ICBC proposes changes to basic and optional rates

The Insurance Corporation of British Columbia (ICBC) is seeking a 4.9% increase to basic insurance rates, a move that it says will have an average impact of less than a dollar per month for most customers when combined with changes to optional insurance rates.

If approved, the proposed rate hike – filed with the British Columbia Utilities Commission (BCUC) on Aug. 30 – would take effect Nov. 1 on an interim basis, notes a statement from ICBC. The application is the first since late 2011.

“BCUC’s full review of the basic insurance rate application will likely not be complete until a later date,” the statement adds.

ICBC notes the majority of payments relating to bodily injury claims – which cover payouts for pain and suffering, future care and loss of wages – are made under basic insurance coverage. These claims costs rose more than $165 million in 2012 to $1.9 billion, and are more than $400 million higher than five years ago.

“For the last few years, we’ve seen our injury claims costs increase substantially, which has put a great deal of pressure on basic insurance rates,” ICBC interim president and CEO Mark Blucher says in the statement.

ICBC notes the rising number and cost of injury claims is commonly the biggest single factor driving rates for all auto insurers across North America and beyond. “There are various factors contributing to the increasing number of injury claims, including more crashes as a result of drivers being distracted behind the wheel by their smartphones, more pedestrians and cyclists on the road, and more injury claims resulting from small crashes,” Blucher says in an open letter to customers.

“There are also various factors contributing to the increasing cost of injury claims we pay out, but one particular contributing factor here in B.C. is an increase in lawyer-represented claims and resulting higher legal and medical costs,” Blucher adds in the letter.

ICBC reports that it is exploring ways to help stem the sharp upward trend in the number and cost of injury claims. “We believe the most effective way to address the issue is to focus on helping our customers get access to medical treatments,” Blucher says. “We’re also continuing to invest in road safety programs to help make our roads safer and to prevent crashes from happening in the first place.”

In the letter, Blucher points out “the reality is our claims costs are increasing year over year, and already make up 86 cents of every premium dollar collected.”

The ICBC reports that the impact of the proposed increase to basic insurance rates will be lessened by the move to lower optional rates by 4%, also effective Nov. 1.

About 80% of customers – those who purchase their full personal vehicle insurance coverage with ICBC – will witness a combined average increase of about $11 annually (or approximately $0.92 a month), the statement notes.

“We don’t think it would be right to be asking our customers for even a single dollar more per year if we hadn’t already done what we could to cut back on our own costs,” Blucher says. Measures that have helped lower costs overall include staff reductions and a heightened focus on cost efficiencies (which contributed to reducing ICBC’s operating budget by $50 million), and the continued decline in auto crime in B.C.

Blucher notes in the open letter that ICBC is “mindful of the longer-term impacts on our customers as the trend of rising injury claims costs continues. We are, therefore, taking a new approach to setting rates that will help make them more predictable.” Adjustments will be made to ICBC’s capital management program as necessary on an ongoing basis.

“This new approach will benefit customers by helping to prevent year-to-year volatility in insurance rates. It will limit any basic rate changes to within plus or minus 1.5 percentage points of the prior year’s rate change,” Blucher notes.

“Without this kind of forward-looking framework, we would be required to apply for a higher rate increase this year,” Blucher adds.