A Case Study in Private v. Public Enterprise: The Manitoba Experience with Automobile Insurance

Abstract

This study is designed to serve as a policy guide for those charged with decisions involving changes in automobile accident reparations systems. Performance of a monopoly government insurer, the Manitoba Public Insurance Corporation, is compared with that of private insurers operating in Alberta. Three criteria important to the insuring publicproduct, service, and price-are used to evaluate insurer performance. The conclusions are that private insurers appear clearly to have the advantage in product and service but that the government insurer has the advantage in price. The price advantage is attributable in part to charging inadequate premiums, thus creating deficits that are offset by government subsidies. When the Manitoba Public Insurance Corporation (Autopac) began operating on November 1, 1971, it already was the focus of a major political battle. Its establishment had been part of the New Democratic Party (NDP) platform. Upon gaining power, one of the NDP government's first steps was the organization of Autopac. The Winnipeg press published a stream of articles analyzing the performance of Autopac. Frequent public opinion surveys concerning Autopac were conducted by the Winnipeg newspapers. The establishment of a government corporation to write automobile insurance for an entire province provides an opportunity to study the performance of a public enterprise in a field generally served by private industry. Public automobile insurers operate also in two other Canadian provinces, British Columbia and Saskatchewan. However, the similarity between Manitoba and its largest city, Winnipeg, and Alberta and its major city, Edmonton, permits a comparison of private and public enterprise operating in like environments. Because the vocal concern of dissatisfied automobile insurance consumers is a source of persistent pressure on both the insurance industry and the insurance regulatory authorities, the focus of this study is on the consumer Kenneth F. Kennedy is Assistant Professor of Finance and Insurance, Virginia Polytechnic Institute and State University at Blacksburg. Robert I. Mehr is Professor of Finance, University of Illinois at Urbana-Champaign. He is past president of ARIA and currently editor of the Journal of Risk and Insurance. The authors thank two anonymous referees for their helpful suggestions. This paper was delivered at the 1976 annual meeting of ARIA.