Significant changes the government announced this week to tackle a growing deficit of more than $1-billion at British Columbia's public auto-insurance provider will not be enough to stanch the bleeding, says Joy MacPhail, the chair of the Insurance Corporation of B.C.
In nine months, the anticipated deficit increased by a factor of 10, thanks to spiralling claims costs that show no signs of slowing. Ms. MacPhail's comments, in an interview with The Globe and Mail, suggest more reforms are coming, possibly including caps on injury payouts and higher premiums.
Ms. MacPhail said the rising costs of settling claims have been emerging since 2014. However, she said the deficit forecast in last year's budget has veered so dramatically off course because of trends related to the slow pace of settling litigation in B.C.'s unique-in-Canada, full-tort system, in which those who are injured can sue for all damages in court without a legislated cap on payments.
Attorney-General David Eby on Monday announced changes he expects to introduce in the spring, including a cap on minor injury claims and higher premiums for bad drivers. He said without these measures, the average B.C. driver would face a $400 rate hike next year to restore ICBC to balance.
The NDP promised in last year's election campaign to freeze ICBC rates, but they were increased by 6.4 per cent on basic insurance in November. This week, Mr. Eby refused to rule out additional rate hikes.
Ms. MacPhail said in the interview Mr. Eby's proposals will reduce the need for additional rate hikes, but she also did not rule them out.
"The proposed changes the government is talking about will go a long way to solving the problem, that's why it is so perplexing to me that these changes were not brought in earlier," she said on Tuesday. "However, it's not the resolution to all the problems."
Mr. Eby has slammed the Liberal government for not taking measures to curb ICBC's costs.
British Columbia drivers, who pay some of the highest auto-insurance premiums in the country, are not paying nearly enough to cover the cost of claims today. As a result, ICBC's deficit this year is projected to hit $1.3-billion, up from the $115-million that was forecast at the start of the fiscal year.
The shift is almost entirely due to higher claims costs – ICBC paid $3-billion to settle claims last year and, in the first nine months of this fiscal year, has paid $4.25-billion.
In 2013, the BC Liberal government introduced a "rate smoothing" policy that capped ICBC's annual increases. Since then, rates have climbed by about 5.5 per cent each year, but ICBC's costs have climbed faster. In 2017, ICBC would have needed an increase of 20 per cent to keep up with costs and the insurer is projected to require a 30-per-cent increase next year to balance its books.
Ms. MacPhail, who was appointed chair by the NDP government last July, said auto insurance claims have been rising across North America for at least three years and changes to rein in costs are overdue here.
"The insurance product has been changed virtually everywhere in North America because of these trends everyone is facing," she said.
When the NDP formed government last summer, Mr. Eby received in his transition package a detailed study from Ernst & Young warning of "significant structural problems" at ICBC. The consultants' report provided four options to reduce costs. The most dramatic would be moving to a comprehensive-care model – the so-called "no fault" option the NDP and the Liberals rejected.
But the Ernst & Young report also suggested that imposing a cap on minor injury claims – similar to the systems in Alberta and New Brunswick – could dramatically reduce costs. A cap of $7,000 to $9,000 on pain-and-suffering settlements for minor injuries, even after doubling the accident-benefits allowance and medical-payments limit – would save ICBC about $770-million.
The report noted that claims costs for minor injuries have been climbing since 2000 and in 2016 accounted for 60 per cent of total bodily injury claims paid by ICBC.
But Ms. MacPhail said two new trends emerged this year that contributed to the ballooning deficit. Many older claims that were initially assessed as minor are now heading to court as large-loss claims of more than $200,000. Over the past year, the cost of settling large-loss claims has increased by 80 per cent. As well, she said, the cases in which claimants are represented by lawyers are taking longer to settle.
The BC Liberals began 2016-2017 projecting an $11-million loss at ICBC, but the Crown corporation finished the fiscal year with a loss of more than $900-million, budget documents say.
Justine Hunter