Werner Antweiler: Toward care-based automobile insurance in B.C.
Credit to Author: Hardip Johal| Date: Mon, 10 Feb 2020 02:00:58 +0000
When fiscal deficits reached the billion-dollar range, British Columbia’s auto insurer, ICBC, hit a critical juncture.
To fix what B.C.’s attorney-general memorably called a “dumpster fire,” there are only two paths forward. Either bring in fundamental reforms to control costs, or pass on the higher costs as dramatically higher insurance premiums. B.C.’s government opted for introducing a type of “no-fault” system that will rein in costs by cutting out costly litigation.
ICBC and the provincial government introduced major changes already in 2019. Since April, anyone involved in an accident receives improved accident benefits, while pain and suffering payouts for minor injuries are capped at $5,500. The use of expert witnesses in court cases involving minor bodily injuries was limited and minor claims up to $50,000 will be heard by Civil Resolution Tribunals. Since September, insurance rates also reflect driving records better. Bad drivers will pay more and good drivers will pay less. The new system also takes into account if a car is driven by more than one family member.
The 2019 reforms showed positive results but did not go far enough. Key elements have been challenged in court to reverse them. The root cause of the accelerating cost spiral is B.C.’s adversarial system of settling accident claims through court litigation.
There are three main cost drivers for auto insurance: accident frequency, claims frequency, and claims cost. Accident rates have risen slightly in recent years. However, claims frequency is way up, and claims cost even more so. Average settlements for minor bodily injuries have quadrupled over the last 15 years. The legal process has also eaten up more and more resources.
An astounding quarter of ICBC’s expenditures are due to legal costs — about a billion dollars. This is money that isn’t going to the injured who need help the most.
Care-based insurance does away with costly, slow and inexact litigation. The focus is on restoring health and ensuring that injured parties receive help throughout their recovery process. Need is determined by medical professionals similar to what WorksafeBC provides for work injuries. Without litigation, benefits are available promptly.
Court settlements are also inexact because they don’t allow for changes to an injured person’s health over time. Care-based insurance allows the system to focus effort on those who need it most, when they need it, and does so generously. Money saved can be used to expand care and recovery benefits.
Trial lawyers stand to lose the most under the new system as their lucrative business model is in jeopardy. Their fees are 20 to 30 per cent of each settlement, amounting to hundreds of millions of dollars in total each year. The trial lawyers have become victims of their own success. By convincing courts to grant more and more generous awards they have set the cost spiral in motion.
Manitoba, Saskatchewan and Quebec already enjoy variations of a care-based insurance model, and they have some of the lowest automobile insurance rates in Canada. B.C. will join these provinces in good knowledge that care-based insurance works very well — as long as insurance premiums accurately reflect who is a risky driver and who is not.
Public auto insurance in B.C. is about to enter into a new social contract that puts care for the injured into the centre. Physicians can focus on treating injured people rather than providing expert testimony, and injured people can focus on their treatment and recovery rather than pursuing claims in court.
British Columbians will be better off, and auto insurance will remain affordable.
Werner Antweiler is an associate professor at UBC’s Sauder School of Business.