Canadian Underwriter

Making ICBC a co-op one option for B.C., competition must be part of any option selected: taxpayers federation

August 25, 2017   by Canadian Underwriter

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The British Columbia government has options at its disposal to address auto insurance problems in the province – ranging from leaving the Insurance Corporation of B.C. (ICBC) to shuttering the insurer – but all should include reintroduction of competition, concludes a new report commissioned by the Canadian Taxpayers Federation (CTF).

CTF argues that “fast and furious changes” are needed in light of the “looming 30% hike to car insurance,” a figure noted in an Ernst & Young LLP (E&Y) report made public last month.

Related: Insurance Corporation of B.C. financial condition ‘seriously compromised,’ Basic Autoplan needs redesign: EY

Among its many observations, the government-commissioned EY report states the basic premiums charged by ICBC are not sufficient to cover claim costs and average minor bodily injury claim costs have risen well beyond the rate of inflation since 2000.

“The average driver in B.C. may need to pay almost $2,000 in annual total premiums for auto insurance by 2019, an increase of 30% over today’s rates, assuming current trends persist, the objective is to have ICBC’s rates cover its costs, and significant reform is not undertaken,” the report suggests.

That being the case, turning ICBC into a Vancity/Mountain Equipment Co-op (MEC) type of co-operative – coupled with competition – “would be a sensible model so long as full private sector competition exists to serve consumers on price and product options,” policy analyst and author Mark Milke suggests in the CTF report.

“So long as an ‘ICBC’ co-operative faced full competition from the private sector,” notes Political Risk: the Case for Ending ICBC’s Insurance Monopoly, “this option increases choice, service and price possibilities for consumers. It combines the usefulness of competition with a co-operative model already known by many British Columbians.”

The option is one of six Milke outlines in the report, released Thursday, if competition is accepted over monopoly.

Related: More vehicle crashes, increased injury payouts and higher vehicle repair costs contributing to proposed rate hike: ICBC

Milke notes that B.C. is second only to Ontario for having the highest auto insurance rates in the country (for 2015) and policyholders in the province witnessed the second highest percentage increase in rates, this time behind just Saskatchewan, between 2011 and 2015.

Specifically, the report notes, actual 2015 average auto insurance rates across Canada ranged from $724 in Quebec to $1,458 in Ontario, with B.C.’s average premium being $1,316 (mandatory and optional combined).

“The best auto insurance option for British Columbians is wide-open competition,” Milke says in a CTF statement. “Government monopolies made no sense in the 1970s and make even less sense in the age of the internet and easily obtained competing quotes,” he adds.

“When governments interfere in insurance markets, in the policy that should result from actuarial calculations, governments subvert the sound basis for such risk management,” Milke writes.

Related: Intact CEO hopes B.C. is ‘starting to think about introducing more competition’ in auto insurance

What suggests that “continual decisions” made since the end of competition four decades ago – before 1973, he notes auto insurance was provided by 183 private enterprise companies – includes the political shielding of riskier cohorts from actuarially based risk premiums and political interference in rate setting.”

The result of this “is that political interference, thus, skews insurance premiums higher for lower risk cohorts such as females and older drivers,” Milke notes.

The report’s other five options, combined with competition, for policymakers include the following:

  • status quo + tinkering: policy reform include legislative changes that would direct ICBC to take into account only actuarial realities, which in practice, would lead to rate increases for young males and reductions for, among others, females, older families and seniors;
  • “liquor store” model, ICBC + competition: ICBC to be retained, but with mandatory (basic) insurance opened up for competition to the private sector;
  • sell/give away shares (or both) to public, ICBC + competition: has potential, but might be sub-optimal, since an insurance company with an existing portfolio owned by every British Columbian would face great political pressure to retain the existing monopoly on basic automobile insurance and competition in the basic coverage might be thwarted;
  • privatize ICBC “AT&T”-style + full competition: province could subject ICBC to a break-up of its various components, thus creating smaller companies in competition with each other and critically in competition for consumers; and
  • shutter ICBC + full competition”: ICBC could be wound down with full competition allowed in B.C., mimicking the current Alberta competitive market for basic and optional insurance.

