British Columbians learned last week the province’s insurance company is in dire straits.
Attorney General David Eby called the situation at ICBC a “financial dumpster fire” after the Jan. 28 announcement that the company posted a net loss of $935 million in the first nine months and a projected $1.3-billion loss by the end of the fiscal year.
There was plenty of political finger pointing on both sides, but several factors have fanned the flames.
Crashes and claims are on the rise
In December 2016, the then Liberal government directed ICBC to commission a third party, Ernst & Young, to do an independent review of the insurance company.
The report, which was submitted to the new NDP government in July, found the number of crashes on B.C. roads has been on the rise in recent years. According to data from ICBC and Transport Canada, there have been approximately 20,000 additional crashes per year in the province since 2013. Between 2013 and 2016 there was a 23 per cent increase in the number of collisions.
This increase comes despite improvements in both car and road safety over the years, and a historical decrease in the number of crashes.
Coupled with the increase in crashes is an increase in repair costs for all those damaged vehicles. In the two years before the report was published, ICBC’s repair costs went up by more than 30 per cent, totalling $1.5 billion in 2016.
“This is being driven by the increased number of crashes, rising labour costs, as well as the fact that vehicles today are more reliant on technology and expensive materials than ever before,” the report states.
More British Columbians are driving expensive, high-end vehicles. The report found that there are 70 per cent more high-value vehicles, those priced at more than $150,000, on B.C. roads now than there were in 2013.
More claims than crashes
More crashes on B.C. roads means, of course, more claims. However, with more claims per crash being filed, the rate of claims for injuries is outpacing the rate of crashes.
Between 2012 and 2016, crashes increased by 23 per cent while bodily injury claims increased by 28 per cent.
The increase in claims is mainly attributed to an increase in the number of claims being filed for minor injuries, the report states. Minor injury claims now make up almost 60 per cent of bodily injury claims, up from 30 per cent in 2000.
Payouts are also increasing
The issue of the increasing number of claims, more specifically claims for minor injuries, is exacerbated by a significant increase in the cost of settling minor injury claims, which has increased at a much higher rate than the cost of settling a claim for more serious injuries.
In 2000, an average payout for a minor injury was $8,000. In 2016 that same claim would cost ICBC $30,000, an increase of 365 per cent. During that same time, payouts for claims involving serious and catastrophic injuries has increased by 25 per cent — increasing from an average of $38,014 in 2000 to $48,078 in 2016.
Payouts for pain and suffering related to minor injuries have also seen a significant increase over the years. The average pain and suffering payout for minor injuries was $5,004 in 2000 and $16,499 in 2016 — a 330 per cent increase.
In that same time, pain and suffering payouts for more serious injuries have increased by 52 per cent, from $13,789 to $20,954.
As well, legal costs represent 24 per cent of the total cost of a claim. Overall, legal and operating expenses represent 42 per cent of ICBC’s operating expenses with payments to claimants making up the other 58 per cent.
Combined, these issues indicate a “significant structural problem within the B.C. auto insurance system: the rising number and size of claims, larger cash settlements for minor injuries, and more claims costs going towards legal representation than to claimants, all of which has led to the unsustainability of the current model,” the report said. “Fundamentally, auto insurance in B.C. has structural problems and requires major reform to resolve these issues.”
“There is no indication that the underlying issues will correct themselves,” the report states. “Reform will need to take a comprehensive view of a number of interrelated components that make up the system.”
Ernst & Young’s report makes several over-arching recommendations, including increasing the effectiveness of B.C.’s approach to road safety and re-designing the current insurance product.
Last week, Eby said the government would be announcing “major reforms” in the coming weeks.
“We are preparing significant initiatives for introduction in the spring legislature session that will keep rates affordable and see high-risk drivers pay more while low-risk drivers pay less,” he said, adding that ICBC has to cut its legal and auto-body repair costs.
Eby said the government has already started a number of difference initiatives around road safety. In November, the attorney general announced a pilot project aimed at deterring people from talking or texting while behind the wheel.
The program uses an app installed on a driver’s cellphone. The app communicates with a device plugged into a port in the vehicle and blocks the phone from being used when the device sense that the car is moving.
As well, in November the government announced increased fines for drivers with multiple distracted driving tickets. Distracted driving has been designated a high-risk driving behaviour under the ICBC Driver Risk Premium program. A driver with two distracted driving tickets in a three-year period will get dinged up to $2,000, an increase of $740 over the existing penalties.
Eby said the government has also moved to full-time activation to red light cameras and improve dangerous, high-crash intersections.
He said the government is also looking at putting a cap on minor injury claims, instituting deductibles and “other reforms to the basic insurance product to ensure that it is financially sustainable going forward not just for ICBC’s finances but in terms of the rates that drivers have to pay.”
In addition to the Ernst & Young report submitted last summer, Eby said that a second report from Price Waterhouse Cooper will be made public in the next couple of weeks.
“There are initiatives that they’ve outlined that will begin the process of bringing down costs at ICBC in other areas other than those that I’ve already outlined,” he said.
“There is no silver bullet for this issue.”