Will no-fault insurance solve ICBC’s woes – or are the problems more basic and structural?
The provincial government’s announcement of its intent to transition ICBC to no-fault insurance stunned me.
At first, I thought it was an act of uncommon political courage. But after considering the move more closely, I’ve reached another conclusion: there was nothing else it could do. It’s a desperate effort to stem collapse.
The projected 20 percent decrease in auto insurance rates will mollify the motoring electorate until after next year’s election. However, the problem with kicking the can down the road is that it’s still there, on the road.
The corporation’s problems are more structural than its personal injury loss expense and litigations costs. They with reemerge in time, and we’ll be right back where we are today.
What the province announced was a move to so-called no-fault insurance. (Or, “no-fault.”) Drivers may already be familiar with no-fault and not know it. The basic insurance we’re all required to buy from ICBC includes liability coverage, but it also includes a bunch of benefits paid by the insurer to the drivers and passengers regardless of fault in a crash.
The problem with kicking the can down the road is that it’s still there, on the road.
In ICBC these are called Part Seven Benefits (after the section of the ICBC statue that requires them), and they’re limited. They include immediate medical needs and loss of employment income. No-fault can be described a more robust version of these benefits, but it comes without the right to pursue fair compensation in court.
Yes, that’s right. If you sustain loss caused by another, your exclusive remedy is what some ICBC functionary will determine – and those guys have a suspect record already.
The idea here is to avoid litigation expenses, and that’s easy to understand. Defending the claims costs ICBC greater than $135 million each year, and counsel for the claimants take an amount many times this in their cut from awards and settlements – maybe $300 million. Moving to no-fault insurance will certainly save this expense. Absent the government’s announcement, however, was the logic underpinning the decision. If tort-based insurance was inherently untenable, how did it function successfully in prior decades? Why can’t it work now?
The government earlier said that culprit was the prior BC Liberal government because it took $1.2 billion from the corporation’s $11 billion in capital reserves and spent it on healthcare, education and running the courts, for example. But that started nearly a decade ago and ended five years ago, and ICBC has continued to sputter despite consecutive double-digit rate increases, safer cars, improved roadways and lighting (the new LED street lights for example), and an all-time high stock market and buoyant investments.
Now Victoria and some commentators want you to believe it’s all the fault of some greasy personal injury lawyers. Yet Washington State and other jurisdictions continue to have viable tort-based systems; I expect professional standards are similar in these places.
I have other suspicions.
Claims management is a hard job. The people who do it well are highly-regarded and compensated. Personal injury is especially difficult. In many places, adjusters work independently for different insurers on a contract basis.
BC is a little different.
In BC claims adjusters frequently have modest claims management experience outside ICBC, if any; they’re often trained by the corporation (recruited from other job classifications within), and they all have few external points of reference.
Common traffic mishaps turned into something like finding a Willy Wonka golden ticket.
I am not an expert in this area, but I suspect that the accelerated pace of claims was a product of some momentary shortcomings in the way they were handled. The public and enterprising lawyers, medical professionals and drivers took advantage, as you would expect. When it started, it just couldn’t be quelled fast enough.
It didn’t help that many of the corporation’s best were preoccupied with delivering ICBC’s claim management and other systems as part of its transformation initiative. Common traffic mishaps turned into something like finding a Willy Wonka golden ticket.
No-fault will fix this, surely. Other challenges will nevertheless persist.
Collision repairs have changed dramatically in the past 30 years. Repairs have become standardized, thanks to computer-based estimating systems; part prices and the time required to perform repairs is consistent between repairers. Really the only differentiator between repairers is labour.
In most places, insurers have created networks of repairers who trade a steady stream of repairs from insurers in exchange for preferential labour rates. In contrast, ICBC has historically negotiated a price with repairers through their industry associations. All accredited shops receive the same repair amounts. More recently, ICBC has arbitrarily imposed rates, but only after a coy Sage Grouse-inspired mating ritual with the same groups.
Imposing a one-size-fits-all price for a dominant purchaser like ICBC is tricky. If set too high, it encourages upstream inefficacies – shops will pay employees too much, rent extra space, purchase unnecessary equipment. Worse, it entices additional market entrants, dividing the collision repair pie even more thinly. On the other hand, if ICBC imposes a too-low price, repairers may close.
To avoid this, ICBC and its public insurance peers in Saskatchewan and Manitoba must pay a premium above what they would have to pay if they were less dominant purchasers. As a result, these are the three most costly places to have a collision repair performed in North America.
The extra cost causes more repair claims to be write-offs, and this means fewer available repairs, which causes shop owners to demand still higher rates. It’s an ever-widening gyre of accelerating repair costs.
BC and its public insurance peers are the three most costly places for collision repair in North America.
This divergence was imperceptible 25 years ago. Today, the largest single operator in BC is Boyd Auto Body. It’s expanding in Florida and other places in the US, where US-based insurers are paying 25 percent less for repairs. Why? Because it’s chasing a business model that features a high-volume of low-margin repairs, and this marketplace simply doesn’t offer that. In time, the structural inefficiency of collision repair in BC will rear itself just as personal injury has these days.
