Making ICBC a co-op one option for B.C., competition must be part of any option selected: taxpayers federation

The British Columbia government has options at its disposal to address auto insurance problems in the province – ranging from leaving the Insurance Corporation of B.C. (ICBC) to shuttering the insurer – but all should include reintroduction of competition, concludes a new report commissioned by the Canadian Taxpayers Federation (CTF).

CTF argues that “fast and furious changes” are needed in light of the “looming 30% hike to car insurance,” a figure noted in an Ernst & Young LLP (E&Y) report made public last month.

Related: Insurance Corporation of B.C. financial condition ‘seriously compromised,’ Basic Autoplan needs redesign: EY

Among its many observations, the government-commissioned EY report states the basic premiums charged by ICBC are not sufficient to cover claim costs and average minor bodily injury claim costs have risen well beyond the rate of inflation since 2000.

“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% over today’s rates, assuming current trends persist, the objective is to have ICBC’s rates cover its costs, and significant reform is not undertaken,” the report suggests.

That being the case, turning ICBC into a Vancity/Mountain Equipment Co-op (MEC) type of co-operative – coupled with competition – “would be a sensible model so long as full private sector competition exists to serve consumers on price and product options,” policy analyst and author Mark Milke suggests in the CTF report.

“So long as an ‘ICBC’ co-operative faced full competition from the private sector,” notes Political Risk: the Case for Ending ICBC’s Insurance Monopoly, “this option increases choice, service and price possibilities for consumers. It combines the usefulness of competition with a co-operative model already known by many British Columbians.”

The option is one of six Milke outlines in the report, released Thursday, if competition is accepted over monopoly.

Related: More vehicle crashes, increased injury payouts and higher vehicle repair costs contributing to proposed rate hike: ICBC

Milke notes that B.C. is second only to Ontario for having the highest auto insurance rates in the country (for 2015) and policyholders in the province witnessed the second highest percentage increase in rates, this time behind just Saskatchewan, between 2011 and 2015.

Specifically, the report notes, actual 2015 average auto insurance rates across Canada ranged from $724 in Quebec to $1,458 in Ontario, with B.C.’s average premium being $1,316 (mandatory and optional combined).

“The best auto insurance option for British Columbians is wide-open competition,” Milke says in a CTF statement. “Government monopolies made no sense in the 1970s and make even less sense in the age of the internet and easily obtained competing quotes,” he adds.

“When governments interfere in insurance markets, in the policy that should result from actuarial calculations, governments subvert the sound basis for such risk management,” Milke writes.

Related: Intact CEO hopes B.C. is ‘starting to think about introducing more competition’ in auto insurance

What suggests that “continual decisions” made since the end of competition four decades ago – before 1973, he notes auto insurance was provided by 183 private enterprise companies – includes the political shielding of riskier cohorts from actuarially based risk premiums and political interference in rate setting.”

The result of this “is that political interference, thus, skews insurance premiums higher for lower risk cohorts such as females and older drivers,” Milke notes.

The report’s other five options, combined with competition, for policymakers include the following:

• status quo + tinkering: policy reform include legislative changes that would direct ICBC to take into account only actuarial realities, which in practice, would lead to rate increases for young males and reductions for, among others, females, older families and seniors;
• “liquor store” model, ICBC + competition: ICBC to be retained, but with mandatory (basic) insurance opened up for competition to the private sector;
• sell/give away shares (or both) to public, ICBC + competition: has potential, but might be sub-optimal, since an insurance company with an existing portfolio owned by every British Columbian would face great political pressure to retain the existing monopoly on basic automobile insurance and competition in the basic coverage might be thwarted;
• privatize ICBC “AT&T”-style + full competition: province could subject ICBC to a break-up of its various components, thus creating smaller companies in competition with each other and critically in competition for consumers; and
• shutter ICBC + full competition”: ICBC could be wound down with full competition allowed in B.C., mimicking the current Alberta competitive market for basic and optional insurance.

“We need to look at real reforms to our auto insurance system in B.C., otherwise drivers will continue to get gouged by a politically-manipulated monopoly,” CTF’s B.C. director Kris Sims notes in a press release.

“Limiting payouts to injured British Columbians and hitting them with photo radar are terrible options. Let’s break the monopoly and let competition help keep rates in check,” Sims emphasizes.