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What Are the Main Differences Between Public and Private Car Insurance in Canada?

July 10, 14
3 mins
Professional couple in grey vehicle

If you live in Lloydminster, which straddles the provincial boundary between Alberta and Saskatchewan, your car insurance rate may rely on which side of the border you call home.

In the bi-provincial city with just over 30,000 people, which assigns different postal and area codes based on the borderline, residents on the Saskatchewan side typically pay lower rates than those on the Alberta side. That's primarily due to the public insurance program run by the government there versus the private insurance policies issued to their Albertan counterparts.

If you compare insurance costs for drivers of the same age, with the same vehicle type and similar driving histories, you'll notice Saskatchewan drivers in Lloydminster pay less on the average, according to studies from The Consumers Association of Canada (CAC). This is a direct result of obtaining insurance policies from the Saskatchewan Auto Fund, a government-run, nonprofit organization responsible for insuring the province's drivers. In Alberta, drivers have the choice of which insurance provider to use and costs will vary, as you know, across different companies.

In Canada, public insurance is also available to residents in British Columbia, Manitoba, and Quebec, but those in Ontario and the Atlantic provinces must deal with private insurance companies.

Advocates for public auto insurance programs indicate the premiums are cheaper because standard rates apply to every driver, regardless of age or gender. In a comparison taken from a recent Globe and Mail report, it was shown that a 21-year-old male with a clean driving record would pay $1,332 to insure a four-year-old Chrysler minivan in Winnipeg, compared to $3,022 in Calgary and a whopping $8,069 in Toronto.

Those in favour of public auto insurance system, the CAC for example, point out that it offers fundamental business advantages such as reducing overhead costs. Since different companies have different cost structures for head offices, computer systems or employee salaries, if there were just one, such as in the public scheme, it cuts duplication and costs to create a more efficient operation. More savings are realized because profit margins aren't as big a concern because no shareholders have to be answered to and no dividends have to be paid out as would be the case in many publicly-traded, privately-run insurance companies. Advertising costs disappear because public insurance programs aren't competing and since it's just one operation running more or less like a monopoly, it can keep costs under control from ancillary operations including towing companies and auto repair shops.

On the other hand, private insurers point out that they provide choice and open competition which means that the consumer is free to switch providers if they are not satisfied. With increasing competition, customer service becomes important to keep clients as well as lower prices. Premiums, they point out, reflect the real cost of insuring a driver and rates are set based on a host of factors that affect the frequency and cost of claims. Also of importance is the cost of insurance fraud, which reflects at least 15% of the price of premiums, according to the Insurance Bureau of Canada.

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