Questionable report lauds private profit from vehicle insurance

(HALIFAX, October 9, 2003) -- In the midst of a public outcry over skyrocketing vehicle insurance rates, the Atlantic premiers commissioned the Atlantic Canada Insurance Harmonization Task Force to study the problem. The premiers of Nova Scotia, New Brunswick and Prince Edward Island were on the cusp of elections and worried about their chances. A commission is usually a good way to diffuse some of the public anger, as it gives the appearance of concern and possibility of change.

The main areas of unease for the public were the rapidly escalating premiums, the increasing numbers of people and vehicles considered ineligible for insurance by the private companies, and the uncertainty and difficulty of receiving proper compensation for accidents. Many victims must resort to lawsuits to have damages addressed properly, especially personal injuries.

The report on the insurance industry released last week for all intents and purposes does not address the public disquiet. The commission takes the concerns of the people and throws them back in their faces, suggesting that the people are responsible for the high premiums because they expect high injury settlements and that the only difficulty surrounding high premiums for the government and insurance companies is making them palatable to the public.

The commission admits that it relied on evidence and documents supplied by the Atlantic private insurance companies, the very institutions under investigation, which had the most to lose with a change in direction. The report simply compares costs of insurance schemes in various provinces, calling "public" those plans in Quebec, Manitoba, Saskatchewan and B.C. It does not clearly express what is public and what is private or even what that means. It does not go into the problem of insurance deeply, set out considerations and offer suggestions how the government should deal with vehicle accidents and insurance in the best interests of the people other than to call for harmonization of provincial regulations.

The report summarily dismisses the "public" schemes of the four provinces stating a similar plan would result in minimal savings to the public and would even occasion a "loss" in tax revenue. The report is quoted as stating, "While producing little savings for motorists, it would result in a significant loss in revenue, in terms of corporate and premium taxes, for the provincial governments -- roughly $200 million across the region."

The above statement alone reflects the capitalist bias of the authors. Where do "corporate taxes" come from if not corporate profits? Where do private insurance profits come from if not the high cost of premiums paid by the public? The vehicle insurance industry does not produce anything; it does not produce any new social product. It pools already produced social product for use in times of necessity caused by a distressingly predictable level of accidents. The authors of the report are disingenuous, as they do not speak what is in their hearts: the insurance business presents a good opportunity for finance capitalists to fleece the people of their social product. The private-profit insurance industry is a parasitic section of capitalism that produces no new value and siphons off needed social product for no good reason other than to make a few individuals rich. The problem for the industry and governments is how to pretty it up, fancy up private profit in the insurance industry to appear as really necessary and in the best interests of the people. However, no matter how much they bluster, the insurance industry along with the delivery of healthcare, education and social services produce no new social product. The private insurance industry takes already produced wealth, steals some of it as private profit and then beats its breast that it is all very, very necessary. Like any ordinary bourgeois, the authors of the report cannot conceive of any economic or social activity that does not involve making private profit and enlarging someone's capital.

The report does not analyze or clarify what constitutes a "public" or "private" system. We are simply told that certain schemes in other provinces are public when in reality they are far from "free" of private profit and the control of the monopoly insurance companies.

The report directly lauds the Atlantic governments for reducing the amount that injured people can claim for certain injuries. High injury awards cause higher premiums it claims yet in the same breath warns that "capping insurance awards" will not bring down the cost of premiums. In very convoluted logic, the report implies that low insurance settlements do not ensure low premiums yet low insurance settlements are necessary to prevent higher premiums. Possibly they really meant to say that low insurance settlements are necessary to guarantee high profits but they forgot to put that in the report.

The task force insists no matter what type of auto insurance model is considered, the main reason for rising premiums is the increase in payouts for bodily injuries but that low payouts do not result in low premiums. PEI Premier Pat Binns jumped on the anti-public insurance bandwagon. He reflected the rather low level of economic science when he said, "Their (the authors of the report) advice is that there is no absolute gains here, that really what it boils down to is the extent of injury loss paid out to people that determines the rate." What rate Mr. Binns: a high or low one? And who pays for the private profit Mr. Binns? Where does it come from? Is there a magic private insurance wand that conjures up new social product out of nothing?

Regarding the high cost of premiums the report has the novel idea of a massive PR campaign to convince people to pay up. The other suggestion is to make a big deal about how wonderful it will be to "harmonize" the insurance regulations among the four provinces. The report also insists on hammering home the insurance industry's claim (some say complete fabrication and diversion from the real problems, dangers and costs caused by the car culture) that high premiums are the result of lawsuit-happy drivers. It concludes the overriding problem is convincing Atlantic drivers to accept lower injury awards following accidents, and persuading them to happily pay the higher premiums necessary to pay the lower injury awards resulting from accidents caused by the people.

This article relies on the government press release and news media stories. The full three-volume report of the insurance commission is available at www.cap-cpm.ca

For your information: Insurance company profits jump 500 per cent

(September 29, 2003) -- Canadian insurance companies made more than $1.1 billion in profits during the first six months of 2003, according to the Insurance Bureau of Canada. Insurance companies made $466 million in profit in the first quarter and $644 million in the second -- a 500 per cent increase over profits from the same period last year.

One of the reasons cited for this massive profit increase was an average 70 per cent hike in premiums paid for all types of insurance. Large hikes in vehicle insurance rates have caused a lot of hardship for individuals and small businesses.

Privately-owned insurance companies contend they had to raise premiums to make up for huge losses they have experienced from bad investments in the stock markets and low returns in other investments. Private insurance companies use the paid premiums as a base for investments much like banks use deposits.

Unlike government public insurance that keeps a large money pool in safe securities available for claims and need not show a profit, private insurance companies rely on premiums and a steady return on sometimes-risky loans and investments to settle claims and make their private profit.

The sum of premiums paid for government insurance can be set to equal the average sum of settlement claims plus administration costs. This requires that the pool of available money always be equal to the average or projected aggregate of claims over a specified period. This projected amount must be kept in safe liquid securities available for payout as claims; otherwise it does not fit the definition of insurance against disaster.

The private insurers argue that government insurance goes against the ideology of the market economy to use every aspect of life to enlarge private capital. They argue that the pooled government insurance premiums are a lost opportunity to make private profit. They also argue that some of the profit from investing in the stock markets and elsewhere in good economic times can be used to lower premiums. Bad investment years during economic downturns mean that available pooled money is not enough to meet claims forcing a rise in premiums until profitability returns.

Public pressure in the past has forced governments to provide public insurance. All is not lost for the largest capitalists, however, as they direct governments to institute large insurance premiums for individual users and minimal payouts for claims. The government is then directed to use the excess-pooled insurance fund as a source of grants, subsidies or payouts of one sort or another. One instance of this misuse is the national unemployment insurance fund.