ICBC on a collision course
Motorists could face insurance rate hikes of nearly 30 per cent within two years if drastic measures are not taken, a confidential Ernst & Young report says.
VICTORIA B.C. motorists will get hit with auto insurance rate hikes of almost 30 per cent in the next two years if the government doesn’t massively overhaul ICBC’s basic insurance system, says a confidential report obtained by Postmedia News.
The 203-page report by Ernst & Young says drastic measures are needed that could include capping payouts for pain and suffering for minor injuries, re-introducing photo radar, changing red-light cameras so they also catch speeders, boosting police efforts to catch distracted and impaired drivers, and making high-risk drivers pay more for insurance.
The review paints a bleak picture of finances at the Insurance Corp. of B.C., saying the Crown auto insurer, which has a monopoly on basic coverage, is facing unsustainable financial pressures and requires immediate intervention by the provincial government.
“B.C.’s auto insurance system is facing unprecedented challenges,” it says.
The report was commissioned by ICBC’s board earlier this year, but not yet made public. A copy was leaked to Postmedia News.
While ICBC premiums are among the highest in Canada, the report states, “they are not high enough to cover the true cost of paying claims.”
“More accidents are occurring on B.C.’s roads, and the number and average settlement of claims are increasing. Only recent government intervention has protected B.C. drivers from the currently required 15 per cent to 20 per cent price increases. This rate protection has eroded ICBC’s financial situation to a point where it is not sustainable.
“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 per cent over today’s rates,” the report said, adding that assumes that current trends persist, that ICBC is expected to cover its costs from its premiums and that significant reforms are not made.
The review of ICBC was requested by the previous Liberal government, which was under fire for years of repeated rate hikes and the Crown agency’s deteriorating finances. ICBC was forced to admit to regulators in November it might have to hike basic rates by 42 per cent, compounded over five years, but insisted that was a worst-case scenario.
The new NDP government, sworn in Tuesday, inherits the ICBC mess.
“The report is a damning indictment of the B.C. Liberals management of ICBC over the last 16 years,” Attorney General David Eby, whose portfolio includes ICBC, said in a statement on Friday. “They’ve left a real mess for us to fix.”
ICBC board chair Joy MacPhail, a former NDP cabinet minister appointed to the job on Thursday, was handed a copy of the report on Friday, the corporation said.
The report’s proposed measures stop short of a full “no-fault insurance” system, which curtails a person’s right to sue, and which an NDP government tried unsuccessfully to pursue in the 1990s.
In recent years, ICBC had been boxed into a corner by the Liberals. There were politically motivated rate caps at the same time as the number of claims and injury costs soared and earnings from the optional side of its insurance business, which have been used to keep basic rates artificially low, dwindled.
The Liberals used cash from ICBC’s profitable optional insurance business to hold rate hikes last year to 4.9 per cent, when 15 per cent was required. But that emptied the corporation’s reserves to dangerous levels.
Subsidizing basic rates with dwindling optional coverage cash is “not a sustainable solution,” warns the Ernst & Young report. The gap between basic premium revenues and rising claims costs is $560 million and the shortfall will hit $1.1 billion by 2019 if nothing is changed, said the report.
“There is no indication that the underlying issues will correct themselves,” reads the report. Instead, the “significant structural problem” in ICBC requires comprehensive change.
B.C. is the last province in Canada with a purely litigation-based insurance model, where drivers not at fault in a crash sue the atfault driver for economic loss and suffering. The review suggested B.C. could follow the models of New Brunswick, Alberta and parts of Australia by capping payouts for pain and suffering on minor injuries from $4,000 to $9,000, while at the same time increasing accident wage and medical benefits.
Minor claims have soared in cost by 365 per cent since 2000 and are eating up 60 per cent of all total injury payouts, says the report. The size of cash settlements for minor injuries is also rising, as is the number of accidents on the road and the cost to fix technology inside modern vehicles.
ICBC also doesn’t properly price insurance for higher-risk drivers with poor records, and its plans to slap surcharges on luxury vehicle coverage should be expanded to generate more revenue, says the report.
The report also recommends the return of photo radar (now called automated speed cameras), which the B.C. government stopped using in 2001 after complaints it was a cash grab.
International research says it could cut fatal and serious collisions by more than one-third, the Ernst & Young report says.
“The goal of automated enforcement is to significantly increase the perceived chances of being caught, creating a change in behaviour that will translate into a crash reduction at high-risk locations,” it read.
ICBC could also dramatically increase the number of red light cameras and reconfigure them to also photograph speeding vehicles at all intersections. That could cut the severity of accidents by 45 per cent.
The report recommends doubling the average number of random roadside breath tests for impaired driving and significantly boosting penalties (a six-month driving ban for drivers with blood alcohol levels of 0.07 to 0.10 was given as an example).
The province could also add more police to traffic units to focus exclusively on impaired and distracted driving and catch potentially tens of thousands of additional distracted drivers, mostly smartphone users, says the report.
The report concludes that implementing these measures, and others, could bring ICBC’s rate hikes down to the level of inflation, roughly two per cent per year, but requires immediate and major work by the government.