ICBC started the process of filing its basic insurance rate application with the British Columbia Utilities Commission (BCUC) on Monday but it will take a further two months to analyze emerging external pressures on basic insurance rates before it will submit the remainder of its application – including a proposal for a specific basic rate change – by October 30.
The pressure from rising number and cost of injury claims is commonly the biggest single factor driving rates for auto insurers across North America and beyond. Basic insurance rates in B.C. have experienced ongoing and increasing pressure in recent years from the number and cost of injury claims but this pressure has increased in 2015 at an even higher rate than anticipated.
“If we were to file our full application today, we would need to ask for a 6.7 per cent increase in basic insurance rates, in large part due to the unexpected and rapid escalation in the number of injury claims being reported to us in recent months,” said Mark Blucher, President and CEO of ICBC. “In the best interests of our customers, we are going to work alongside government over the next few weeks to help identify and examine steps we can take to lower the required rate increase.”
ICBC’s bodily injury claims costs, which cover payouts for pain and suffering, future care and loss of wages, topped $2 billion for the first time in 2014 and are anticipated to escalate to $2.3 billion in 2015 – an increase of 64 per cent, or almost $900 million, since just 2008. During the same period of time (2008-2015), overall insurance rates have increased by less than 10 per cent for the average personal insurance customer.
There are various factors contributing to the increasing cost of injury claims, including higher legal and medical costs, more represented claims and an increase in the number of more complex, catastrophic claims which typically result in larger settlements – sometimes running into hundreds of thousands, or even millions, of dollars.
The number of injury claims being reported to ICBC has escalated in recent months – almost 68,000 new injury claims reported over the last 12 months, approximately 7,000 more than the preceding 12 months.
Among the reasons being explored for the increasing number of injury claims being reported are more relatively minor soft tissue injury claims and potentially more exaggerated and fraudulent claims.
While the overwhelming majority of customers make honest claims, ICBC is treating all allegations of potential fraud seriously, including an expansion of its Special Investigation Unit. In 2014, ICBC opened approximately 3,200 injury claim fraud investigations – more than in any prior year.
Lower interest rates in Canada are also putting additional pressure on insurance rates across the country. Going forward, ICBC’s investment income – which helps reduce the amount customers have to pay for their auto insurance – will be negatively impacted by the Bank of Canada’s interest rate cuts as the premiums paid by customers are invested at a lower market interest rate.
In 2013, a new framework was introduced which ensures any change to basic insurance rates must be limited to within plus-or-minus 1.5 percentage points of the prior year’s rate change. The BCUC approved a 5.2 per cent increase to basic insurance rates for 2014.