Yes, ICBC could reinvent its entire approach to repair claims, but it won’t. The folks who work at ICBC are smart and hardworking, and most aren’t paid what they’re worth, in my opinion. But when you’re in a biosphere, the air quality outside doesn’t matter, because you’re not outside, can’t go outside, and probably don’t even look outside.
Similarly, the decisionmakers in the North Vancouver head office are experts on ICBC. But they don’t know what they don’t know about macro changes that will challenge their orthodoxy.
In the past I wrote that ICBC is inward-looking. I explained how it purchased industry-leading software that already mirrored industry best practices, and then paid tens of millions to rewrite it to conform to its “specialness.” I have also commented on its failure to register a single attendee at leading industry forums for at least the past 12 years; its paralysis on driver habit recording devices; its never-ending research on the topic of driverless cars; its steadfast refusal to put a license plate recognition camera on the roof of the Coquitlam Claims Centre, for example, to record “pleasure use” motorists on their daily commutes to work on Highway 1, and haphazard fraud detection overall.
Sure, recently it allowed renewals to happen online – 15 years after it became commonplace everywhere else, and nearly 10 years after I was told it was “impossible.”
Last month, the corporation announced a new program to rank auto body shops in order “to curb rising claims costs.” The rankings will be included on the ICBC.com website. This is just old wine in new bottles. ICBC has had similar programs in the past – Valet, Express C.A.R. (Certified Auto Repair). In fact, the monikers are so confusing that even ICBC folks have difficulty explaining the differences. To consumers, they’re meaningless. However, they all have a common effect: they increase repair costs.
The rankings will favour repairers who offer preferential labour rates, right? No.
This is just old wine in new bottles.
ICBC will instead assess repairers based on other factors. One is being familiar with current auto manufacturer repair standards, which sounds harmless enough. The problem is, manufacturers — led by BMW — have spent the last 20 years gradually making repair information, training, and access to tools proprietary. They’ve done this to reverse the influence of US-based insurers who have steadily directed collision repairs away from their dealers. The dealers get access on a preferred basis and the others must pay a premium or repair “other” brands. Without access to these things, repairing autos properly is made more challenging, and sometimes impossible.
On its face, requiring familiarity and access to manufacturer repair standards, information, and tools, seems good. But there’s 26 major brands, and maybe half of those have proprietary programs.
BC has a vehicle population of four million. Geography and population density create unique market conditions in many places. It’s not practical for repairers to invest in manufacturer repair standards for vehicles they’re unlikely to encounter.
Besides the logic of the program, consider the sheer audacity. A public financial services company losing $1.2 billion a year somehow thinks it has the credentials tell repairers how to operate their businesses? Banks provide mortgages, so they’re probably telling construction companies how to build, right?
It’s not practical for repairers to invest in manufacturer repair standards for vehicles they’re unlikely to encounter.
BC Liberal leader Andrew Wilkinson has indicated a willingness to consider privatizing. A hasty, ill-considered privatization would also be a mistake.
ICBC was established in 1973 to provide high-quality, low-cost insurance; to allow novice drivers the opportunity to prove their safe driving habits before labelling them high-risk, and to settle claims honestly. While the move to no-fault and other recent directions have betrayed these aims, they remain good public policy objectives. ICBC is also a financial services employer located on the West Coast; I don’t think we want those jobs gradually moving to Toronto either.
When I think about the decision to pursue no fault, I conjure up a recollection of the mid-1980s, when I got my first driver’s license. The Soviet Union was showing the stresses borne from a naive ideology, a failing economy, and too many clueless old gray leaders.
Mikhail Gorbachev’s response was two policies, Glasnost (openness) and Perestroika (restructuring). But the aim wasn’t to respond to the people’s political and economic aspirations, but to bolster a crumbling empire.
The move to no-fault insurance and the shop ranking scheme are crude Glasnost- and Perestroika-like gestures; products of desperate circumstances, and political necessity.
ICBC is an article of NDP faith, like an insurance company Shroud of Turin. ICBC must be saved, no matter how corrupted from its original purpose. Because, to them, it’s a referendum on a broader political philosophy.
Glasnost and Perestroika didn’t fix the wider problems, and the Soviet Union failed. There’s a lesson in that.
Charlie Grahn is a past member of the Society of Collision Repair Specialists and Auto Body Parts Association. From 2003 until 2010 he advised insurers and manufacturers how to how to improve the distribution of collision parts. He continues to work in purchasing/supply chain in Vancouver, and teaches the same subjects part-time at Langara College.
- In April 2019, Charlie Grahn shared his insider’s perspective of the infamous “dumpster fire” at ICBC.
- Reformed or not, ICBC will still be a monopoly. Kris Sims wonders why.
- Maclean Kay covered the announcement of the move to no-fault insurance, which the provincial government doesn’t want to call no-fault.