Provincial brokers urge “deep” review of government insurer
November 29, 2017 by Greg Meckbach, Associate Editor
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Insurance Brokers Association of B.C. (IBABC) and a provincial cabinet minister are calling for major changes to British Columbia’s money-losing government monopoly auto insurer. But it’s been four months since the release of a consultant’s report containing specific options and there is no word on whether potential product changes put forth by Ernst & Young will see the light of day.
On basic auto insurance, Insurance Corporation of British Columbia had net losses of $257 million in 2015 and $280 million in 2016, Ernst & Young reported earlier in Affordable and Effective Auto Insurance—a New Road Forward for British Columbia. The report, commissioned by ICBC, was officially released July 24 after being leaked to media.
Basic Autoplan, which includes third party liability, under-insured motorist protection and accident benefits, “has to be reviewed deeply,” said IBABC executive director Chuck Byrne in an interview Wednesday.
ICBC said in September it “needs to collect 20% more in Basic insurance premiums than it would collect by charging the current Basic insurance rates.” At the time, ICBC applied to the B.C. Utilities Commission for a 6.4% rate increase.
Contacted by Canadian Underwriter, a spokesperson for the cabinet minister in charge of ICBC (Attorney General David Eby) did not go into specifics about whether the government will make changes that EY suggested the government consider. Those changes were presented as “a range of options” to consider so that Basic Autoplan premiums would keep pace with inflation, EY said in the report. Among those options are a cap on minor injury claims, alternative dispute resolution and increasing accident benefits coverage.
IBABC officials “expect to be consulted in the next four to six weeks on potential changes” to Autoplan, Byrne said, adding the insurer “is in need of corrective action on many fronts.”
In general, “the bulk of Autoplan brokers are keen to see” changes to ICBC, Bryne said.
The EY report was commissioned before the Liberals were replaced this past July by a minority NDP government.
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I would love to see some transparency on how the poor loss ratios are broken down between Operation Costs (with payroll broken out) and the 3rd Party Liability segments. Can’t help but feel the Crown Corp is top heavy in Payroll (including Union benefits) and out of control in handling of inflated bodily injury claims (fraud). Just as important, our legal system needs to hand out tougher sentences for ‘auto fraud’ to provide a stronger deterrent.
Looking up the annual reports at their website is a good place to start. Operating costs are relatively low. Employee compensation and benefits are ~465 million with just under 6.2 billion in premiums earned. That’s 7.5% of earned revenue spent on salary. Gross expense per policy has grown by 7.9% in the past four years, which is roughly close to the rate of inflation. Salary for the executive isn’t that much either, given the scope of operations and the fact crown corporations can’t offer stock.
I would think that ICBC might be underestimating the impact of fraud, even though they believe it to be between 10 and 20%. The biggest driver for increasing costs are the costs of claims and the sheer number of claims. Those costs have doubled in less than half a decade. The E&Y report has some good recommendations that make sense, but require change at the level of provincial legislation. Right now about 25% of funds paid out in claims go to legal representation, specialists, and court costs (if I recall the E&Y report correctly).
I would love to see that as well and I would love to see an independent financial forensic auditor go through the expenses and give us an idea of where ICBC has invested the hundreds of millions of dollars to keep this entity in the red year after year, we pay some of the highest rates in Canada as it is ICBC has no competition for the minimal liability and they act like it, this needs to be transparent and solutions put on the table, for the people to judge.
If ICBC were to sell insurance online as most private insurers do they could cut out much of the fat charged by middlemen brokers and save a ton of money. No wonder brokers are pushing hard to put the burden of ICBC’s problems on injured victims instead of their own profitable businesses.