ICBC wants to increase basic auto insurance rates by 4.9 per cent – the fifth straight annual increase – as it continues to grapple with rising numbers of crashes, claims and dramatically increasing costs.
The typical driver will pay $3.50 a month or $42 a year more for basic insurance if the hike is approved.
But the corporation is also raising optional rates by 2.8 per cent so the average customer who buys both basic and optional insurance with ICBC will see their insurance bill rise $5 a month, or $60 a year.
ICBC CEO Mark Blucher said the basic rate hike would have been much worse – 15.5 per cent translating into a $130 annual premium increase – had the province not approved another major transfer of $472 million from the optional to the basic side of operations.
A compounding factor has been the long decline of interest rates, which result in less investment income revenue to ICBC.
“These external pressures have really created a perfect storm and it’s a really significant challenge for the organization,” Blucher said in an interview Thursday.
ICBC had raised rates 5.5 per cent a year ago, and the province’s rate smoothing policy requires the annual change be within 1.5 per cent of the previous year’s increase.
The number of crashes has climbed 15 per cent in two years and damage claims are up 11 per cent.
Vehicles are increasingly reliant on technology and expensive materials that have become more costly in recent years as the loonie sagged against the U.S. dollar.
Despite much safer vehicles, injury claims have soared to $2.4 billion, up 60 per cent from $1.5 billion in 2008.
“We’ve seen no evidence that these strong trends are abating,” Blucher said. “In fact, if anything, they’re continuing to escalate going forward.”
Blucher also noted there are more cars on the road in B.C. today – 3.1 million up from 2.8 million in 2011 – and people are driving more because of cheaper gas, contributing to more accidents, particularly in densifying urban areas.
And he pointed to personal injury lawyers as an aggravating cause of ICBC’s spiralling claims costs.
“B.C. is the only province in Canada where you can sue another motorist for even a minor traffic accident,” Blucher said, noting an increase in lawyer-represented claims and advertising by injury law firms.
Internal operating costs have been cut by $186 million a year, and ICBC is counting on more savings ahead, through its modernization program, by more aggressively combatting insurance fraud and from a hoped-for drop in distracted driving as motorists respond to stiffer penalties.
But transfers from the optional side to bolster the basic side will likely be needed for the foreseeable future, Blucher said, because basic premiums can’t keep up with rising costs.
In a surprise move, the B.C. government will this year forgo extracting its usual $160-million annual dividend from ICBC’s optional side into general revenue.
“Forgoing the dividend this particular year is one strategy amongst a litany of others we’re employing to get that basic trate increase down,” Transportation Minister Todd Stone said.
Stone said the $514 million the province has transferred out of ICBC in dividends since 2012 is small compared to the $1.4 billion over the same period that has been shifted from the competitive optional side to basic to apply downward pressure on basic rates.
The minister would not say if the government would permanently give up the ICBC dividend.
Adrian DIx, the NDP critic for ICBC, said the dividends to government have exceeded $1.2 billion since 2010 and predicted they’ll resume after next year’s election because the BC Liberals are “addicted” to using ICBC as a “profit centre.”
Dix said the reliance on shifting huge amounts of capital from optional to basic raises troubling questions.
“Next year they’ve got to find that $472 million,” Dix said. “What they’ve done is create a disaster at ICBC and their only hope is to deceive the voters until after the election.”
He said ICBC’s new move to hire more claims staff underscores problems with completing the computer modernization that was supposed to make operations more efficient.
“The transformation project has taken longer than World War 2 and is not close to finished.”
ICBC’s basic rates rose 11.2 per cent in 2012 and at least five per cent every year since.
The new rate hike is subject to B.C. Utilities Commission approval.