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Vehicles enter and exit the Richmond end of the Massey Tunnel that connects Richmond and Delta, B.C., on Sept. 11, 2017. B.C. is suspending rules for its money-losing public auto insurer that are designed to ensure it has enough capital to make payouts.DARRYL DYCK/The Globe and Mail

B.C. is suspending rules for its money-losing public auto insurer that are designed to ensure it has enough capital to make payouts, raising the prospect that the government will have to bail it out.

The Insurance Corporation of B.C. currently has capital reserves equivalent to 50 cents on the dollar, far below its minimum capital requirements for projected claims.

Minimum capital requirements are a key measure of the financial health of an insurance company and if ICBC wasn't backed by taxpayers, federal law would require that it keep minimum reserves of capital equal to twice its anticipated claims costs.

Attorney-General David Eby said in an interview Tuesday that ICBC in the current year is supposed to keep $1.45 in capital for every dollar expected in claims, adding that if the corporation's finances deteriorate dramatically, the NDP government would have to step in and bail it out. Mr. Eby said the only way to reach that $1.45 target would be to institute massive rate hikes for motorists – a solution that would undermine the NDP government's affordability promises.

Instead, Mr. Eby signed a cabinet order this week that effectively suspends the minimum capital target.

"The first goal is to make sure ICBC stops hemorrhaging money," the minister said. He expects it will take several years for the corporation to return to a healthy capital reserve.

But ICBC cannot even appear before its independent regulator right now to present a new rates plan, because the regulator requires that ICBC meet a minimum capital test, "and we have no prospect of having the minimum ratio until changes are made," he said.

The cabinet order eliminates the need to meet the regulator's minimum capital test, so that ICBC can present proposed changes to its rate structure that Mr. Eby hopes will restore the corporation's finances over the next three years.

"The nice-to-have, at the end, is a corporation that is financially stable on a go-forward basis that has enough capital in its reserves to cover outstanding liabilities, that is revenue positive and is delivering affordable rates and good benefits," Mr. Eby said. But those goals cannot be met while ICBC is posting losses at the present rate.

In 2013, ICBC's books were in good shape. It exceeded its minimum capital requirements, which were funded at a rate of 204 per cent. However, on the eve of the provincial election that year, the BC Liberal government enacted a "rate-smoothing" policy that capped increases in ICBC's insurance premiums – just as cost pressures were starting to explode because of a rapid increase in the number of collisions, as well as the rising costs of settling those claims.

ICBC's finances have worsened since 2013 and the corporation is set to post a $1.3-billion loss in the fiscal year just ending. Finance Minister Carole James, in her provincial budget tabled last week, said ICBC poses the single greatest risk to her fiscal plan this year.

The Attorney-General, who has responsibility for ICBC, said he now faces a long-term turnaround project. ICBC is projected to lose another $1-billion in the coming fiscal year.

Mr. Eby acknowledged that to allow the reserves to continue to shrink will pose a risk to taxpayers. "Functionally, ICBC is backstopped by government, so if ever there was a catastrophic loss scenario, where ICBC's capital wasn't sufficient to cover insured loss, they could turn to government. We don't want that situation to happen – I'm not sure about the legal definition, but that feels like it would be insolvency if ICBC couldn't meet its debts."

He said that is why urgent changes are needed to contain costs and reform the insurance products at ICBC.

Mr. Eby has already announced plans to introduce elements of no-fault auto insurance and cap payouts for pain and suffering from minor injuries, but those changes will not be introduced until April, 2019.

Another proposed change will allow ICBC to set higher rates for high-risk drivers who have multiple accidents or driving penalties.

The government is expected to introduce changes so that bad drivers pay more, but Mr. Eby said consultation will determine just what kind of driving behaviour warrants higher premiums. "This is to get people's sense of what's fair. We can all say bad drivers should pay more, the question is how much more, and who is a bad driver?"

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