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The road ahead

Aaron Sutherland: No-fault insurance sounds great – until you get hurt.
Already having the worst day. ( CDeWeger /

The government has its foot firmly pressed on the gas as British Columbia nears the finish line for the introduction of no-fault insurance on May 1. Despite legal challenges that threaten much of the redesign, there is hope that, finally, drivers in this province will no longer have the dubious distinction of paying the highest auto insurance premiums in Canada…at least for a while.

So how will BC’s new no-fault insurance system work? As of May 1, individuals injured in accidents will receive benefits, payments for medical care, and wage-loss compensation in amounts pre-determined by Insurance Corporation of British Columbia (ICBC) based on the type of injuries suffered. However – and perhaps more importantly – those injured will no longer be able to seek legal recourse if they aren’t receiving the benefits they feel they need to recover.

Some (including me) have warned that ICBC’s Enhanced Care model may not be as utopian as proponents suggest. As the old adage goes, if something seems too good to be true, it probably is.

Pure no-fault systems – of which ICBC’s Enhanced Care model is – achieve lower costs by giving the insurer near-total control over claims. They determine what you need, no matter the seriousness your injury. And typically, that means you get much less.

Case in point: under no-fault, ICBC forecasts it will spend nearly $1 billion less helping drivers recover from accidents. In its latest Financial Plan released with the Provincial Budget this month, its forecast spending on claims falls from $4.7 billion in 2019/20, to $3.9 billion this year.

ICBC’s no-fault system was designed to mirror Manitoba’s, where their premiums average $1,294 per year (though ICBC’s will still run an average of $1,500 annually). Finding ways to reduce premiums BC drivers are paying is critical, but it’s worth pointing out the average injury claim paid in Manitoba last year was just $2,609, a fraction of ICBC’s most recent average of $45,000.

For years, my organization, the Insurance Bureau of Canada, has advocated for alternatives to ICBC’s monopoly, centered on giving drivers a choice and allowing competition in BC’s auto insurance market. Despite independent estimates suggesting competition would bring savings of up to $325 annually, drivers continue to be denied choice.

Instead, we’re racing towards no-fault.

The new system will certainly take cost pressures off ICBC’s balance sheet, as the crown insurer has promised that premiums will be reduced by an average of 20%.

This is welcome news. But the long-term viability of such a reduction is doubtful. ICBC’s financial reserves are woefully depleted. At the end of this year, ICBC will have just 19% of the financial capital it needs to ensure its financial health, according to its own submissions to the BC Utilities Commission. And by reducing premiums, ICBC forecasts it will lose over $400 million on the sale of insurance (in underwriting losses) over the next three years.

All this, and British Columbians will still pay some of the highest insurance premiums in Canada, at $1,500 on average. This may be because no-fault does nothing to improve ICBC’s internal operations or find efficiencies within the corporation, where operating costs now come in at a whopping $1.6 billion per year.

ICBC will still have approximately twice as many employees as any Canadian insurer with its market size and has yet to sell insurance online or adopt other innovations like usage-based, and pay per-kilometer insurance, like private insurers do.

ICBC’s no-fault system also appears specifically intended to further reduce consumer choice and create new barriers to stifle competition in the optional market. It will create a new mandatory Basic Vehicle Damage coverage for vehicle replacement and repair when a driver is not responsible for an accident. Today, this is covered by third-party liability insurance, which is open to choice and competition. This will now only be available through ICBC, despite the fact that no rationale has ever been given why ICBC should have a monopoly on the insurance that repairs your car.

Competition provides a powerful incentive for any company to keep prices down and deliver the best customer service possible. Auto insurance is no exception, and there is simply no reason why drivers should continue to be denied a choice in car insurance in this province.

In a recent interview, ICBC’s CEO, Nicholas Jimenez, called BC’s new no-fault system “the best in the country.”

Without a kilometer yet driven under the new system, and based on ICBC’s past performance, perhaps it’s best to keep our eyes open for potholes.

Aaron Sutherland is Vice-President, Pacific with the Insurance Bureau of Canada (IBC). IBC is the national association representing Canada’s private home, business, and auto insurers.