CABINET SUBMISSION - EXECUTIVE
here for full cabinet submission
"CONFIDENTIAL - CABINET DOCUMENT"
Document Number: ___
Draft Number: ___
The Honourable Gary Collins, Minister of Finance and Minister
Responsible for ICBC
October 23, 2001
ICBC's 2002 Autoplan Rate and Product Changes
- As evidenced by rate increases in other jurisdictions,
insurers across Canada are currently facing the need to
increase rates to cover increasing costs. Similarly,
ICBC's premium revenue is projected to be
insufficient to cover costs in 2002 - partly as a
result of the six-year rate freeze.
- In recent years, short term impacts of unusual investment
returns and favourable adjustments from settling prior
years' claims have resulted in ICBC realizing
profits, despite its structural deficit situation.
These positive impacts will no longer be available
and losses of $145 million and $127 million are
forecast for 2001 and 2002 respectively.
- ICBC's road safety programs and claims cost control strategies
have also helped to keep claims costs down in recent
years. Administrative and operating expenses, which
increased from 1996-2000 with the implementation of
these programs and addition of Motor Vehicle Branch
functions, are being reduced. While these efforts
will continue, they will not be sufficient to prevent the
forecast loss in 2002.
- After a six year freeze, rate changes are the only short-term
tool currently available to prevent such future
- ICBC's recommended plan of action is based on the following
guiding business principles:
1. Break-even business
2. Basic and Optional lines of
business are each self-sustaining; and
subsidization within lines of business.
Linkage to Government Priorities
- This submission on rate and product changes is independent of
the Board of Directors' core services review of ICBC
and the auto insurance industry, which will be
brought forward in December 2001. It is being
presented now to prevent forecast losses in 2002.
There will be no material effect on future changes resulting
from the core services review. On the contrary, a more
financially sound Corporation will enable better
flexibility to respond to future changes.
- A delay in the rate changes would mean continuing losses in
2002 and additional impacts in 2003 - the total impact
in both years is approximately $34 million for a
delay of 2 months and $105 million for a 6 month
- This proposal neither increases nor decreases the regulatory
burden as measured by the number of requirements in
regulation or policy.
- It is recommended that Cabinet approve the following changes
included in the attached OIC, effective November 19,
2001 for new policies and January 1, 2002 for
- Increase insurance premiums for both private passenger and
commercial policyholders by an average of 7.4%,
- Changes to premiums for various other optional coverages
will also be made, including a 100% increase in
optional premiums for snowmobiles and snow
vehicles to address high loss
2. Deductibles and Other Product Changes
- Increase minimum deductibles for Collision, Comprehensive
and Specified Perils claims (optional coverage),
for unidentified motorist claims, and for
optional coverage for snowmobiles and snow
vehicles. Changes to address deteriorating loss
ratios for the Rental Vehicle Policy and Loss of Use
coverage for limousines are also
3. Rating Inequities
- On a revenue-neutral basis, specific premiums for territory,
vehicle use and type of vehicle will either be
increased or decreased, depending on the
relative risk that customers represent.
FISCAL MANAGEMENT CONSIDERATIONS:
- ICBC's current financial forecast indicates an estimated loss
of $145 million for 2001, as well as an estimated
loss of $127 million for 2002 (notwithstanding
potential variability in claims costs).
- The financial impact of ICBC's proposed premium changes is
approximately $180 million on a policy year basis and
would move the Corporation towards the break-even
level with a projected bottomline of an estimated $8
million loss for 2002 (notwithstanding potential
variability in claims costs).
- Of ICBC's total 2.6 million policyholders, approximately 58%
of all ICBC policyholders (approximately 1.5 million)
will receive a rate increase between $0 and $100,
while approximately 18% (approximately 484,000) will
receive a decrease of up to $100. Approximately 22%
of all policyholders (approximately 589,000) will
receive a rate increase between $100 and $500.
- Groups of customers with high loss ratios will pay
significantly more than the average rate increase, including
commercial vehicles such as light and heavy delivery
vehicles, taxis and limousines, and public buses;
snowmobiles and snow vehicles; and luxury and sport
- ICBC's rates for Basic coverage and product descriptions for
both Basic and Optional coverages are set out in the
Insurance (Motor Vehicle) Act Regulation, so the
changes included in the attached OIC require Cabinet
approval. Regulatory change is not required for
Optional premiums and deductibles (still outlined in
this submission for completeness).
- ICBC's rate and product changes are based on business
principles and no specific consultation has been carried out
with the public.
- ICBC will provide information to ministries that interact with
affected stakeholder groups prior to public
communication of these changes.
Approved by: ORIGINAL SIGNED BY
The Honourable Gary
Minister Responsible for ICBC
Cindy Brown, Corporate and Government Relations, (250)
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