New research from the C.D. Howe Institute has found that Canadians are paying premiums for property & casualty (P&C) insurance that are “at the high end of international comparisons.”
In a new report entitled “The Price of Protection: Benchmarking Canada’s Property & Casualty Industry Against its Global Peers,” the research institute looks into the difference in P&C premiums Canada pays versus the rest of the world, and why the country’s premiums are relatively high nationally, while also highlighting differences among individual provinces and territories.
C.D. Howe noted that from 2015 to 2018, Canadians on average paid nearly $50 billion in insurance premiums for the three main lines of P&C insurance: liability, property, and auto. The amount is over 2.3% of Canada’s GDP annually – an important observation, as the Organization for Economic Co-operation and Development (OECD) measures the penetration and density of non-life insurance in a country by dividing its insurance market’s direct gross written premiums by the country’s GDP.
When government insurers’ data are included in the analysis, the share of Canadian GDP spent on P&C premiums increases to over 2.7%, which is slightly more than other countries which are members of the OECD.
Canada is “in good company” with other nations that spend comparable amounts for P&C insurance, the report said. Those nations also happen to be G7 members like Canada (i.e. US, UK, Germany) or are among other more “economically developed” nations (i.e. Denmark, Switzerland). And when it comes to commercial liability, Canadian businesses also pay more for their corporate insurance than those in many jurisdictions.
The report also found that Canada’s relatively high premiums appear in line with claims costs, noting about 66% of premiums are paid out in claims. However, it also found that the higher premiums do not necessarily benefit Canadian insurers; OECD data shows return on equity on average to be mid-pack at best from 2015-2018, while the Insurance Bureau of Canada return on equity data shows that actual returns to the P&C sector are among the lowest in C.D. Howe’s international sample.
“As can be seen from the results of this first benchmarking exercise, Canadians tend to pay higher premiums for risk transfer than citizens in many, if not most, other developed nations,” said Alister Campbell, president and CEO of Property and Casualty Insurance Compensation Corporation, senior fellow at C.D. Howe, and one of the authors of the report. “This is happening despite the core products being offered by a highly competitive industry with normal claims payout ratios and significantly lower returns on equity. So, the explanations must lie elsewhere.”
When it came to assessing each Canadian province and territory, C.D. Howe found that three provinces – Ontario, BC, and Manitoba – show higher-than average premiums for auto insurance. Ontario notably has a private sector-run market, while the other two have government-monopoly markets.
In terms of personal property insurance, Albertans pay the most per home – well above the national average, C.D. Howe revealed. The institute has suggested that it is in part a reflection of the costs associated with the province’s recent history with natural calamities such as floods, wildfire, and hail.
“Hopefully, this exercise will prompt, as a starting point, better data collection and reporting, and further research and dialogue, so that we can all better understand this essential – but often under-appreciated – segment of the Canadian economy,” said former C.D. Howe Institute policy analyst Farah Omran, who co-authored the report.
