and Alexandra Burnett
Frontier Centre for Public Policy
Many Crown corporations created long ago are showing signs that they’re no longer appropriate for life in evolving competitive markets. Saskatchewan Government Insurance (SGI) may be one that’s outlived its purpose of providing vehicle insurance to Saskatchewan drivers.Ian
SGI is the monopoly owned by the government of Saskatchewan. SGI Auto Fund has provided motor vehicle insurance to all drivers in the province 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 no competition is allowed within Saskatchewan. Since SGI is a Crown corporation, it’s 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, Saskatchewan customers are forced to pay high prices. This wouldn’t be the case in a fully competitive marketplace.Alexandra Burnett
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.
The Frontier Centre for Public Policy recently 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’s 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 Corp. of British Columbia (ICBC).
Not surprisingly, profit is usually a secondary goal of government-owned corporations and that 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’re assumed at fault (and treated so) before proven faultless.
SGI 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 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.
Ian Madsen is a senior policy analyst and Alexandra Burnett is a junior research associate with the Frontier Centre for Public Policy.
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