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ICBC needs fixing: try competition

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Mark Milke argues the problem with ICBC is structural – it will never be able to compete with private insurers.

With the re-approval of the TransMountain pipeline and recent consternation over high gasoline prices, especially in Metro Vancouver, British Columbians may have temporarily forgotten another piece of government policy that makes life in beautiful British Columbia more costly than it needs to be: ICBC.

While the TransMountain pipeline will, if it ever gets built, help with the supply of gasoline to metro Vancouver, and thus ease pump prices somewhat, the Insurance Corporation of British Columbia, created in the early 1970s, will continue to gouge British Columbians – because that’s what monopolies do.

For those unfamiliar with ICBC’s origins, it dates back five decades, the ideological love child of a decade that also brought us disco and bell bottoms.

ICBC resulted from the interventionist notion that governments should own the commanding heights of the economy—companies, be they in mining, forestry, energy, banking, and insurance. In some places such Great Britain, many such industries were taken over by governments. Politicians in the 1970s really did think that they and civil servants could run a business better than entrepreneurs.

Before ICBC, automobile insurance in British Columbia was provided by 183 free enterprise firms. That ended with the 1972 election of the province’s first NDP government. On its hit list for nationalization: automobile insurance.

During the 1972 election campaign, the NDP aired advertisements that compared self-insured government vehicles with private sector rates: “The government insures its vehicles for $25 a year, why can’t they [insure] yours?” In addition, private sector rates were argued by some at the time to be higher in B.C. than the rest of the country – though the lack of statistical data makes it impossible to verify.

The ads were fake statistics and fake news. According to a 1978 book about the NDP government, the government self-insurance amounts, e.g., the “$25 a year” claim, did not include the cost of repairs to vehicles “such as would be covered under collision and comprehensive sections of a normal insurance policy.” Nor did the political advertisement note that citizens, injured in a collision with a government’s self-insured vehicle, could not sue the government for injuries or vehicle damage. By law, drivers were forced to accept the government-offered amount.

The B.C. government brought in ICBC in 1974 and chased out 183 private sector automobile insurance providers; only a few returned much later to provide optional coverage. (Initially, ICBC had the monopoly on both basic and optional coverage.)

Today in much of the rest of the world, most government-owned and government-run companies have been closed or sold back to the private sector. That began in the late 1970s and continued into the 1980s and 1990s.

But ICBC continued, as if a religious relic for 1970s political ideologues.

A substantial reason for that was the propaganda that has long accompanied ICBC and other “public” (read: government-owned, managed and mangled) insurance companies that also yet exist in Manitoba and Saskatchewan.

I’ve tracked some of the misinformation about ICBC and the other government-owned insurance companies for nearly two decades. In the early and mid-2000s, one self-described but fake consumer group tried to claim that Alberta’s automobile premiums were higher than exact same profiles in British Columbia.

Those claims resulted from an organization that used the average of internet quotes to produce Alberta estimates. But internet quotes are not actual paid premiums. In Alberta’s free insurance market, it is not difficult to find high quotes, mix them together, and produce an average higher than British Columbia’s average rates at the time. But the resulting “average” premiums were based on quotes few people would actually pay (i.e., the higher end). They bore no relation to actual premiums paid.

More recently, here is a comparison based on actual, average premiums paid in 2017: $1,251 in Alberta and $1,680 in British Columbia. (I do not yet have 2018 data.) Those numbers come from the Insurance Bureau of Canada, which represents private sector insurers – but before anyone dismisses such numbers because of the source (always a logical fallacy), the data results from paid premiums, including basic and optional insurance, in both provinces.

In other words, the numbers are based in hard data..

It is not that private sector provinces are always cheaper than British Columbia. Ontario’s private sector automobile insurance market has higher rates than B.C. That has much to do with Ontario’s higher claim costs per accident ($11,026 in 2017, compared with $9,660 in Alberta; no data was available for B.C.)

Some provinces with government insurance companies are cheaper than Alberta (Saskatchewan and Manitoba) but that’s not because such government-owned monopolies are efficient. It’s because repairs costs are cheaper. Also, in those two lightly populated Prairie provinces, you’re more likely to hit a gopher than another vehicle.

But when Alberta and British Columbia are compared, in the nearly two decades I’ve tracked both provinces, Alberta’s average insurance rates were higher than BC’s just once, in 2003, when Alberta’s rates were two dollars higher than British Columbia. In every other year, British Columbia’s rates have been higher—and are now much higher.

ICBC is an ideological relic from the 1970s. Consumers are overdue for seeing it subject to full competition, or shut down.

 

Mark Milke is author of the 2017 study for the Canadian Taxpayers Federation, Political Risk: The Case for Ending ICBC’s Insurance Monopoly. His latest book is Ralph vs. Rachel: A tale of two Alberta premiers.

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