There’s no such thing as a free lunch; in this blog post, we’ll use the Canadian GOVERNMENT insurance models to explain why insurance should ALWAYS be privatized.
Private companies and private entities revolve around SHARING the risk INTERNATIONALLY. Whereas government-run public sector entities revolve around sharing the risk DOMESTICALLY. Canada’s CMHC GOVERNMENT mortgage insurance model is the 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 the root cause of rampant housing price inflation in Canada. However, because the CMHC is considered a fixture and a permanent necessity in the Canadian marketplace, the Federal political gatekeepers make sure the CMHC is never mentioned when talking about housing price inflation in Canada.
When you look at the most expensive housing markets in the world some places are justifiable, for example, if I read New York, Hong Kong, Singapore, Shanghai, Paris, London, Los Angeles or Beijing are the most expensive housing markets in the world, this would surprise nobody, but then you add Vancouver, Canada as among the most expensive cities to live in, in the world and one has to start asking some questions.
You then factor in that Canada’s most populous city, Toronto Canada, is actually cheaper to live in than Vancouver, then you have to start asking some more questions. Canada’s three largest cities are Toronto and Montreal, and coming in at a distant third is Vancouver.
What’s going on here? Well, CMHC is a FEDERAL Crown Corporation, that helps Canadians who otherwise wouldn’t qualify for a home to qualify for a home. The CHMC sells mortgage-backed securities, which Canadian taxpayers are on the hook for if the housing market crashes.
The CMHC uses the CAPITAL it receives from these mortgage-back securities and provides MORTGAGE INSURANCE to Canadian borrowers who otherwise wouldn’t qualify for a private mortgage. There’s a COST that must be paid for the mortgage-backed securities that CMHC sells.
Government-run mortgage insurance, what a great idea, socialists will argue, until you realize that GOVERNMENT insurance is really a PRICE CONTROL mechanism. Price controls are things like rent controls, minimum wage laws, TAXES, and other GOVERNMENT initiatives, that are used to REDISTRUBUTE wealth from the private sector to the public sector.
The problem with all of these government initiatives is that governments are not as resourceful as the private sector, so when the government gets money from these price controls, monopolies and taxes, the government often WASTES the money, on buying votes.
This vote buying is a huge problem in Vancouver because the local government also has its own municipal tax laws. Then you combine this with ICBC, the Insurance Corporation of British Columbia(ICBC), and what you get stuck with are layers of government insurers raising the cost of living for everyone else to benefit a few drivers or homeowners.
You have to remember that government-run insurance is a TAX; it’s not insurance. Only the Canadians who DRIVE pay for PRIVATE auto insurance, but that’s not how the GOVERNEMNT-RUN insurance systems operate.
Government-run insurance companies CAN NOT go bankrupt even if they’re insolvent, or even if they’re causing rampant price inflation. Furthermore a government run-insurance company DOES NOT pay taxes, it collects taxes.
For example, because CMHC is a thing in Canada, there’s no real mortgage insurance market in Canada, so prices are FORCED upward to PROTECT the profitability of CMHC because, remember, if the Canadian housing market crashes, the CMHC is BANKRUPT. It’s the same scenario with ICBC: if massive auto insurance claims came to ICBC, they’re not going bankrupt, they’re EQUALLY going to pass the costs onto all the taxpayers in B.C.
Then you have to factor in local rental and property rights laws, which are designed to get local governments as much capital as possible. ll of these government pricing mechanisms are designed to REDISTRIBUTE capital to the government.
Once you comprehend how GOVERNMENT-INSURANCE is fueling higher prices, you then find out that PRIVATE INSURANCE companies not only pay a lot of TAXES, they also attract a lot more capital.
With all the housing DISASTERS CMHC has caused Canadians, it’s still only worth about $300-Billion. By the way, that number is based PURELY on the CMHC MONOPOLY in the Canadian marketplace, if CMHC were privatized, the entire Canadian housing marketplace would be forced to change, as TAXPAYERS would no longer be on the hook in the event the housing market crashed, so the PRICE CONTROL mechanism that CMHC provides, in reality, is nothing more than a TAX on the Canadian public.
Now, in the PRIVATE insurance marketplace, there’s no free lunch, insurance premiums in the PRIVATE insurance market fluctuate based on market conditions, if there are a lot of claims, prices go up and the only remedy the government has is to allow PRIVATE insurance companies to be more FLEXIBLE.
If private insurance companies are receiving a lot of claims, they will usually ask the government to allow them to offer more products and give consumers more options to DOWNGRADE their coverage in order to avoid raising premiums too high.
When insurance is controlled by the government and claims are running rampant, it becomes a POLITICAL issue. So, the government would likely BAILOUT the insolvent public insurer and pass the cost over to the general public, which is why Vancouver, for example, is so expensive.
Private companies can go bankrupt; public entities can’t, and public entities can bankrupt the entire nation before declaring bankruptcy. In Venezuela, for example, the Venezuelan government never declared bankruptcy; they merely destroyed their nation’s currency.
That’s basically what’s happening in the Canadian housing market; nobody blames the Bank of Canada or the CMHC for rising prices; instead, the blame is laid somewhere else, somewhere more convenient.
So when you see housing prices in Canada rising, you may want to CONSIDER looking at the PUBLIC insurance markets and ask yourself how they are able to offer such “affordable” prices for the people who qualify. And if something public or government-owned, shouldn’t EVERYONE qualify for it? Shouldn’t EVERY Canadian qualify for CMHC?
One of the purposes for government-run auto insurance is that some drivers do not qualify for private insurance, most people do not qualify for CMHC mortgage insurance, so why is it Public?
Interesting times ahead!