. The previous year, 96 per cent were happy. So, it’s just not a controversial issue in the United States where there is competition. And this involves small states and large states. Whether small or large, the insurance industry is just not a controversial issue because consumers have choices and there’s competition which keeps rates well . . . keeps rates down. That works well. Here in Canada, we have systems where good drivers are taxed so that bad drivers can be on the road. The extra . . . When bad drivers are on the road we get more collisions, including with good drivers, so then their rates go up even more. It’s just a vicious circle, and our regulators . . . our regulators set these rates and they approve these rates, and they have been doing a bad job. And, instead of moving in the direction of giving consumers fewer choices, we need a regulatory system that gives consumers more choices and encourages competition in order to keep rates down.

Mittelholtz: You know, I must say Mr. Solomon, I’m surprised . . . given your background as a consumer advocate, I’m very surprised to hear you speaking out, in effect, against public insurance and for private insurance here.

Solomon: Well, public insurance was at one point popular. It was [missing text] and that’s when New Zealand went for it. But, after that, jurisdictions around the world who had been thinking of it looked at what the results were and they realized that there were a lot of problems, so we haven’t seen any jurisdiction anywhere in the world in the last 30 years, the last quarter century, going for public insurance because it simply . . . it simply doesn’t deliver the results.

Mittelholtz: If the status quo isn’t really working satisfactorily, you don’t want to go to a public system, what has to be changed?

Solomon: We need better regulation. I think we need U.S.-style regulation because there you get more products for consumers and you get fewer deaths.

Mittelholtz: No one knows what the outcome will be here in New Brunswick but, if we do go to a public system here, what’s that going to mean in the long term, do you think?

Solomon: Well, I think it depends on the type of public system. And, in my presentation to the Weir Commission, if the government removes the accountability from the system by going from private to public, they should take measures to inject accountability back into the system, and one measure of injecting accountability back into the system is to have the elected officials and the civil servants who administer the new public insurance scheme be held accountable for their system. So, for example, if death rates go up (as is almost certain to occur), they should face penalties. They should be forced to resign. They should be legislated. The private section, if it acts negligently, can be criminally liable. The public sector is not criminally liable, ordinarily, because they say, “Well, we were just doing it because it was [missing text] that’s not our fault.” And you can say that as a public official. You cannot say that as a private official; it’s never a good enough excuse. I don’t think we need a double-standard. If our officials, elected officials, bring in a system knowing that it’s going to be, in effect, a death sentence for many New Brunswickers, they should have to be held accountable to at least the same standard that the private sector is held.

Mittelholtz: Pretty strong words there, “A death sentence for many New Brunswickers.” You really feel strongly about this. You believe that.

Solomon: Well, the evidence, from academic studies around the world, are incontrovertible. There are literally dozens of studies that show that more people die. It is a death sentence, and we’re talking about people’s lives here. And, if the government, for ideological purposes, wants to take risks with people’s lives, then it should . . . If it truly believes this, they should . . . they should put themselves . . . make themselves accountable.

Mittelholtz: All right. Lots to think about there. Mr. Solomon. Thank you very much.

Solomon: You’re welcome.

Talkback: Auto insurance, CBZ-AM, November 13, 2003

Gary Mittelholtz: Yesterday on the show we spoke with Lawrence Solomon. He’s a consumer columnist for The National Post and a director with Energy Probe in Toronto. He appeared before the New Brunswick legislature committee on public auto insurance and his message was that public auto insurance is a dead end and it’s dangerous. After that interview we got these calls to Talkback.

Caller: Hi Gary and Mainstreet. This is Larry Lack(?) in St. Andrews, and I listened to . . . I think his name is Lorne Solomon, the guy that is billed I guess as a consumer advocate, trying apparently to stop us from having public insurance in New Brunswick. And I couldn’t understand his analysis. There’s to me something very definitely missing from his . . . the way he presents this issue. It’s the same system that he says the U.S. consumers are very happy with and I don’t doubt that . . . I’m an American immigrant and I think a lot of people there do like the system. But essentially this is the same system with private insurers that we had here, and in fact we have a broader range of private insurance available to us in Canada than the U.S. does in the sense that there are a number of European companies that offer insurance here that I don’t think do business in the United States. So we have even more, in that sense, competition, the thing he says will help us. But that’s the system that, this same bunch of private insurers, as the one that raised rates astronomically high in the Maritimes and [missing text]. And it hasn’t just affected the high-risk drivers that he talked about, like the young guys with powerful souped up cars. It’s affected, I think, many more people of all ages who have clean or very safe driving records, people who are just now unable to in many cases afford to get insurance for their cars because their cars are more than 10 years old, for example, or for no apparent reasons whatsoever, rates have been raised to where people can’t afford insurance. So is this the system that Mr. Solomon wants us to continue with? Is that what he, you know, thinks as a consumer advocate that we should settle for in New Brunswick? I don’t understand it and I think he needs to explain why the system that he wants to have, you know, of private insurers and competition, should continue if it’s going to drive people . . . make it so that perfectly good drivers can’t afford insurance anymore. It doesn’t do that in the United States. Why is it doing it here? Thanks a lot, take care. Bye.

Caller: Hello, this is Stephen Boyce(?), I’m calling from Moncton. With regards to comments made by Mr. Solomon, consumer advocate, on the matter of auto insurance. I believe that Mr. Solomon, when quoting increased deaths on highways pertaining to insurance systems forgot to mention one important factor. I’m familiar with studies that show an increase in deaths occur immediately following the implementation of no-fault systems. This is the case, has been the case in studies that I’ve seen from the U.S., as well as studies that I’ve heard of from Quebec when no-fault was implemented there. The death rise toll on highways and roads slightly, the year after the implementation of no-fault. [Missing text] with the public insurance system because you can have a public insurance system that is basically a tort system, such as B.C. where no-fault doesn’t exist. So really this matter of a death rise should have no bearing whatsoever on the discussion of whether or not we should have a public insurance system. And I would agree that I wouldn’t want a public no-fault insurance system. But I would certainly encourage the implementation of a public insurance system which would maintain tort and maintain responsibility to drivers in the system. Thank you very much.

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