B.C. motorists are about to see a dramatic change to their auto insurance, as well as a 20 per cent cut to their premiums next year, under a no-fault system announced by the province.
Premier John Horgan unveiled Thursday the largest reforms to auto insurance since the creation of the Insurance Corp. of B.C. more than four decades ago, as his government struggles to stop financial losses at ICBC.
No-fault insurance means people involved in vehicle crashes can no longer sue for damages — except in cases involving court convictions for offences such as negligence, street racing, impaired driving, or in cases of faulty manufacturing, botched repairs and the over-service of alcohol by a business.
Instead, people will receive benefits, payments for medical treatment and compensation directly from ICBC, using amounts set by the province depending on the type of injury.
“It’s time for change at ICBC,” said Horgan. “A 20 per cent decrease in rates in the years ahead is a symbol to the people of British Columbia that we are going to wrestle this problem to the ground.”
The switch will upend B.C.’s litigation-based insurance model, in the process saving ICBC an estimated $2.9 billion in legal fees, pain and suffering, and injury claims in 2022. Roughly $1.2 billion of that will be redirected into boosting treatment benefits and quickening response times for claims. The remaining roughly $1.7 billion will go to fund the one-time rate cut of 20 per cent.
“You shouldn’t need a lawyer to access the benefits you’ve paid for,” said Attorney General David Eby. “The current auto insurance system in British Columbia simply doesn’t work.”
The government will introduce enabling legislation in the spring session of the legislature, which starts next week. But the no-fault system won’t come in until May 1, 2021 — five months before the scheduled provincial election.
In the meantime, ICBC’s basic rates will not increase in 2020, the government said.
In 2021, when no-fault takes effect, basic and optional rates will be reduced an average of 20 per cent, saving motorists an average of $400 a year, said Eby.
If the government did not make the change, rates would rise 36 per cent over the next five years, adding an average of $650 million to annual insurance costs, according to government estimates.
The cuts to premiums come after ICBC redesigned its rate-risk structure in 2018, leading to savings for some motorists but steep hikes for inexperienced drivers and youth.
Opposition Liberal Leader Andrew Wilkinson slammed the change as a cynical attempt to provide rate relief just before the next provincial election.
“The problem we have is John Horgan and the NDP are saying to us you can trust ICBC for the rest of your life,” he said. “There’s a fundamental problem of trust, in that people no longer have any faith in ICBC.”
Wilkinson repeated calls to end ICBC’s monopoly on basic rates and open up the market to private competition. He said the NDP government should follow Saskatchewan’s model and allow drivers to opt-out of the no-fault system and retain the option to sue. Roughly 0.5 per cent of Saskatchewan drivers choose to opt out of no-fault.
“Saskatchewan provides for both systems to operate at the same time at the same premium cost,” said Wilkinson. “If you don’t trust ICBC, you can go to the conventional system in Saskatchewan. Why didn’t the NDP show some faith in British Columbians to make up their own minds?”
Eby acknowledged it sounds “too good to be true” that B.C. will adopt a model that boosts benefits and cuts premiums. But he pointed to other provinces such as Manitoba and Saskatchewan that already have such systems.
“It’s only because we see it actually being delivered in two other provinces that we believe we can do it,” he said.
The new no-fault system will boost the maximum lifetime care benefits an injured person could receive from $300,000 to $7.5 million, with the additional promise that more funding will be available for visits to physiotherapists, chiropractors, counsellors and other recovery services.
For example, the amount ICBC will pay in lost wages is set to increase to $1,200 a week under no-fault, versus $740 a week set in 2019 and only $300 a week before that. People who earn more than that amount can choose to purchase additional optional insurance for extra wage benefits.
A person’s doctor, not ICBC, will decide what recovery treatments are needed and for how long, the province said.
In a scenario involving an injured child, ICBC said no-fault could provide new up-front permanent care aides worth $10,000 a month, homemaking costs, missed school compensation of up to $20,000 a year and recreational benefits that would under the current system require a lawsuit and court-awarded judgment.
