July 25, 2017 by Canadian Underwriter
The premiums charged by British Columbia’s government-run monopoly provider of basic auto insurance are “not high enough” to cover claims, the system is not sustainable and the cost of the average minor bodily injury claim has risen well beyond the rate of inflation since 2000, Ernst & Young LLP said in a report commissioned by the provincial government and released Monday.
“A redesign of the current product is required,” EY said in the 195-page report, titled Affordable and Effective Auto Insurance – a New Road Forward for British Columbia.
Insurance Corporation of B.C. provides mandatory auto coverage, dubbed Basic Autoplan, which includes third party liability, under-insured motorist protection and accident benefits. B.C. motorists can also buy optional additional coverage – such as increased liability, collision and comprehensive – both from the private sector and from ICBC.
For the basic insurance product, ICBC had net losses of $257 million in 2015 and $280 million in 2016, EY reported, adding that loss ratios were 106.5% in 2014, 115.6% in 2015 and 110.3% in 2016.
“Due to the high levels of claims, ICBC’s near- and long-term financial condition is being seriously compromised,” EY stated.
“The significant external pressures on auto insurance rates outlined in the report are consistent with what ICBC has reported to the British Columbia Utilities Commission and communicated to the public over the last few years,” ICBC said in a release. “These pressures, many of which have been seen throughout the auto insurance industry across North America, include a rapid acceleration in the number of crashes, the number of claims and the cost of those claims.”
ICBC added it has “only just begun to review” the details of EY’s report.
“A cap on pain and suffering for minor injury claims would help control the cost of minor injuries, with no impact to non-minor injured claimants and no restriction to claims for economic loss (e.g., wages and medical treatment) for minor or non-minor injuries,” EY suggested. “Such caps have been introduced and effected more stable claim costs in the auto insurance systems in Alberta, New Brunswick and Nova Scotia.”
The objective of the report was “obtaining a range of options for ICBC and the BC government to consider that would increase fairness and affordability related to Basic Insurance, with the goal of keeping future Basic rate increase in line with the rate of inflation,” EY noted.
“An average bodily injury claim for a minor injury in the year 2000 paid out $8,220, compared to an average of just over 30,000 in 2016,” an increase of 365%. This increase was more than 8% per year, or “more than four times price inflation,” EY reported.
The average claim for a non-minor injury was $38,014 in 2000 and $48,078 in 2016, a total increase of 26% or about 1.4% per annum, which is less than price inflation, EY added.
EY provided comparison to auto insurance schemes in four U.S. states (Michigan, Pennsylvania, Illinois and Massachussetts), New Zealand and three states in Australia (Victoria, Queensland and New South Wales) plus other Canadian jurisdictions.
“Ontario has one of the least effective insurance systems in Canada,” EY contended in the report. “It is filled with disputes and inefficiencies, and a very high percentage of premiums going to experts and lawyers rather than directly to claimants.”
EY provided a breakdown of costs, in policy year 2016, for ICBC’s basic product. Legal was 24% while claimant benefits were 58% (6% accident benefits, 15% property damage, 20% minor bodily injury and 17% non-minor bodily injury).