Canadians pay more for P&C insurance compared to global peers: Research

A recent 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 .

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.

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.

Alister Campbell, President and CEO, Property and Casualty Insurance Compensation Corporation, and one of the authors of the report,  remarked, “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. 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.”