The Manitoba government had no right to interfere in the process of setting auto insurance rates without passing a new law, the Public Utilities Board has ruled.

Premier Brian Pallister's government did not have the authority to pass a regulation earlier this year requiring Manitoba Public Insurance to increase the size of its reserve fund, the independent board said Tuesday.

The government wanted to inflate the reserve fund to cushion against unexpected rate shocks in the future, but during the PUB hearing, a consumers advocacy group argued that move undermined the independent nature of the rate approval process.

The board may feel compelled to hike rates to meet the new reserve target, representatives of the Consumers' Association of Canada's Manitoba branch said during hearings in October.

On Tuesday, the PUB ruled the government's regulation "circumscribed the rate-setting jurisdiction of the board," which can only happen through law, and thus the regulation is "invalid."

The decision pleases Gloria Desorcy, executive director of the Consumers' Association of Canada's Manitoba branch.

"It also sends a strong message that government cannot just, you know, bring in a regulation to contravene its own legislation," she said.

Decisions on the reserve account traditionally have been left to the PUB, but this spring the Progressive Conservative government decided the reserve should be maintained at approximately $350 million, which would nearly double its size.

Crown Services Minister Jeff Wharton said Tuesday afternoon he didn't know enough about the PUB's finding yet to offer an opinion.

0.6% auto insurance drop

In the same ruling, the Public Utilities Board endorsed MPI's proposed 0.6 per cent overall cut in auto insurance premiums next year — which Wharton described as "good news."

The public insurer had estimated the rate decrease for private passenger vehicles — there are more than 800,000 in Manitoba — would be an average of 0.9 per cent, or $10.

Some customers would face higher premiums. Motorcycle rates would increase an average of 5.1 per cent per year, MPI's proposal said.

A significant portion of the PUB hearing this fall was devoted to the future of auto insurance delivery and whether insurance brokers would be sidelined if more services were offered online.

The board said in its ruling it did not have the authority to direct MPI's interactions with service providers.

"Accordingly, the board is not in a position to issue directives to MPI as to how to offer online services to the public," it said.

Desorcy said she was comfortable with that, but hopes the utilities board takes a stance once an online service model is in place. She said the way auto insurance is delivered going forward will affect rates, and rate-setting is within the board's jurisdiction.

The Progressive Conservative government has previously faced accusations of interfering in MPI's dealings.

The province was accused of lobbying on behalf of insurance agents who were worried that MPI would shift some of its services online and cut brokers out of the process, the Winnipeg Free Press reported earlier this year.

Tuesday's decision proves the government is needlessly interfering in the affairs of a Crown corporation, said Mintu Sandhu, the NDP critic for Manitoba Public Insurance.

"This is what we have been saying all along," he said.