Posted By BRETT J. SKINNER
Posted 3 hours ago
The auto insurance industry recently announced premiums are going up. This has generated political pressure for more government regulation.
Fortunately for drivers, the Ontario government instead wants to reduce some of the costs created by its existing regulatory burden on auto insurance. Ontario has decided to lower the minimum required non-catastrophic medical and rehabilitation coverage to $50,000 from $100,000.
That’s good news, because Ontario’s auto insurance regulations essentially force drivers to buy more expensive coverage than many people would voluntarily purchase if given a choice.
A 2006 comparative Fraser Institute study of auto insurance among 10 Canadian provinces, 50 U. S. states and the United Kingdom found that in jurisdictions where consumers were given a choice, they preferred a lower level of benefit coverage in exchange for lower premiums.
Premium costs tend to be higher in places where government regulations are more onerous. A lower burden of auto insurance regulation was statistically linked with more affordable premiums.
Ontario’s experience was consistent with this finding. It was ranked as the fifth most severely regulated auto insurance market and the seventh most severely regulated market in an index of consumer choice. Unsurprisingly, Ontario also ranked as the eighth most expensive place for auto insurance.
Ontario’s regulatory requirement for medical-rehabilitation coverage is largely redundant. Under the Canada Health Act and the Ontario Health Insurance Act, any acute-care health service deemed by the province to be medically necessary must be paid for through the publicly funded medicare system. In practice, acute treatment for injuries suffered in auto accidents is covered under the provincial health care system.
Catastrophic injuries and long-term disability are also insured separately and can be supplemented by tort awards. The minimum medical-rehabilitation coverage provisions of auto insurance cover the cost of treating injuries that are not classified as catastrophic, not serious enough to require medically necessary acute care.
Medical rehabilitation coverage mainly pays for physiotherapy following soft tissue injuries like sprains and whiplash. The less serious nature of the treatment paid for suggests there should be lots of room for consumers to decide how much coverage they want to buy.
Why do governments force drivers to buy more coverage than they may want or need?
One explanation is that regulators are more risk-averse than drivers and tend to require drivers to over-insure.
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