“We need to look at real reforms to our auto insurance system in B.C., otherwise drivers will continue to get gouged by a politically-manipulated monopoly,” CTF’s B.C. director Kris Sims notes in a press release.

“Limiting payouts to injured British Columbians and hitting them with photo radar are terrible options. Let’s break the monopoly and let competition help keep rates in check,” Sims emphasizes.

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7 Comments » for Making ICBC a co-op one option for B.C., competition must be part of any option selected: taxpayers federation
  1. david e a eldred says:

    ICBC is a goldmine for lawyers who oppose no fault insurance. The increased traffic volume will lead to more crashes and repairs. Further many accidents impede traffic for other drivers sometimes for hours at a time. With no fault insurance, the victims can be removed, a few photo’s taken , wrecks removed and ” get the traffic moving again. Now ICBC represents both drivers the innocent and the guilty. A slow legal process again benefiting the lawyers Keep political people away from management.

  2. Lou Romailler says:

    Fair and free competition is undoubtedly the best option. Short of that removing the corruption and lack of management of the peoples money in ICBC. Would go a long way toward bringing down costs allowing for compeditive lower premiums.

    Price out collision repair quotes from auto body shops if you are going to pay the bill yourself. Versus the repair payments they receive from ICBC. When ICBC is doing the paying. Amount paid for the same repair at the same shop is in the neighborhood of 30% higher. No reason for that except the careless attitude of ICBC management. When confronted with this fact. ICBC says, Well that is normal. It is well known and accepted, that we pay higher rates than charged to the public. Why ? Instead of managing costs they find it simpler and easier to raise premiums.

    The management of ICBC are not nor ever have been business people. Where management skills make the difference between survival and bankruptcy. They don’t have to be. Tenure is guaranteed and salaries are not structured to reward efficiency .

    And this is only the tip of the ice berg. Much more should be investigated than what meets the public eye.

    • Bill Bonar says:

      I agree 100% especially the fact that further investigation needs to be done as I guarantee you that once the veil is lifted, people and practices, will be running for cover as can no longer be shielded by the political walls.

      Not only are ICBC staff and especially management not business people, they’re not people people as training is done internally and up until recently external training was shunned upon and not paid for by the corporation. The end result is you have the customer savvy blind leading the customer savvy blind! Staff are not worried about putting the customer first or spending money like it was their own money as jobs are guaranteed for all status quo 9 to 5 workers, salary increases are guaranteed and are not based on performance but rather on time served!

      Whether it be a partial dismantling or a full-blown 100% competition Market something needs to be done however they’ll be a lot of people without jobs as these insurance people are limited to auto insurance and you’ll be having the same people doing the same jobs again however now they have to do it the proper way and with risk involved in actually taking the time to do a good job, care about the customer and realize that at the end of the day if you’re not performing you’re not getting a bonus and there is the potential for losing your job.

  3. Get government out of the insurance business entirely

  4. Lorien says:

    I disagree. When ICBC is properly managed, when the government is keeping it at arm’s length vs. treating it as their own personal savings account or appointing senior roles as cookies for political support, it does all the things it needs to do for the people of BC and does them well.

  5. Maurice Mcfadden says:

    If ICBC was run and managed in accordance with the initial concept set up in 1973, we would not have a problem with the so called “debt”. ICBC is a publicly owned corporation and not a “dividend” producing organization. Stop taking money out of the Optional revenues and have all revenues both basic and optional as one. The concept works but by taking money out of the fund has created the mess we are in today. Lawyers have contributed to the higher awards as well, back in 1974 the represented % of claimants was about 5% now it is over 50%. There was no advertising in the early years by lawyers. The basic plan is a solid plan and provides a good base of coverage for liability situations and accident
    benefits, plus uninsured and unidentified coverage. Let’s get the politics out of ICBC and let it run according to the original concept.

  6. karen says:

    ICBC should reduce the amount of cover they provide for basic making the private sector take on more risk. ICBC is responsible for the first $200,000 of every liability claim, they should reduce this amount, making private carriers take over the risk at a higher amount.

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