Puncturing “Public” Auto Insurance Myths

Commentary, Transportation, Frontier Centre

In 2008, the average automobile insurance premium in Alberta was $1,052 while the average in British Columbia was slightly higher at $1,111. Those averages are derived from actual prices paid for premiums. They parallel my own personal experience. Earlier this year, I paid $928 in Alberta to a private insurer, Canadian Direct. That compares to the $1,281 I would have paid in B. C. where the mandatory portion of insurance must be bought from the government-owned insurer, the Insurance Corporation of British Columbia.

The provincial averages are contrary to the myth promoted on these pages last week from NDP MLA Rachel Notley, who argued that “public” insurance is superior to private.

Hardly. But it’s important to know the origins of the myth as others also make such claims.

Notley uses data from a 2005 study from the Consumers Association of Canada (CAC), which asserts Albertans paid “about $400 more per year for premiums than B. C. drivers.”

Actually, that’s not accurate either. Similar to 2008, B. C. in 2005 was a more expensive province in which to buy insurance. Alberta’s average 2005 premium was $1,011 while BC’s average was $1,153.

So how did the CAC and Notley get it so wrong? After all, Notley says the CAC’s 2005 study used “800,000 quotes from the 29 insurance companies with the largest market share in Alberta, based on 300 driver profiles in various communities.”

An average of 800,000 quotes seems like a solid sample. But it’s not, as the sample size doesn’t matter if you don’t measure actual prices. Instead, the Consumers Association measured, as Notley herself noted, “quotes.”

But quotes are not real prices paid for real insurance policies. To use an average of them as proof of expensive private-sector insurance is akin to averaging ten bids for an iPod on eBay, then claim the resulting average is equivalent to the final price paid. It isn’t.

The only average that counts is one based on what people have paid for a product. After all, I could obtain multiple quotes from insurers for far more than my $928 insurance policy. I could even come up with an average from five quotes or from 800,000 quotes. But none would mean anything as they bear no relation to what I paid. Any honest provincial average must be based on what drivers pay–not the multitude of quotes, many over-priced and which no sane person would purchase.

But that’s not the CAC’s approach. In both 2003 and 2005, the Consumers Association of Canada hyped its medians and its “averages” as if they represented something real.

But even one CAC director didn’t take those numbers seriously. Then Ontario director for the Consumers’ Association, Theresa Courneyea, was refreshingly frank when she told this author in 2003 that her provincial office “doesn’t use anything they’ve done,” referring to Cran’s national statistical junk. Courneyea also said the CAC’s studies that year “violated arithmetic.”

The 2005 studies quoted by Notley were no better.

Courneyea wasn’t the only critic. In 2006, in another example of irrelevant data used to produce junk conclusions, this time involving a CAC-initiated class-action lawsuit against the beverage industry, the CAC’s shoddy claims were again made clear by a B. C. Supreme Court justice In her June, 2006 ruling against the Consumers Association, Justice Loryl D. Russell wrote that “what methodology can be gleaned from the [CAC] affidavit is demonstrably flawed.”

On automobile insurance, the Consumers Association has consistently produced laughable conclusions derived from irrelevant data; their conclusions would garner a failing grade in a first-year statistics class.

Alberta’s New Democrats shouldn’t perpetuate the CAC’s myths on automobile insurance.