Has SGI Outlived Its Purpose?

Commentary, Crown Corporations, Alexandra Burnett, Ian Madsen

Many Crown corporations that were created by governments from long ago are beginning to show signs that they are no longer appropriate for life in evolving competitive markets. Saskatchewan Government Insurance (SGI), may be one of those corporations that has outlived its purpose for providing vehicle insurance to Saskatchewan drivers.

SGI is the monopoly Crown corporation owned by the government of Saskatchewan. SGI Auto Fund has provided motor vehicle insurance to all drivers in Saskatchewan since 1945. Additionally, there is a casualty insurance division called SGI Canada.

Surprisingly, SGI is not that different from other general insurance or motor vehicle insurance firms, except that it is a monopoly with no competition allowed within Saskatchewan. Since SGI is a Crown corporation, it is not taxable and has the implicit backing of the provincial government. All of SGI’s directors are approved by politicians. Since SGI holds a monopoly market position in Saskatchewan, customers are forced to pay high prices. This would not be the case in a fully competitive marketplace for motor vehicle insurance companies, and there seems to be little need for taxpayer money to be tied up in SGI. As is the case for most government-owned corporations, funds that are locked up in such corporations could be used more efficiently; for example, to lower government debt.

Last week, the Frontier Centre for Public Policy released a research paper in the Public Choice Alternatives series on the valuation of the SGI Auto Fund division. According to the valuation, SGI could be worth as much as $2.25 billion. SGI is able to generate free cash flow, which is a key factor in corporate survival and growth. However, SGI’s resultant substantial intrinsic value (based on free cash flow) is highly sensitive to the assumptions made about its future growth and required rate of return.

In the last few years there has been talk about the province selling part of SGI, but no details have been released. While SGI seems to fill a useful role, a private insurance corporation would be better suited to take on this risk, instead of leaving taxpayers to bear the risk of any losses, as has happened with Insurance Corporation of British Columbia (ICBC). Not surprisingly, profit is usually a secondary goal of government-owned corporations which leads to difficulties in evaluating the corporation’s effectiveness and efficiency. Saskatchewan residents are familiar with many stories of SGI making their customers jump through hoops after filing a claim, or that they are assumed at fault (and treated so) before proven faultless.

SGI currently plays a central role in Saskatchewan’s economy by providing motor vehicle insurance to all Saskatchewan drivers, but experience in other jurisdictions makes it clear that one or more private companies could take on this risk and could even provide lower rates and better service to customers. However, selling off all or part of a Crown corporation is ultimately up to the taxpayers through their elected representatives.