A leaked report warns that B.C. motorists could 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.
The 203-page report by Ernst & Young says drastic measures are needed. Those 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 report was commissioned by ICBC’s board while the Liberal government was in power, but was not made public. A copy was leaked to the Vancouver Sun.
“The report is a damning indictment of the B.C. Liberals’ management of ICBC over the last 16 years,” NDP Attorney General David Eby, whose portfolio includes ICBC, said Friday in a statement. “They’ve left a real mess for us to fix.”
For their part, the Liberals say they took steps to improve the situation at ICBC, and warned the NDP against bringing back photo radar or adopting a no-fault insurance scheme.
“The NDP government needs to be upfront with British Columbians: Are they planning to adopt a no-fault insurance scheme, and are they planning to bring back photo radar — yes or no?” Andrew Wilkinson, Liberal MLA for Vancouver-Quilchena, said Saturday in a statement.
The Ernst & Young report 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 said.
While ICBC premiums are among the highest in Canada, the report said, “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 said 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.
ICBC board chairwoman Joy MacPhail, a former NDP cabinet minister appointed to the job on Thursday, received 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. ICBC’s once-profitable optional insurance business suffered a loss of $311 million in the most recent fiscal year of 2016-17, the report reveals, though ICBC has yet to release its official financial figures for that year.
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, the report says. “There is no indication that the underlying issues will correct themselves,” it says. 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 at-fault 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.
It’s also possible to let drivers buy an optional “top-up” coverage that would, in effect, give the drivers back the right to sue to replace any reduced claim money they could have got through the courts.
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, 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 a third, the Ernst & Young report says.
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 report concludes by saying implementing these measures, and others, could bring ICBC’s rate hikes down to the level of inflation, roughly two per cent a year, but that requires immediate and major work by the government.