Good case for bigger rate cuts from ICBC

VICTORIA - You can make a pretty good argument that’s ICBC’s rate cut should be four times what has been promised, and paid out to more customers.
The Crown corporation has announced a rate reduction, but only for those customers who buy optional insurance from ICBC. The rates for the basic insurance - where ICBC has a monopoly, will stay the same.
And the amount going back to customers - about $130 million - is looking tiny given ICBC’s robust profits and big reserves. The average rate cut will be worth $61. The corporation can afford something closer to $250, critics argue convincingly.
ICBC has made profits in each of the last three years, including a record $389 million last year. On the same day it announced the rate hike, the corporation reported it was ahead of last year’s record pace after the first three months of this year.
ICBC has now piled up about $1 billion in special reserves. That’s beyond the large reserves required to be available for future claims.
In a normal company, that money wouldn’t be sitting there. Managers might use it to invest in some new project, or pay down debt. If they didn’t have a use for it, they would be expected to return it to shareholders.
But ICBC isn’t a normal company. It doesn’t have debt, or the prospects of making estraordinary investments. And it’s forbidden from returning profits to the government, a principle intended to make sure no politicians starts eying ICBC as a way to boost revenues.
That leaves two options - hang on to the money, or cut rates for customers. And the purpose of ICBC is to deliver low-cost insurance to British Columbians.
There’s a case for a cushion. ICBC has been profitable 11 of the last 15 years, but it has lost as much as $250 million.
But there’s not enough volatility in ICBC’s situation to justify a $1-billion cushion. Claims have been rising fairly modestly - about three per cent a year over the last four years - and there’s no reason to expect that to change. Private insurers may grab more of the optional insurance business, hurting profits. The corporation earns about $400 million in investment income, so a weaker economy could be costly.
Still, consider all the factors and a $500-million cushion would be enough to protect drivers from any quick rate increases.
The refunds also came under quick criticism because they only applied to optional insurance policies.
ICBC has a monopoly on the mandatory basic insurance required of all drivers, which provides benefits for people hurt in crashes
But private companies are allowed to compete for optional insurance - protection against vehicle damage, or higher maximum coverage, for example.
It hasn’t been much of a competition. ICBC has about 85 per cent of the optional market, in part because it’s just easier for people to tack the coverage on to their main ICBC policy.
But the private insurers say it’s not a fair fight, despite the Liberals’ 2001 campaign pledge to introduce more competition in car insurance.
They say the Liberals still haven’t implemented important parts of a bill they passed in 2003 that would level the playing field.
And they will argue before the Public Utilities Board later this year that these optional rate cuts are unfair, claiming ICBC is shuffling profits from basic insurance to subsidize the optional policies.
That will be a tough case to make. The board has already, after a long review, approved, ICBC’s cost allocations between optional basic insurance. The corporation says it can show that its profits have come from the optional side, so those customers should get the break.
But that still leaves ICBC facing intervenors who a much bigger rate cut.
The good news is that - thanks to the Liberals - the utilities board will provide an independent review, something that was never allowed to happen under the NDP.
Footnote: The utilities board only has authority over basic insurance. That means drivers will have to trust ICBC about the fairness of the rate cuts. Vancouver Island drivers, for example, are getting smaller break; drivers in Prince George and the Peace more. The biggest savings will go to drivers with good records, driving fairly new cars.