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May 4, 2021 – Canadians are paying premiums for property and casualty insurance that are at the high end of international comparisons, says a new report from the C.D. Howe Institute.

In “The Price of Protection: Benchmarking Canada’s Property & Casualty Industry Against its Global Peers” authors Alister Campbell and Farah Omran provide a comparison of premiums between Canada and its international peers and explore not only the intriguing reasons why premiums are relatively higher nationally, but also highlight some particularly significant differences between the provinces.

“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 Campbell. “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.”

The authors use OECD data to compare national P&C insurance sector’s premiums as a percentage of Gross Domestic Product. They then focus their analysis on the largest lines of P&C insurance coverage – commercial liability (liability insurance for general business risks), property and auto insurance. Finally, they take a deeper dive into the Canadian data, and compare personal property and auto insurance among all provinces and territories.

For auto insurance, three provinces contribute to the noticeably higher average premiums for Canada as a whole: BC, Manitoba, and Ontario. The authors suggest the cause is ineffective government intervention – either in the form of government monopolies (BC and Manitoba) or chronic over-regulation (Ontario).

In the case of property insurance, explanations of higher premiums are harder to identify, but the authors suggest that they are likely due to a combination of naturally risk-averse Canadian consumers, the costs of higher prudential capital requirements and the absence of government mechanisms common in many other developed nations to support consumers facing catastrophe risk (e.g., earthquakes, flooding) – leaving consumers to absorb a higher total share of risk from these types of event through higher risk-transfer premiums.

Finally, the authors note that the Canadian commercial insurance sector – largely unregulated and highly competitive – charges premiums generally in line with other major G7 nations.

“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 Omran.

Read the Full Report

For more information contact: Alister Campbell, former P&C industry CEO and Senior Fellow at the C.D. Howe Institute; Farah Omran, former Policy Analyst at the C.D. Howe Institute; or David Blackwood, Communications Officer, the C.D. Howe Institute, 416-873-6168, dblackwood@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.