B.C. regulator queries auto insurance provider on minimum capital test, rate increases

The British Columbia Utilities Commission is asking the provincial government’s auto insurance carrier to provide clarification on its claims cost management initiatives and whether B.C.’s compulsory basic public auto plan can meet the minimum capital test without more money from its optional plan or additional basic rate increases.

On Oct. 7, BCUC sent a 99-page response to a request, from Insurance Corporation of British Columbia (ICBC), to increase basic auto rates by 4.9% effective Nov. 1.

BCUC, an independent regulatory agency that oversees pipelines, electrical utilities and ICBC, has authority to approve ICBC’s basic rates but not its premiums for optional auto coverage.

The Oct. 7 “Commission Information Request” contained dozens of questions about ICBC’s Aug. 30 application to approve its capital management plan and rate increases. Responses are due from ICBC Nov. 8.

Last month, BCUC approved ICBC’s request for an interim refundable 4.9% increase to basic rates. That means the interim rate increase is subject to a refund, with interest, depending on the permanent rate increase, which BCUC has yet to approve. ICBC’s compulsory basic auto coverage includes bodily injury liability (including uninsured, underinsured and unidentified), property damage liability, medical rehabilitation, weekly benefits and death benefits.

ICBC’s optional products — with which the private sector can compete — include up to $5 million in third-party liability (whereas the compulsory government coverage mandates $200,000 limits), as well as comprehensive and collision.

When it applied for its basic rate increase, ICBC had noted that the “pressure on basic insurance rates is coming from bodily injury claims costs.” Those claims, which include pain and suffering, future care and income loss, were $1.9 billion in 2012, more than $165 million higher than in 2011, ICBC said in August.

In an exhibit with its application, ICBC cited several “claims cost management initiatives” it had undertaken, such as streamlining processes, greater use of in-house legal counsel, expanding ICBC’s centralized claims injury centre, claims segmentation and a new claims hierarchy.

In its Oct. 7 information request, BCUC asked ICBC to provide more detail on its claims handling. It asked the carrier to provide “more information about the prior claim initiatives (including the enhanced manager reviews and changes in adjuster authority levels) that have impacted the case reserve levels and to the extent to which they have impacted case reserve levels.”

In that request, BCUC asked what ICBC’s claims initiatives entail, when exactly they began and when they ended. It also asked whether those initiatives affected all claims reported after the start date and if not, what proportion of newly reported claims were affected.

BCUC also asked ICBC to clarify whether it was seeking separate approval for its 4.9% rate increase and its new basic capital management plan, meaning that BCUC could approve or deny one or both requests.

It also questioned whether an increase in basic rates would be sufficient to meet the minimum capital test, a requirement of all Canadian property and casualty insurance carriers.

ICBC noted in August that its “MCT ratio outlook as at the end of 2013 is 123%, which is lower than the current capital management target of 130% MCT.” It also wrote that its MCT ratio has “shown significant volatility” in recent years, dropping from153.4% at the end of 2010 to 114.8% the following year.

So last December, the provincial government approved an application by ICBC to direct $373 million in “excess capital” from its optional insurance capital account to ICBC’s basic insurance capital account, “in order to cause the capital available for the universal compulsory automobile insurance business to be equal to or above” 100% of MCT as of Dec. 31, 2012.

That transfer, ICBC noted last August, brought its MCT ratio to 137%. Without that transfer, the MCT ratio “would have been marginally above 100%, the regulatory minimum MCT ratio.”

In its information request, BCUC asked ICBC what the MCT ratio would have been without that $373-million transfer.

In the absence that transfer, BCUC asked, “what would have been the rate change to cover costs and the indicated rate change in the Current Application?”

BCUC is also asking ICBC to provide a breakdown indicating how much of the 37%-increase in MCT was attributable to the $373-million transfer and how much is attributable to an increase in net unrealized investment gains.

“Given recent trends in claims costs observed since 2011, is it fair to say that Basic Insurance is unlikely going to be able to rebuild the Basic MCT by itself without large Basic rate increases, further transfer from Optional, or some other form of capital injection?”

BCUC also referred to a government directive on rate increases effective Aug. 1, 2014.

“For the policyholders who have renewals between August 1, 2013 and October 31, 2013, how will they be affected by the proposed 4.9 percent Basic rate increase effective November 1, 2013, plus another rate change effective August 1, 2014, when they renew their policy on or after August 1, 2014?” BCUC asked Oct. 7. “Please explain and provide an example.”

BCUC also asked ICBC whether it has a “customer communication plan” to explain the “cumulative effects” of both a 4.9% rate increase Nov. 1, 2013 and another one Aug. 1, 2014.

“If so, please describe such plan,” BCUC stated. “If not, please explain when planning will begin or, alternatively, why it is not necessary.”