The Safety Equation

Recent months have seen increased pressure being brought to bear by the private property and casualty insurance industry to deregulate the monopoly positions of provincial government insurers. Due to its sheer size and control of one of Canada’s largest consumer markets, the Insurance Corporation of British Columbia (ICBC) has attracted much of the lobbying fire from private insurers. Should state-run insurance monopolies exist? “That’s not for me to say, that’s a question the politicians have to deal with,” remarks Thom Thompson, president of ICBC. “But, if you’re going to have a quasi-government monopoly, then use it to focus on safety savings. We’re not in the business to make a profit, our philosophy is focused on safety,” he adds.

The conflict between private and public insurers moved from “cold war” status to outright challenges earlier this year when ICBC published survey results indicating that public insurer rates are as competitive and, in some cases, even cheaper than private company rates. The furore that erupted has far from run its course, with several private insurers already looking at a positioning in the B.C. market with the view that the politicians may be softening to pressure to deregulate at least some of the state privileges currently enjoyed by ICBC.

Thompson stands by the market rate comparison carried out by ICBC. “There was a growing perception that ICBC, and the province, has among the most expensive rates in the country — that’s not true, our rates are currently at 1984 levels. We ran the rate comparison to puncture a myth, ICBC has been progressive in getting rates down,” he says.

Engaging in battle with private insurers in a comparison price war is far from being a priority on Thompson’s “to do list”. ICBC’s mandate, he believes, is to offer value to the province’s driving insured public whilst focusing on reducing claims and therefore road safety. Private insurers, he notes, are in the business of insurance to make a profit, with ICBC the objective is to reduce claims regardless of the “profit of the business”. Essentially, Thompson eludes that ICBC is not out to drum up business but essentially reduce the cost of insurance to the public by focussing on safety initiatives. “I see the $2.2 billion incurred by ICBC in claims each year as a failure. What we are saying is that we can invest to save money and lives.”

Accident rates and vehicle population growth

An acute issue of the B.C. market, Thompson points out, is the province’s higher incidence of auto collisions compared with the rest of Canada. “On average, the risk is about 25% greater than the rest of Canada,” he observes. Does this mean that B.C.’s drivers are worse than the rest of Canada? According to Thompson, the answer is no, the higher auto collision relates more to the road infrastructure. He won’t go as far as to admit that B.C.’s roads are inadequate to handle current traffic volumes, but concedes that the increase in vehicles on the road is primarily the cause of the problem. “You don’t have to be a rocket scientist to see that an increase in vehicles on the same roads will result in a higher accident rate.” Illustrating the growth in traffic volumes, Thompson points to provincial figures showing that the number of licensed vehicles in B.C. rose to 3.208 million in 1997 compared with 3.084 million vehicles in 1995. Likewise, the number of licensed drivers increased to 3.354 million from 3.116 million over the same period.

The higher accident rate and increase in traffic volume paint the picture, he says. As such, under Thompson’s leadership, ICBC has focused its efforts on increasing road safety through the province’s “Road Improvement Program”, a joint initiative between the insurer and the provincial road and traffic control authorities. Adopting a segment of the province’s social duties is hardly typical of the activities of an insurance company, he concedes, but that in a crux is where ICBC moves down a different path from private insurers.

Motivating the cause

With a diverse career background, including a spell at a major life assurer, involvement with the B.C.-based environmental group Society for Pollution and Environmental Control, and then achieving the post of senior vice president of BC Hydro after a 20 year career with the state utility supplier, Thompson appears on the surface to be a strange candidate to head up ICBC. Pictures in the local media of Thompson driving his bicycle to work also seem in stark contrast to an industry (being insurance) renounced for its black suits and less-than-colorful image.

What then, was the attraction to taking on the ICBC post in 1995? In response, Thompson refers to his passionate interest in environmental protection and road safety. “Since a road accident several years past, I’ve always had strong feelings that more needed to be done toward road safety. As with BC Hydro where I saw opportunities to reduce wasted energy use, I saw the position of heading up ICBC as a way of making a substantial contribution to the road safety initiative.”

In addition, he remarks, “when the post was offered to me, I also felt that ICBC had done a good job in the past [on the road safety side]. I won’t get into a debate on the privatization of insurance issue, except to say that we [ICBC] are in a unique position to push loss prevention — there is a strong argument in this regard for maintaining a quasi-monopoly.”

Road safety results

Shortly after having taken over the reins of ICBC, Thompson pushed for enabling legislation for the road safety program. Beginning with radar speed cameras on the highways, the program advanced with several other initiatives with this year likely to see the official introduction of intersection cameras.

The speed cameras on highways, introduced in 1996, has probably had the single biggest impact on road safety, he comments. Due to the speed cameras, 1997’s number of fatality claims reported to ICBC fell by 29% with injury claims reduced by more than 1,500 cases. Overall, ICBC research indicates that photo radar helped reduce the claim cost that year by $30 million, Thompson states.

This year ICBC will be committing $94 million toward road safety initiatives compared with last year’s $90 million and the $60 million invested in 1997. “We’re looking at more policing, more radar, more everything — we’re adding not subtracting.”

With one in five vehicle accidents occurring at intersections with traffic lights, ICBC will be pushing hard to introduce its intersection red light cameras this year. The program is currently in test stage with three cameras operational in Surrey, Vancouver and Richmond. In the test stage, red-light runners are issued a warning letter. Eventually, 30 cameras will be brought in across the province to be rotated at 130 intersections. “We want people to know where the cameras are, just as with the speed radar cameras — it’s the most effective way of policing.” And, to combat the increased use of radar alert devices by drivers, ICBC will introducing “drone radar” devices which imitate a radar camera.

ICBC has also funded several other safety and “go green” initiatives such as high occupancy vehicle lanes (HOV) on highway 1, a safe cycling program, new legislation giving buses greater priority in traffic and the province’s vehicle emission testing program, “AirCare”. The latter has been highly successful, Thompson notes, with more than 1.515 million vehicles having been tested since 1992 (see accompanying effectiveness chart).

Looking ahead

With both the number and cost of claims dropping, ICBC reported a $120.5 million surplus for the 1998 financial year. The insurer’s claims figures are heading in the right direction, Thompson says, although a lot more can be done on the road safety front to reduce this cost.

And, with the view that B.C.’s insureds should benefit from the lower claims experience, ICBC declared a “safety dividend” of $47 million from last year’s surplus, translating to an average reduction of $24 in premiums for the insurer’s two million auto policyholders. This “Robin Hood” app roach of taking and giving back to policyholders what is reaped from safety initiatives is a central part of ICBC’s marketing strategy, Thompson confirms. As for the future, with the changes taking place in the p&c industry, he notes, “no one can for sure see the future”. That said, Thompson is sure that whatever direction the p&c business takes, “customers will drive the market”. Anticipating increased consumerism, ICBC is already working on a strategy plan to enhance its responsiveness to changing customer needs. “We’ve got new competition in B.C., and, although we’ve lost some marketshare, this is stimulating the market’s forces. ICBC will respond with competitive initiatives through its brokers,” Thompson says.