Features, faults of no-fault car insurance

New ICBC regime increases care costs, but cuts drivers’ ability to sue for pain and suffering

After more than two years’ work trying to overhaul the Insurance Corp. of British Columbia’s (ICBC) balance sheet, the provincial government has proposed a new plan to overhaul the insurer.

The new no-fault “Enhanced Care” system proposes higher care, treatment and income benefits, funded by a significant reduction in legal costs. Underpinning that is a promised shift from an adversarial and defensive culture at ICBC to one that prioritizes the care of all British Columbians injured in a motor vehicle accident, regardless of fault.

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For example, individuals will be eligible for up to $7.5 million to cover costs related to care, such as medication, physiotherapy and counselling — a significant increase above the current $300,000 threshold. Those who lose wages will be entitled to an income benefit allowance of up to $1,200 per week, a 62 per cent top-up from the current weekly cap of $740.

B.C. Attorney General David Eby says funding for Enhanced Care — which includes other benefits, such as personal care assistance, grief counselling and income replacement — will come from a drastic cut in the costs associated with challenging and defending claims.

Under the current system, ICBC projects it would pay $960 million in legal costs and $940 million in injury claim settlement costs in 2022. The new system — slated to take effect in May 2021 pending legislative approval — is expected to reduce legal costs to $100 million and settlement costs to $130 million — decreases of nearly 90 per cent and 86 per cent, respectively.

ICBC also expects pain and suffering payments to drop to $90 million under Enhanced Care, compared with an estimated $1.3 billion if changes weren’t made to the current system.

But critics take issue with how the provincial government plans to fund ICBC’s Enhanced Care.

“The government started by announcing all the things that the system would give them, but what they didn’t address were all the things that the new system was taking away,” said Shawn Mitchell, executive director of the Trial Lawyers Association of B.C.

Things taken away include the majority of ICBC’s payouts for pain and suffering, which recognize an accident’s less tangible impacts, such as inconvenience and emotional distress, along with the ability to sue another insured for additional compensation — with some exceptions — and the ability to sue ICBC if it does not administer the benefits an insured is entitled to.

“We are going to leave you with the inability to have representation in dealing with one of the most unpopular Crown corporations in the province, with a terrible track record of customer service and care, and these are now the people who are going to provide you with your primary access to financial support to aid you in accessing funds for your physical care,” said Mitchell. “It’s a little grim.”

Chuck Byrne, executive director of the Insurance Brokers Association of B.C. (IBABC), said that greater allowances for care and new permanent impairment compensation will compensate for a lot of the same things, even though the definitions differ from those of pain and suffering. ICBC’s proposed impairment compensation would award a maximum amount of $250,000 for injury impairments that last a lifetime.

Byrne added that IBABC brokers are “very, very happy” with the changes, which in their view will be of long-term, sustainable benefit to the motoring public.

According to the provincial government, British Columbians will be able to address concerns about ICBC through ICBC’s fairness commissioner, the B.C. ombudsperson or the Civil Resolution Tribunal (CRT), which has served as the default jurisdiction for motor vehicle accident and injury claims of up to $50,000 since April 1, 2019.

Ken Armstrong, president of the Canadian Bar Association British Columbia Branch (CBABC) and managing partner of Armstrong Naish Trial Lawyers, called the government’s proposed restrictions around legal recourse “fundamentally wrong.”

“Their spin of course is going to be their spin. This system will not allow people to bring actions in the court if ICBC doesn’t provide the benefits they think they’re entitled to,” he said. “We’re denying citizens the right to challenge a government authority’s exercise of its discretion before the courts.”

He added that CBABC “wholeheartedly reject[s] the government’s implication that this change will result in savings for motor vehicle accident victims, who far too often are offered settlements intended to save ICBC money.”

Armstrong practises insurance defence. He is one of approximately 2,000 lawyers in B.C. whose practices involve motor vehicle accident work, according to the Law Society of BC. Roughly 70 per cent of that group represent plaintiffs, and 30 per cent work in insurance defence. What changes at ICBC will mean for the personal injury industry has not been quantified, but the province has made it clear the Crown corporation will rely significantly less on lawyers.

Armstrong said it is unsettling, pointing out that firms typically employ more support staff than they do lawyers.

Some ICBC cost challenges remain unaddressed

Enhanced Care funnels funds otherwise spent on legal costs, settlements and pain and suffering payouts into benefits, but the plan’s long-term affordability and its impact on ICBC’s financial sustainability are unclear.

While legal costs, litigation and settlements contributed to rising claims costs at ICBC, so too have other factors, such as independent adjustment costs, inflation, an increase in policies and an increase in claims.

ICBC expects vehicle repair costs will continue to outpace the rate of inflation. They increased 56 per cent over the past 10 years and are expected to escalate. Vehicle damage costs were approximately $1.5 billion in the 2018-19 fiscal year, according to ICBC.

While pain and suffering payouts for minor injury claims were capped at $5,500 effective April 1, 2019, there are more than $10 billion in outstanding claims not subject to that limit. Otherwise, the caps and referring cases to the CRT are expected to remove $1 billion in claims costs from ICBC’s balance sheet each year.

“Those were supposed to fix our auto insurance systems, and they’re not even a year old yet, and government’s already acknowledged they’re not going to work,” said Aaron Sutherland, vice-president, Pacific, of the Insurance Bureau of Canada (IBC). For years, IBC has argued that B.C. should open its monopolized basic insurance market to competition.

“You don’t have to move towards a full no-fault system to fix the affordability crisis here in B.C.’s auto insurance. I think you could have looked towards something like competition giving drivers a choice.”

Sutherland added that moving to a no-fault system does not address ICBC’s failure to innovate or improve efficiency.

In the 2018-19 fiscal year, the Crown corporation posted a $1.15 billion net loss. That was 69 per cent higher than what ICBC had expected, largely due to more large severe bodily injury claims than anticipated, which ICBC says take longer to settle.

The provincial government has said Enhanced Care coverage will lower ICBC premiums by approximately 20 per cent. A significant portion of savings for drivers who buy optional insurance will come from not having to buy optional third-party extended liability coverage, which covers at-fault drivers for claims made against them by other motorists.

When changes take effect, drivers will see an average reduction in premiums of $400.

In the meantime, there will be no increase to ICBC’s basic insurance rate in 2020.

“Even if that 20 per cent rate decrease comes to fruition, we’re still going to have among the most expensive [premiums] in the country,” said Sutherland.

Elsewhere in Canada

Public insurers in three other provinces run no-fault insurance regimes: Manitoba, Saskatchewan and Quebec.

In Manitoba, drivers pay on average $1,140 per year in auto insurance premiums. In Saskatchewan, they pay $1,235 on average, according to IBC data. In B.C., drivers pay on average $1,832.

That is more than double the premiums paid in Quebec.

Quebec’s provincial insurer provides no-fault mandatory insurance to drivers, which is complemented by mandatory civil liability insurance — which covers damage to property — and is provided by private insurers.

On average, Quebec drivers’ annual auto insurance premiums are $717.

IBC research has found drivers in B.C. could save up to $325 per year on premiums if B.C.’s auto insurance market were open to competition. 




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