The Insurance Corp. of British Columbia (ICBC) is in the middle of what could be one of the most dramatic corporate balance-sheet turnarounds in B.C. history.
The Crown corporation lost more than $1.3 billion in fiscal 2017-18 and more than $1.1 billion in fiscal 2018-19 – a situation that Attorney General David Eby, the minister in charge of ICBC, described as a financial “dumpster fire.”
Aggressive changes followed, and ICBC is expected to generate an $86 million profit in the 2020-21 fiscal year.
The road to that turnaround, and any profit, however, is paved with risks.
ICBC says much of its past losses stemmed from legal costs, and legislative changes took direct aim at those expenses. Unsurprisingly, lawyers are not happy at the prospect of lost business.
The Trial Lawyers Association of BC (TLABC), which represents more than 1,500 legal professionals in the province, has filed a lawsuit that claims the BC NDP government’s legislated changes, including a $5,500 cap on payouts for claims for minor injuries and pain and suffering and new limits on the amount of expert-witness testimony that will be allowed during trails, are unconstitutional.
ICBC president and CEO Nicolas Jimenez told Business in Vancouver that if the trial lawyers win in their bid to stop the cap on injury claims, his corporation’s balance sheet will take an annual $1 billion hit. If they succeed in stopping ICBC’s restrictions on the number of expert witnesses that can be called, that will cost ICBC about $440 million in the first year.
TLABC president Ron Nairne disputes that amount and thinks that restricting the number of expert witnesses would save ICBC "far less." He also believes that the legal change is also unjust because it people who are hurt the most will the worst off. Those people often require many medical professionals to attest to the extent of their injuries and the implications.
A separate risk is that ICBC may have underestimated the cost of settling more than 100,000 lawsuits that were filed before legal changes took effect last year, and therefore will be settled using old rules. ICBC expects that they will combine to cost about $16 billion.
Jimenez said that once the new changes were announced but not yet in effect, plaintiff lawyers suddenly bumped up their desired price to settle lawsuits.
Meeting those higher demands could collide with ICBC’s plans to become profitable next year.
Jimenez said ICBC’s 10-figure deficits were caused by costs shooting up while premium rates were frozen.
Injury costs were the big culprit. They jumped almost 50% between 2014 and 2018. There were more crashes, more injuries per crash and an increase in the average payout for each successful claim. Repair costs also soared thanks to the rising sophistication of vehicle technology. While fixing a windshield or a bumper may have once cost a few hundred dollars, suddenly the costs were in the thousands.
For example, Jimenez said, windshields now have sensors that control multiple functions within a vehicle and are no longer simply curved glass panels.
A plan to list auto-body shops in tiers, with the top tier comprising the fastest and least expensive, could help limit costs.
Drivers will still be able to choose their body shop, but Jimenez said they are more likely to select top-tier shops because they will expect to get better and more efficient service.
ICBC’s most controversial change is one that Jimenez stressed is revenue neutral.
“The big change we made is we used to insure the vehicle,” he said. “Now, we insure the driver.”
All drivers of a vehicle must be listed on the insurance, and 75% of the new premium rate will be based on the driving record of the person who drives the vehicle the most; the remaining 25% will be based on the record of the highest-risk driver. Jimenez said premiums will consequently be reduced for 55% of drivers.
Drivers had been eligible for a maximum safe-driving discount of 43% after nine years. The new system allows for a maximum safe-driving discount of 53% after 40 years.
ICBC will also invest more in road safety initiatives, such as cameras at intersections that flag violations and trigger a ticket being sent to the driver.
Road safety merits investments because it reduces collisions, Jimenez said.
Unlike in Alberta, where insurers do not invest in road safety because it could benefit their competitors, ICBC is a monopoly in B.C.
That means that every averted crash factors into a stronger ICBC balance sheet. •