ICBC.Affordable

After decades of stability in the British Columbia auto insurance market, the frequency and severity of accidents increased rapidly in the several years leading up to 2016. This has created concerns over availability and affordability. Recent initiatives, such as increased penalties for drunk driving, have not been enough to resolve these issues. This paper is the result of an external review commissioned by the Ministry of Transportation.

Even though this paper was published in July of 2017, the topic of auto insurance in BC is not new to the syllabus. The previous paper was removed from the syllabus for the Fall.2018 sitting. Prior to Spring.2015, it was heavily tested, but seems to have been dropped in recent sittings, and became one of the lower-ranked papers (bottom 20%). In any case, the questions were repetitive and pretty easy. You can learn everything in an hour or two, then just review as necessary.   Forum

Pop Quiz

Can you recall the legal case involving BC public auto from McD.Intro?

BattleTable

E (2018.Fall #5)

Marshall.Benefits

BC injury compensation: - proposals for improvement

Marshall.Benefits

Marshall.Benefits

In Plain English!

Section 2: Executive Summary

Challenges

I live in Ontario, so what in the world would I know about auto insurance in BC?! I live in a downtown Toronto condo and my 2001 Toyota Camry sits in my parking spot on P4 week after week, sobbing gently because I hardly ever take her out. :-(

Be that as it may, it behooves us to learn the basics of BC auto insurance. First of all ICBC stands for Insurance Corporation of British Columbia, a provincial Crown corporation. That means it's government owned & operated. So, what exactly does ICBC do?

ICBC is the sole provider of a mandatory basic insurance package called Basic Autoplan. It offers 5 coverages: (TPL, UM, AccBen, hit & run, inverse liability)

(I'm assuming you guys know that TPL = Third Party Liability, UM = un/under-insured motorist protection, AccBen = Accident Benefits.) Alice the Actuary loves fast cars and hopes one day to be an organ donor, so she buys additional coverage either through ICBC's Autoplan Optional or the private market. Pedal to the metal, baby!

An unique characteristic of BC's system is that it is litagation-based. That means the not-at-fault driver can sue the at-fault driver for any level of damages.

Question: identify issues that are impacting availability & afforability of auto insurance in BC, and identify a target outcome of reform in each case

Here is the answer:

issue	target outcome
increasing frequency of accidents	change high-risk driving behaviors
claims-per-accident is increasing	change claimant behavior by product redesign
severity of minor injury claims is increasing (especially for pain & suffering)	change focus from cash to prompt medical care
proportion of costs due to minor injuries ranges from 30% to 60% of total BI claims	cap pain & suffering compensation, reduce legal costs
premiums don't cover claims costs	sustainable and affordable premiums

I think this is a very likely exam question, so you have to have a good way of memorizing it. I underlined the key words in the issue column:

• frequency, claims-per-accident, severity, proportion, premiums

If you can remember the words in that list, you should be able to fill in the rest. It's important to remember that not only is severity increasing, but that severity for minor claims is increasing. I bet you would lose points on the exam if you didn't mention the part about minor injuries.

The paper discusses these issues in great detail in Section 2, with many brightly colored charts and tables! That's way too much detail for the exam, but it might be helpful to read the first paragraph of the discussion for each of these 5 issues. That way, you get a little more context than just memorizing the above table.

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Opportunities

We've just identified five challenges for BC auto insurance; now we have to address those challenges. I think it's funny that in the paper, they talk about "opportunities". But what they really mean is:

We f**ked up! Now how are we going to pretend to fix things so that we don't get voted out in the next election???!!!!

Actually, I'm sure they're doing the best they can in a difficult situation. Anyway, I'm afraid I have to drop another list on you. The good news is that this next list, along with the table in the previous section, are probably all you need to know. If I were taking the exam and running short on time, I would memorize these challenges and "opportunities", and call it a day. You can probably even skip the target outcomes above since the opportunities below basically cover the same ideas.

Question: identify opportunities to address the challenges to BC auto insurance identified in the previous section

Here is the answer:

Opportunity #1	increase road safety (cameras at intersections, automated speed enforcement)
Opportunity #2	auto product redesign (details below)
Opportunity #3	interim measures (claims management improvements, non-insurance investments, change risk-rating model)

Notice that auto product redesign is highlighted in red font. That's because of the three, it's by far the most important in achieving the sustainability & affordability goals of reform. It's a good idea to know at least a few specific things that might be involved in product redesign:

• Cap pain & suffering for minor injuries
• increase Accident benefits (no-fault compensation) for wages & medical payments
  • this may seem counter-intuitive but increasing no-fault benefits should substantially decrease litigation and associated legal costs
• increase Proportion of premiums paid out in benefits (currently only 58%) - could be achieved by more efficiency in claims management

Alice just pointed out a neat little memory trick for the specifics of product redesign. I'm sure you already see it: CAP. As far as remembering the 3 opportunities, they are fairly common sense.

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Section 4: An Effective System

Ok, one last thing from this paper: Guiding Principles of an effective auto insurance system. Something tells me this isn't a big deal, but I figured out an easy way to remember it. Let's reword it as follows:

Question: What are the FASES (faces) of an effective auto insurance system

I'm doing some wordplay here: Instead of guiding principles, let's say faces of an auto insurance system, but then intentionally misspell faces as fases where the letters mean:

• Fair
• Affordable
• Sustainable
• Efficient (good claims management, etc...)
• Simple

I hope that helps!

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Contrast with Ontario Auto Insurance

A great exam question would be to compare and contrast BC and Ontario auto insurance with respect to:

• the auto insurance product
• problems with each system
• proposed solutions

This is discussed in the wiki article Marshall.Benefits, which is about Ontario auto insurance. In fact, I'll say that's likely to be asked sooner or later. It's interesting that papers on issues with BC auto and Ontario auto both appeared on the syllabus at the same time!

BattleCodes

Memorize:

• role of ICBC in BC Auto Insurance
• 5 challenges in the BC public auto insurance market
• 3 opportunities in BC public auto insurance market
• guiding principles (FASES) of an effective auto insurance system

Conceptual:

• The public auto insurance market in BC functioned effectively for several decades, but the world changes, and the system needs to adapt.

Calculational:

• none

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POP QUIZ ANSWERS

Case: BC Public Auto: CIC v AG(BC) (Canadian Indemnity Corporation v Attorney General of BC)

Facts:

• BC legislature establishes compulsory public auto insurance plan

- legislature refuses license renewal of private insurers

- Insurers sue

Arguments:

• insurers claimed BC legislation is ULTRA VIRES for 2 reasons:

- it relates to regulation of trade, which is federal:

- province can't legislate to deprive federally incorporated insurer of status & capacity

Ruling (Supreme Court):

• BC legislature acted within its powers (legislation is INTRA VIRES)