The government said the benefits will be available for as long as a person needs, meaning funding for care aides and supports for more seriously injured victims could be sustained for a person’s entire lifetime and not, under the current system, simply involve a one-time lump sum payment in court that must be rationed by the victim for future years and can’t be re-litigated.
Money for pain and suffering will be eliminated for minor injuries; but for major injuries, cash compensation will be set by categories of benefits with maximum amounts set by ICBC. Repairs to vehicles will still be handled by auto adjusters with traditional damage assessments.
The model virtually eliminates the role of personal injury lawyers, who typically take one-third of the total amount awarded in a settlement and represent a powerful lobby group. They have argued a no-fault system would leave the most vulnerable victims, with the most catastrophic injuries, alone to face ICBC without legal help.
The Trial Lawyers Association of B.C. said the change puts the rights of injured and vulnerable British Columbians “at grave risk.”
“Today, this government is doubling down on its failed policy to take away the legal rights of British Columbians while protecting ICBC management who have gotten us into this mess in the first place,” said John Rice, association president.
“This move will reward bad drivers and will reduce the ability for injured and vulnerable British Columbians to receive a fair settlement when injured.”
Eliminating costly legal fees is key to driving down the premiums, said Eby; he acknowledged the change will be aggressively challenged by trial lawyers.
The only time an injured person will still be able to sue for compensation under the new no-fault model will be if the at-fault driver is convicted of intoxication, dangerous driving or other criminal negligence.
Disputes on settlements will be handled by the civil resolution tribunal, a retooled ICBC fairness commissioner and the provincial ombudsperson, though drivers can also go to court for a judicial review of decisions.
Although the system is called no-fault insurance, government officials who briefed the media Thursday said ICBC will continue to determine fault in crashes for the purpose of penalizing the at-fault driver with higher insurance premiums based on their crash history. However, everyone involved in a crash, regardless of fault, will have access to the same medical benefits.
Drivers will still be able to choose their deductible levels under no-fault, and purchase additional optional insurance from either ICBC or private providers — though optional insurance will mainly cover the areas of collision, comprehensive and travel outside of B.C.
Despite having a monopoly on basic rates, ICBC lost $2.5 billion over the past two years and is struggling to return to break-even status this year. It has blamed rising claims costs, as well as legal fees that amount to $700 million annually or one-quarter of all its expenditures.
B.C. had for years been the last province in the country to allow a purely litigation-based insurance model, called the tort system. It took a step toward reform last year with a $5,500 cap on pain and suffering costs in minor injury cases that is being challenged in court by the Trial Lawyers Association of B.C.
B.C.’s new no-fault system appears to align most closely with the structure of Manitoba, but with a more lucrative benefit maximum that compares to Saskatchewan’s levels.
In Manitoba, the Crown automobile insurer with control of compulsory basic insurance has had no-fault in place since 1993. Manitoba’s auto insurance premiums have risen 24 per cent since 2001, compared to more than 60 per cent in B.C. during the same time. Manitoba is dropping rates by almost one per cent in 2020.
In Saskatchewan, rates have not increased during the past five years and the province recorded the lowest number of road fatalities in its history in 2019.
However, B.C. did not copy Saskatchewan’s hybrid model for no-fault, in which motorists can opt out and pay to retain the right to sue. It also chose not to follow Ontario’s partial no-fault system, in which legal action is still allowed if your injuries are severe — a loss of a limb, spinal cord damage, blindness and traumatic brain injury, among others. Ontario also has a fully private marketplace, with no government role in selling insurance.
Although the announcement of a no-fault system took up much of Thursday’s announcement, Eby also revealed the province has retooled its efforts to cut down the number of expert reports used in court cases before the no-fault system comes into effect in 2021. Its first attempt to set caps on reports last year was overturned by the B.C. Supreme Court as an inappropriate infringement on judicial independence.
The government will amend the Evidence Act to set a limit of three medical expert reports a case, though leave it up to a judge’s discretion to allow more. The amount ICBC will pay for a report will also be capped at $3,000 and no more than five per cent of the total settlement disbursement.
Some of those expert report case limits will apply to the 90,000 claims still on the books at ICBC from before 2018’s minor injury cap, which accounts for as much as $10 billion in unsettled liabilities.