ICBC asks for 4.9% increase to basic insurance rates, lower than last year’s 5.5% increase

The Insurance Corporation of British Columbia (ICBC) announced on Thursday that it will submit its 2016 basic rate application to the British Columbia Utilities Commission, asking for a 4.9% increase to basic insurance rates – lower than last year’s 5.5% increase.

If approved, this will mean an average increase of $3.50 per month for personal customers’ basic insurance coverage, ICBC explained in a press release.

“The external pressures on insurance rates in B.C. are very real and they’re accelerating, including an escalation in the number of crashes, the number of claims being filed and the cost of settling those claims,” ICBC said in the release.

Among the contributing factors was a rapid increase in the number of reported crashes. The number of crashes across B.C. jumped by 15% in two years, from 260,000 in 2013 to 300,000 in 2015. As well, the number of injury claims per 100 crashes has jumped by 32% over the last six years.

Other “external pressures” include:

• Subsequent growth in reported vehicle damage claims – More vehicle damage claims are being reported to ICBC – 232,300 over the last 12 months alone (July 2015 to June 2016), which is 23,700 more than two years ago and an increase of 11%;
• Higher vehicle repair costs – With vehicles more reliant on technology and expensive materials, compounded by an adverse U.S. dollar exchange rate, ICBC’s vehicle damage repair costs contributed to a 17% increase in vehicle damage costs in one year (2014 to 2015) to a total of $1.36 billion;
• A concerning trend in injury claims – After a few years of relative stability, the number of injury claims reported to ICBC has skyrocketed – 67,300 new injury claims over the last 12 months alone (July 2015 to June 2016), 8,000 more than just two years ago and an increase of 14%;
• Injury claims now cost more than $2 billion every year: The increasing number of injury claims has been exacerbated by the cost of settling these claims – totalling $2.4 billion in 2015 alone. That’s an increase of approximately $900 million, or 60%, over the last seven years;
• Investment income can no longer provide much relief – In recent years, ICBC’s strong investment income has been able to partially offset claims costs pressures and help mitigate rate increases. However, like many companies, ICBC is facing increasingly challenging investment markets with interest rates at historically low levels. In 2015, ICBC’s investment income was $920 million at year-end, but at the mid-way point in 2016, it sat at just $44 million.

Related: ICBC asking for 5.5% increase to basic insurance rates

“We certainly don’t like to have to ask our customers to pay more but these external pressures are very real and they have created a perfect storm which we are struggling to hold off,” said Mark Blucher, ICBC’s president and CEO, in the release. “We’ve worked hard to get this rate increase lower than last year’s but the amount of basic premiums we collect will still not cover the increasing amount we’re paying out in basic claims costs.”

To cover the costs of more crashes and more claims, ICBC would need to charge every customer approximately an extra $130 a year, the release said, which would have required a rate increase of 15.5%. Instead, in partnership with the provincial government, the corporation has implemented various initiatives aimed at alleviating the escalating pressures on auto insurance rates in the province, including:

• Transferring $472 million in optional income and capital;
• Modernizing its business, with forecasted savings of approximately $90-$100 million a year;
• Stepping up efforts to combat fraud, which is expected to reduce basic insurance claims costs by $21 million for policies written over the next year;
• Launching a distracted driving public education campaign in September;
• Hiring about 160 new claims staff, with a further 180 additional claims staff to be added later this year;
• Decreasing its executive team from 11 members in 2012 to eight today (in 2015, total executive compensation was 46% lower than in 2011); and
• Modernizing supply management practices.

Blucher added in the release that ICBC is also looking at how other jurisdictions are dealing with some of the same challenges.

The rising number of crashes, injuries and the cost of these claims, is also putting pressure on ICBC’s optional insurance rates as liability payouts above $200,000 and collision and comprehensive coverage for vehicles are covered under optional insurance, the release said. The average personal insurance customer who purchases optional extended third-party liability coverage – plus collision and/or comprehensive insurance – can expect to pay an additional $5 per month for their full basic and optional coverage.

B.C. Transportation and Infrastructure Minister Todd Stone said in a statement on Thursday that the transportation and infrastructure ministry worked closely with ICBC “to explore every possible avenue” to ensure that insurance rates remain as affordable as possible for British Columbians.

“The reality is that ICBC continues to face mounting costs as a result of the frequency, complexity, and severity of bodily injury claims, in addition to higher vehicle repair costs,” Stone said in the statement. “The actual cost of these pressures would have required a rate increase of 15.5%. However, government and ICBC have taken a number of steps to protect families from the full cost impact of these pressures. We will continue to work with ICBC to identify and implement longer-term, sustainable measures that will ease the pressure for future rate increases.”