Public auto insurance the best system for BC

October 10, 2001

Almost 30 years into its mandate as British Columbia's public auto insurer, ICBC has suddenly stopped singing its own praises. With clear signals from the new government that ICBC's exclusive provision of basic auto insurance may soon be a thing of the past, the corporation has issued an edict prohibiting its workers from publicly discussing the virtues of public auto insurance on company time. A strange turn of events for a corporation that has long been proud of its work on behalf of British Columbians. But these are strange times.

It's not that there aren't a wide range of benefits inherent in the public auto system. There are. A recent report by the Consumers' Association of Canada (CAC) clearly shows there would be huge numbers of "losers" under a system of "full competition" or privatization. With extensive research comparing Vancouver to private insurance rates in Calgary and Toronto, the CAC found that ICBC's rates are very competitive across the board. They also found that for young drivers and families with young drivers, ICBC's public auto insurance system offers a substantially better deal than private systems.

In short, hundreds of thousands of British Columbians benefit from the fact that ICBC doesn't employ discriminatory rate setting based on age, gender and postal code as its core business practice. Rather, BC's public system rates drivers on the basis of their actual driving history.

Beyond the issue of individual premiums, however, there are many other reasons that a privatized auto insurance system would be bad public policy.

Full competition would mean substantial new costs for the provincial treasury, at a time of historic deficits and impending recession. These annual costs include: approximately $75 million to operate the Motor Vehicle Branch (which deals with licensing); as yet unknown millions of dollars associated with regulating and monitoring private insurance companies; $60 million for road safety (something most British Columbians support - the future of which would be very uncertain under the proposed new system); and ICBC's reimbursements to the province's Medical Services Plan.

As a single, integrated provider of both basic and comprehensive auto insurance, ICBC benefits from economies of scale that would simply be unattainable under full competition. If private firms were allowed to sell basic insurance, numerous companies would enter the market, each with its own marketing department, IT system, senior management team, claims administration system, etc. All these new players and duplication would, logically, increase costs for consumers.

BC jobs are also at stake. Head office jobs would be lost to Toronto, New York, Zurich and elsewhere. Call centre and direct sales jobs could well be located in New Brunswick, Alabama or some other low wage jurisdiction - not BC. Many of ICBC's facilities across the province could be closed. And both the Insurance Brokers Association of BC and the Automotive Retailers Association worry that the proposed change would lead to significant job loss among their members.

There are also investment impacts to be considered. Under ICBC's former Board of Directors, the corporation had a policy of targeting 20% of its $6 billion investment portfolio in BC. The new Chairman of ICBC has suggested that such "social" objectives will soon be abandoned. Clearly, under a full competition system, multinational insurance companies would invest wherever maximum returns could be made for their shareholders -- most of whom neither live in nor care about economic development in BC.

And British Columbians should not forget that ICBC operates on a break-even basis. When the company makes money, as it did last year, BC drivers benefit. In 2000, $218 million was shared amongst 90% of the provinces' drivers, who have also enjoyed a five-year rate freeze.

Finally, a key consideration in this debate relates to the trade agreements to which Canada is a signatory. Any decision to implement full competition or to privatize ICBC would likely be irreversible. That's because if a future government wanted to restore public auto insurance, the North American Free Trade Agreement and World Trade Organization would require the payment of prohibitive compensation costs to private insurance companies.

All in all, a great many questions are raised by the prospect of a fully competitive or privatized system. During the recent election campaign, Premier Campbell promised extensive consultations with the public before proceeding to change the way auto insurance is delivered in BC. Those consultations have yet to begin. But when they do, the government should listen carefully so as to fully understand what would be lost in abandoning the public auto insurance model.