ICBC rate changes won’t quell the financial ‘dumpster fire’

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Yesterday, the B.C. government announced the proposed changes to ICBC rates. Basically, the proposed changes intend to make bad drivers pay a higher premium while good drivers pay a lower premium. Makes sense right? Well, in theory, and in principle, it makes sense and it is commendable, but I query whether it will have the intended effect of addressing the Corporation’s deficit, the “dumpster fire”.

Addressing the Deficit

Under the current ICBC model to determine premiums, a motorist at the highest level of discount can have up to three crashes in one year and still pay the same basic premium as a new driver who is crash free. Further, for the highest level discount driver, one crash is forgiven – i.e. free – such as it would not affect his/her premium.[pullquote]”I wonder if the proposed changes will have the antithetical effect of driving away customers to the private industries.”[/pullquote]

The B.C. government estimates that 40% of claims are forgiven each year which it is said becomes subsidized by all drivers, including those that do not cause crashes. Thus, as the argument goes, the driver with the three crashes should have higher premiums to reflect the fact that they are in more accidents than the crash free driver. While it remains unclear, the B.C. government seems to suggest that somehow the changes will also minimize or eliminate good driver subsidization of bad drivers, presumably by altering or eliminating accident forgiveness.

The problem is that we must not forget that the concept of accident forgiveness is an insurance product that is offered in the automobile insurance industry almost universally. It works because the insurance company can subsidize through the spreading of the risk across the board to all its customers. This means that if ICBC were to eliminate or drastically alter the accident forgiveness product, customers – good drivers and bad – can easily go to private insurers to purchase their optional insurance merely because they provide better products for their customers, and presumably, lower premiums on optional insurance due to the mere fact that they provide a pure accident forgiveness model. Granted it won’t change the fact that the bad driver premium surcharge will be unavoidable under ICBC basic universal coverage which is mandated by law, but I wonder if the proposed changes is antithetical to ICBC’s goal of addressing the “dumpster fire” as it may have the unintended effect of driving away customers to the private industries taking revenue away from ICBC.

On a more semantic level, I query if it is a mischaracterization that the high-level discount driver with three crashes in one year is truly a “bad driver”. Indeed, the reason a driver has the highest level of discount and/or accident forgiveness is because they were a “good driver” to begin with such that they were able to accumulate the discounted rate over time, and eventually, the free accident. So, is it truly accurate to say that this person is not a “good driver” and that history of good driving becomes irrelevant in assessing good driving?

A Slap on the Wrist?

It is touted that the proposed changes will see an estimated 33% of bad drivers being affected by higher premiums with 11% seeing a $50 increase, 5% with a $50-100 increase, and 17% with $100+ increase. Yet, if you are to really think about it, are these premium surcharges sufficient? I mean, what is another $50-100 to pay for automobile insurance to most? I would suspect not much if you consider, comparatively speaking, that paying the relatively small premium you would have the privilege and convenience of a vehicle to drive. That is, will a few hundred dollars more to pay for insurance sufficient deter and alter driving behaviour from bad to good? I guess, only time will tell.

Don’t get me wrong. I also support the idea that bad drivers should be penalized with higher premiums since under the current system generally, at-fault crashes affect the vehicle rather than the driver. Indeed, lest we forget that the concept of insurance is to insure against risk. Certainly, it is not the car that causes the accident but it is the person who operates the car that does, or analogously, as stated by DMX, “Guns don’t kill people, people kill people”.

Roy Ho, Acumen Law

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