Government-run auto systems provide the most generous benefits for consumers.

Government insurers operate more efficiently. They have lower operational expenses.

FACT: The fact is that there are no economies of scale in government-run auto insurance systems. ICBC’s 2006 Revenue Requirements Application (revised filing of January 27, 2006) states that “ICBC’s success in reducing operating expenses was achieved through eliminating costs and DEFERRING [caps added by author] expenditures on maintenance, facilities and technology infrastructure, and investment in people.” The argument for “economies of scale” misrepresents the fact that ICBC has simply deferred some expenses where private insurers are committed to continually serving consumers through investing in technology and people. Furthermore, the ICBC Application states that, “The cost reductions which were implemented at ICBC are NOT [caps added by author] sustainable….ICBC is faced with inflationary pressures and in addition must increase spending to address expenditures that were deferred in recent years.”

ICBC’s reported operating expense ratio includes commissions and taxes, but excludes general expenses related to claims. In contrast, the operating expenses reported by the private auto insurance industry include all expenses.

When these differences in reporting are taken into consideration, the private industry’s expense numbers compare very favourably to ICBC’s, and where they are higher, this can almost wholly be attributed to:

• ICBC’s tax status as a Crown corporation – it doesn’t pay income tax;
• accounting changes at ICBC that have moved items out of expenses into claims; and
• lower commission rates that ICBC can afford to pay brokers as a result of holding a monopoly on mandatory auto insurance coverage.

The elimination of age, gender and marital status

The elimination of age, gender and marital status as rating factors creates a new type of discrimination against older, safer drivers and subsidizes younger, higher-risk drivers. Further, government-run insurers find other ways to rate according to these risks. ICBC’s RoadStar program is one example of a government insurer implementing age-based rating through the back door. A driver who gets his/her licence at the age of 16 does not qualify for the discount until age 25. Coincidentally, 25 is the age that risk-based raters (private insurers) use to indicate safer drivers. What is more, a driver has to be at least 34 years old to qualify for ICBC’s absolute best rate. ICBC is attempting to have higher-risk drivers pay higher premiums. In recent years, ICBC has also stated that it needs "right pricing" to ensure that customers are paying the premiums required for the risk they represent.The 2004 report of the New Brunswick Select Committee on Public Automobile Insurance recommended that the province adopt a Manitoba-based model of government-run auto insurance. KPMG, the independent actuaries retained to review the suppositions of the committee, determined that the cost of establishing a public insurance system would outweigh the claimed benefits.

At a very minimum, the cost of government-run auto to taxpayers would equal the cost of operating expenses (such as occupancy, advertising, furniture and equipment, and head office overhead), acquiring office space, and foregone insurance taxes and health care levies, which a government has to recoup elsewhere. In NB, these costs and lost taxes and health levies would have amounted to at least $140 million in 2004, potentially having an adverse effect on the funding of other public services.

In addition, despite paying back start-up loans, every government-run insurer in Canada has required a taxpayer bailout, whether through direct cash injections or through dedicated tax revenues। In early 1976, less than two years after its inception, ICBC required a 25% rate increase and a bailout of $181 million ($627 million in today’s dollars). None of that money was ever paid back.

government-run auto insurance

The fact is that there are no economies of scale in government-run auto insurance systems. ICBC’s 2006 Revenue Requirements Application (revised filing of January 27, 2006) states that “ICBC’s success in reducing operating expenses was achieved through eliminating costs and DEFERRING [caps added by author] expenditures on maintenance, facilities and technology infrastructure, and investment in people.” The argument for “economies of scale” misrepresents the fact that ICBC has simply deferred some expenses where private insurers are committed to continually serving consumers through investing in technology and people. Furthermore, the ICBC Application states that “The cost reductions which were implemented at ICBC are NOT [caps added by author] sustainable….ICBC is faced with inflationary pressures and in addition must increase spending to address expenditures that were deferred in recent years.”

ICBC’s reported operating expense ratio includes commissions and taxes, but excludes general expenses related to claims. In contrast, the operating expenses reported by the private auto insurance industry include all expenses.

When these differences in reporting are taken into consideration, the private industry’s expense numbers compare very favourably to ICBC’s, and where they are higher, this can almost wholly be attributed to:

• ICBC’s tax status as a Crown corporation – it doesn’t pay income tax;
• accounting changes at ICBC that have moved items out of expenses into claims; and
• lower commission rates that ICBC can afford to pay brokers as a result of holding a monopoly on mandatory auto insurance coveragePrivate insurers are among the shrewdest and most careful investors in the country. In fact, they are required by regulators to invest safely. In 2004, private insurers invested 79% of their portfolio in bonds, more than two-thirds in government bonds. This compares to ICBC’s 65%, MPI’s 78% and SGI’s 65%.

  Private insurers across the country invested almost $13 billion in provincial and municipal bonds in 2004. In New Brunswick alone, these types of investment had a value of $620 million.

  Furthermore, while private insurers are required to maintain capital if they invest in risky assets, government-run insurers are not. In ICBC’s 2003 annual report, the corporation reported a $141 million write-down on an aging shopping mall and office tower. This is just one example of its questionable investment outcomes. Historically, not one of the government-run insurers has been able to contain claims costs. In fact, these insurers have resorted to increasing premiums and deductibles, changing rating territories and introducing significant product change, such as no-fault insurance, with greater frequency than private insurers.

  In 2004, the relatively small growth of claims reported by ICBC (3.2%) was accomplished by increasing deductibles and thereby eliminating an estimated 60,000 claims from the system. This move effectively transferred $160 million in the cost of repairs from the government-run insurer to policyholders. This was on top of a rate increase.

  Further, according to ICBC’s 2005 year-end results posted on their website, the corporation’s claims costs in the first nine months were up 11.5% from the same period last year. As a result, ICBC has filed for a 6.5% rate increase in 2006 to “manage” the rising trend in claims it is experiencing. Compare this to private insurers who saw claims rise only 0.2% between 2004 and 2005, according to OSFI’s website. In light of this, how can it be said that government-run auto can better control costs?