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© Rudy Lawrence and The Columbia Journal
In the Public Interest - Auto Insurance in BC
by Rudy Lawrence
As the BC government faces difficult decisions over the future
of ICBC, it is important to consider why auto insurance was publicly
provided in the first place and why it has remained that way for
three decades and seven governments of various political stripes.
There are some very good reasons why auto insurance should be
managed as a public company in the public interest. Although many
aspects of auto insurance have changed since the introduction
of ICBC, the rate practices of private providers have remained
fundamentally unaltered. Private insurers continue to base rates
on age, sex, marital status, and postal code, not on an individual's
proven driving record. This was recognized as a problem in 1972
when ICBC was first introduced and when the Social Credit government
under Bill Bennett reversed it's commitment to return to private
auto insurance, choosing instead to continue with ICBC as the
public provider of basic insurance. Successive governments have
continued to review ICBC and have continued to favor public provision
of insurance.
More recently, the Consumers' Association of Canada (CAC) concluded
the public would not be any better off under a private insurance
system. In a series of two reports, one in 1999 and an expand
ed follow up report in 2001,the Association concluded that families
and many individuals, particularly young drivers, would see a
massive increase in premiums as a result of the discriminatory
practices of a private insurance system. Hundreds of thousand
of families and young drivers would face immediate increases of
over 100%.While rates have been fairly stable in British Columbia,
Ontario is facing a massive rate hike and/or reduction in benefits
to accident victims.
The CAC also noted that provinces with private insurance systems
tend to provide fewer accident benefits than ICBC. In Alberta,
medical payments are capped at $10,000 where in BC they are capped
at $150,000. In Ontario, accident benefit victims are limited
in their right to sue for economic loss and pain and suffering.
Under the current system, BC has no limit.
Private insurance jurisdictions have also experienced problems
with uninsured drivers. Police in Ontario estimate anywhere between
eight and thirty percent of motorists drive uninsured. In Alberta,
drivers have been denied service based on their postal code, forcing
people to drive without coverage. In a system where insurers can
simply cancel a policy without notice, private insurance companies
chose you - not the other way around.
The results of open competition would be discriminatory rating
practices, higher rates and/ or reduced accident benefit coverage.
Families, young people and seniors would all be paying the price.
Even the ICBC service plan tabled by Finance Minister Gary Collins
two weeks ago demonstrates that public auto insurance in BC continues
to provide a better product for your dollar. Despite the additional
responsibility of driver licensing, vehicle registration, compliance
and road safety, ICBC continues to compare favorably with private
providers. In 2000, ICBC's expense ratio (or ratio of non-claims
costs to insurance premiums raised) was 24% (with 23.6% forecast
for 2001) compared with an industry average of 30-32%. That means
that ICBC spent more on accident benefits and less on administration
than other providers in competitive private jurisdictions. While
the reputation of ICBC is of waste and inefficiency, studies have
shown that the public provider out outperforms private industry.
The government has some difficult decisions to make when it comes
to auto insurance. While competition seems like a good idea in
theory, governments have realized for thirty years that a private
competitive system would cause more problems that it would solve.
Certainly, the current system in BC could be improved, but the
reality of a private competitive system is that drivers will pay
either with higher premiums or less coverage. It is as simple
as that.
We need to consider what is in the public interest, not in the
interest of the insurance lobby. We have seen what private insurance
did in this province thirty years ago and we can see what it does
in other provinces today. Let's not go down that road again.
Rudy Lawrence is the President of the Council of Senior Citizens'
Organizations of BC (COSCO)
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