Government keeps insurance rates low for B.C. drivers

Cautious approach to greater competition

Nov. 22, 2002 – The B.C. government made two decisions today to set the future course for the province’s automobile insurance market. The decisions on ICBC’s core services review and rates for 2003 were made during an open cabinet session at the legislature. First, cabinet approved ICBC’s recommended rate adjustments, continuing the process begun last year to address rating inequities resulting from the six-year rate freeze. The average rate increase for private passenger vehicles is 1.4 per cent for the basic mandatory insurance. For customers choosing to purchase optional insurance, those premiums will increase by 7.6 per cent on average. The different rates of increases are part of the effort to ensure the monopoly business does not subsidize the competitive business. Increasing costs for injury claims, higher priced vehicles and parts and increasing auto crime are the main reasons for the adjustments.

The combined average increase will be 3.9 per cent but more than one million policyholders will see their premiums drop. In addition, experienced drivers will also benefit from improved discounts. Where all drivers in a household have ten or more years of driving experience, discounts on optional insurance will improve to as much as 20 per cent from the current 10 per cent.

Second, ICBC’s core services review examined a range of options from the status quo to full privatization and the government decided to maintain ICBC as the sole provider of basic auto insurance, distributed through independent brokers. The decision recognizes that the Canadian auto insurance industry is experiencing one of its worst years in history. Given difficult market conditions, a rapid shift to full competition on basic insurance could result in much higher rates for many British Columbians, more uninsured drivers on our roads, and some customers finding it difficult to get any coverage at all.

“Our New Era commitment was clear: to keep rates low, and to increase competition in a way that would further that objective,” said Finance Minister Gary Collins. “Given current conditions in the Canadian auto insurance industry, a move to full competition on basic insurance is not an option at this time.”

To further its commitment to increase competition, the government will establish an independent, arms-length regulator to improve choice and competition in the optional insurance market. The regulator will oversee ICBC rates on both basic and optional insurance to protect the interests of policyholders and ensure ICBC does not use its dominant position to compete unfairly against private sector companies in the optional insurance market. The government will set the mandate for the regulatory authority but remove itself from future specific rate decisions. The corporation will continue to focus on reducing costs and improving the products and services it offers to its customers.

“Political involvement in the corporation has not served ICBC’s policyholders well in the past,” said Finance Minister Gary Collins. “We need an independent regulator to provide an open and transparent process to oversee rates without political interference. This will better protect the consumer and ensure fair competition.” Nick Geer, ICBC’s president, CEO and chair of the board, said “Given the current state of the auto insurance industry and financial markets, this is the time for an evolution, not a revolution, for B.C.’s drivers. An independent regulatory body will protect consumers and allow ICBC to be run like a responsible business for the benefit of its customers.”

Commenting on the need for rate adjustments, Geer said, “ICBC is not immune to the pressures that other insurers face. Rising claims costs have driven up rates across the country by an average of 15.7 per cent in the past year – up 37 per cent in Alberta and 48 per cent in Nova Scotia. ICBC has managed to reduce its controllable costs by 22 per cent but upward pressures on claims costs and uncertain financial markets leave the corporation no choice but to introduce a modest increase in rates.” The new rates take effect January 1, 2003 for policy renewals. For new policies, the changes are effective immediately. ICBC sets its rates based on where the driver lives, the purpose for which the vehicle is used, the type of vehicle, and the operator’s driving record. The corporation will continue its practice of not discriminating on the basis of age, marital status or gender. Premiums will increase by an average of 11.9 per cent for commercial vehicles. Combining changes in private passenger and commercial vehicle rates, the overall average increase is 4.8 per cent (2.0 per cent for basic and 8.9 per cent for optional).

In a related decision, ICBC’s commercial vehicle compliance and motor carrier functions will be transferred back to government; specifically to the Ministry of Public Safety and Solicitor General and the Ministry of Transportation. Commercial vehicle compliance is primarily a law enforcement function and fits much better with government’s law enforcement, security, and inter-provincial and international trade responsibilities. The motor carrier department supports the work of the Motor Carrier Commission, which reports to the Minister of Transportation.