At ICBC, we know we have a great responsibility to British Columbians and you rightfully expect high-quality service and insurance coverage from us. We also know your main concern is how much you pay for your insurance.
That’s why we want to let you know about our requirement to file an application today for a basic insurance rate increase with the British Columbia Utilities Commission, our first application since late 2011.
We are also able to reduce our optional rates which will lessen the impact on our customers. As a result, about 80 per cent of customers – those who purchase their full personal vehicle insurance with ICBC – will see an average increase of less than a dollar a month.
We don’t, however, believe it would be right to ask our customers – many of whom are dealing with their own daily financial pressures – for even a single dollar more per year without providing the reasons behind these changes.
Our focus has long been on offering our customers the best insurance coverage for the lowest possible cost and over the past five years we’ve been able to put in place a number of overall rate decreases. Things changed with the global economic downturn and a sharp increase in our injury claims costs. As a result, in late 2011, we were forced to apply for our first basic rate increase in five years.
Since then, our bodily injury claims costs, which cover payouts for pain and suffering, future care and loss of wages, continued on a worryingly sharp upward trend – totalling $1.9 billion in 2012 alone, up by $165 million from the previous year and more than $400 million from just five years ago.
The rising number and cost of injury claims is commonly the biggest single factor driving up rates for all auto insurers across North America and beyond.
There are various factors contributing to the increasing number of injury claims, including more crashes as a result of drivers being distracted behind the wheel by their smartphones, more pedestrians and cyclists on the road and more injury claims resulting from small crashes.
There are also various factors contributing to the increasing cost of injury claims we pay out but one particular contributing factor here in B.C. is an increase in lawyer-represented claims and resulting higher legal and medical costs.
While many external factors are beyond our control, we continue to look for ways to help stem the increase in injury costs. We believe the most effective way to address the issue is to focus on helping our customers access medical treatments and we are making several improvements to help achieve this.
But, whatever measures we take, the reality is our claims costs are increasing year-over-year and already make up 86 cents of every premium dollar collected.
By comparison, our administrative costs represent only approximately five cents of every premium dollar collected, with the remainder of each dollar collected covering the cost of servicing claims, road safety programs, broker commissions and insurance taxes. Despite the fact that our administrative costs have always been low compared to the industry average, we have made changes to aggressively reduce these costs even further.
Most prominently, in late 2012, we reduced our workforce by more than 260 positions – most of which came from management ranks. In addition to these changes, we heightened our focus on finding cost efficiencies throughout the company. All told, we have reduced our operating budget by $50 million. Despite these efforts, the fact remains, reducing our administrative costs can only have a negligible impact on insurance rates.
Beyond the need for a rate change this year, we are mindful of the longer-term impacts on our customers as the trend of rising injury claims costs continues. We are, therefore, taking a new approach to setting rates that will help make them more predictable.
We will be making adjustments to our capital management program to keep rates as low as possible this year and will make adjustments as necessary on an on-going basis. This new approach will benefit customers by helping to prevent year-to-year volatility in insurance rates. It will limit any basic rate changes to within plus-or-minus 1.5 percentage points of the prior year’s rate change.
This careful management of our capital framework will help us to keep rates more stable and predictable in the future.
While we face new realities today, we remain committed to providing all British Columbians with the best service and insurance coverage while keeping rates as low as possible.