Why Government Insurance Fuels Price Inflation in Canada
There is no such thing as a free lunch. In this blog post, we will use Canadian government insurance models to explain why insurance should always be privatized.
Private Insurance vs Government Insurance
Private companies and private entities revolve around sharing risk internationally. Government-run public sector entities revolve around sharing risk domestically. Canada’s CMHC government mortgage insurance model is a perfect example of how government insurance fuels domestic price inflation.
If you ask anyone who understands money and credit, the Canada Mortgage and Housing Corporation (CMHC) is often identified as a root cause of rampant housing price inflation in Canada. However, because CMHC is treated as a permanent fixture in the Canadian marketplace, federal political gatekeepers rarely mention it when discussing housing affordability.
Why Canada’s Housing Prices Raise Red Flags
When you look at the most expensive housing markets in the world, some make sense. Cities like New York, Hong Kong, Singapore, Shanghai, Paris, London, Los Angeles, or Beijing being expensive surprises no one.
However, when Vancouver, Canada is consistently listed among the most expensive cities in the world, serious questions need to be asked.
When you then factor in that Toronto, Canada’s most populous city, is actually cheaper than Vancouver, those questions become even more important. Canada’s three largest cities are Toronto and Montreal, with Vancouver a distant third.
The Role of CMHC in Housing Inflation
CMHC is a federal Crown corporation that helps Canadians who would not otherwise qualify for a mortgage to qualify for one. CMHC sells mortgage-backed securities that Canadian taxpayers are ultimately responsible for if the housing market crashes.
The capital CMHC raises from these mortgage-backed securities is then used to provide mortgage insurance to borrowers who would not qualify for private mortgages. There is a cost associated with selling those securities, and that cost is passed into the housing market.
Government Insurance as a Price Control
Government-run mortgage insurance may sound appealing, but in reality it functions as a price control mechanism. Price controls include rent controls, minimum wage laws, taxes, and other government initiatives designed to redistribute wealth from the private sector to the public sector.
The problem is that governments are far less efficient than the private sector. When governments collect money through taxes, monopolies, or price controls, that money is often wasted on political priorities and vote buying.
Layered Government Insurance and Rising Costs
This issue is especially visible in Vancouver, where municipal tax policies compound the problem. When you add ICBC, the Insurance Corporation of British Columbia (ICBC), you end up with multiple layers of government insurers raising the cost of living for everyone to benefit a small segment of drivers or homeowners.
Government-run insurance is not insurance. It is a tax. Only Canadians who drive pay for private auto insurance, but government-run systems spread costs across the entire population.
Why Government Insurers Never Fail
Government-run insurance companies cannot go bankrupt. Even if they are insolvent or cause massive price inflation, they continue operating. Government insurers do not pay taxes. They collect taxes.
Because CMHC dominates the Canadian mortgage insurance market, there is no real competition. Prices are forced upward to protect CMHC’s balance sheet. If the Canadian housing market crashes, CMHC collapses, and taxpayers absorb the loss.
The same applies to ICBC. If massive claims overwhelm ICBC, costs are simply passed on to all British Columbia taxpayers.
Public Insurance Distorts Markets
Local rental and property rights laws are designed to extract as much capital as possible for governments. These pricing mechanisms redistribute capital toward the public sector, not toward efficiency or affordability.
Once you understand how government insurance fuels higher prices, it becomes clear that private insurance companies behave very differently. Private insurers pay substantial taxes, attract private capital, and are forced to manage risk efficiently.
The Illusion of “Affordable” Government Insurance
Despite the damage CMHC has caused in Canada’s housing market, it is still valued at roughly $300 billion. That valuation exists purely because of CMHC’s monopoly.
If CMHC were privatized, the Canadian housing market would be forced to adjust. Taxpayers would no longer be responsible for housing market losses, and prices would reflect real risk rather than government-backed guarantees.
Why Private Insurance Works Better
In private insurance markets, there is no free lunch. Premiums fluctuate based on market conditions. When claims increase, prices rise. The government’s only role should be allowing insurers flexibility to offer more products and coverage options.
Private insurers often allow consumers to downgrade coverage to avoid sharp premium increases. Government insurers cannot do this because claims become political issues.
The Real Cost of Government Bailouts
When claims surge under government-run insurance, politicians respond with bailouts and shift costs onto the public. This is one of the reasons Vancouver has become so expensive.
Private companies can fail. Public entities cannot, and public entities can bankrupt an entire nation before acknowledging failure. Venezuela never declared bankruptcy. Instead, it destroyed its national currency.
Final Thoughts
This same pattern is unfolding in Canada’s housing market. Instead of holding CMHC and the Bank of Canada accountable, blame is shifted elsewhere.
When you see housing prices rising, examine the public insurance systems offering “affordable” access. If something is truly public, why does not everyone qualify for it?
If most Canadians do not qualify for CMHC insurance, why is it public at all?
Interesting times ahead.