As part of BC’s election campaign, the BC Liberal party pledged this week to move away from universal public auto insurance by opening up basic coverage to private insurance corporations. The claim made by party leader Andrew Wilkinson is that cheaper rates will follow from having private corporations sell insurance plans (using the old litigation-driven, tort-based model) in competition with ICBC’s new no-fault insurance offering scheduled to launch next year.
But this is a claim that doesn’t hold up. Apples-to-apples comparisons show that the cheapest and most efficient auto insurance systems are found in provinces with public insurers (and that use no-fault models), such as Manitoba and Saskatchewan, while BC has hovered around the middle of the pack among the provinces. This can be seen in analysis by independent experts like Richard McCandless.
McCandless has also shown that the private insurance lobby frequently tries to cherry pick data to claim otherwise, and its flawed assertions sometimes get wide media coverage.
It’s not a big surprise that it tends to be provinces with public insurance systems that clock in with the cheapest rates, rather than those with privatized systems. After all, the purpose of private insurance corporations is to make money, and so a profit margin must be built into their business model. Privatized auto insurance systems also create added costs due to administrative duplication across multiple providers. Indeed, profit margins and administrative waste are among the same reasons that private health insurance systems are so deeply inefficient and unnecessarily costly, as I have outlined previously.
Markets often don’t work well for the kinds of insurance that everyone or nearly everyone needs to hold. Private insurers compete not on efficiency, but rather on their ability to recruit the least expensive possible customer base, known as cream skimming or “adverse selection.” Given the chance, private insurance corporations would happily leave ICBC with the remainder of higher cost customers, ultimately driving up rates.
The false promise of private insurance also distracts from the key driver of cost increases in BC auto insurance in recent years: its outdated, litigation-focused “tort” model, in which legal fees and expenses eat up a huge portion of claims costs. Prior to recent reforms, BC was the only province with a full tort model, as others have moved to more efficient no-fault or hybrid systems. As mentioned, low cost jurisdictions like Manitoba and Saskatchewan use no-fault models for their public insurance. (Saskatchewan’s public insurer also offers a tort-based option, but more than 99% of its customers choose the more attractive no-fault option.)
The BC government has been setting up the shift to a no-fault, “care-based” model for ICBC beginning next year, with the aim of dramatically reducing legal fees, meaning more money can flow to the victims of accidents and/or be reflected in lower premiums. The downside of those savings in legal costs is that accident victims forgo the option to sue for pain and suffering damages in most cases. This is offset by enhanced benefits made available to victims by right and based on medical assessments, rather than having to be fought for through expensive legal battles. The ability to direct more support to victims themselves appears to be why the shift is backed by advocacy groups like Disability Alliance BC. Ensuring that sufficiently generous support and care is provided to crash victims will be the critical test of the new system, and the next government’s feet should be held to the fire on this point. Almost everyone knows someone who has suffered seriously as a result of an automobile crash or has experienced this themselves.
This also raises an even more fundamental issue: the destructive nature of our automobile-dependent transportation system, which creates the inevitable consequence of car crashes coming at a great human and financial cost. Any reckoning with the costs of auto insurance in BC should face up to this, as these real-world harms are the root cause of the billions in annual claims costs. Not to mention the even greater human and financial costs of the air pollution, greenhouse gas emissions, and poor land use decisions that result from our dependence on automobiles. BC should dramatically increase investments in better public transportation options and in housing that allows more people to live affordability near where they work as part of walkable, complete communities. These are issues that are not often part of the debate around ICBC and auto insurance, but they should be.