Nicholas Coleman: New ICBC scheme will discriminate against many people

    1 of 3 2 of 3

      By Nicholas Coleman

      As a consulting economist, I provide reports to the courts at the request of British Columbians as well as at the request of ICBC. At Discovery Economic Consulting, we take great pride in providing triers of fact with necessary evidence to assist them in making accurate awards that compensate collision victims fairly. Our reports are, by rule, nonadversarial.

      The current state of affairs

      ICBC claims that the cost of claims has risen by 43 percent in five years. However, a significant portion of this increase has been as a result of inflation, changes to the prescribed discount rate, and an increase in the number of claims:

      • the period from 2013 to 2018 saw inflation of about 8.5 percent;
      • additionally, in 2014, there was an amendment made to the prescribed discount rates used to calculate the present value of future losses to more accurately reflect the current market rates. This change was made in the interest of fairness. For a 30-year-old individual, the changes to the discount rate could easily increase the value of their award by 20 percent or more;
      • and although we cannot be sure of whether the per-claim cost has changed, the number of claims reported has increased: from 917,000 in 2013[1] to 1,021,000 reported claims in 2018/2019[2] (an increase of 14 percent) and the number of ICBC reported crashes has increased: from 265,000 in 2013 to 315,000 in 2018[3] (an increase of 19 percent).

      These three factors, taken together, appear to account for the increase in the cost of claims, and therefore suggest that it is unlikely that there has been an increase in the real cost per claim. That is, on average, claims are settling for the same amount as they have settled for in the past.

      Any attempt to hide the real cost of driving to society, whether by artificially lowering the value of victims’ claims or by other means is to do a disservice to all British Columbians[4].

      Attorney General David Eby and Premier John Horgan have claimed that ICBC can finance better care for injured people by sharply cutting its legal expenses.

      The not no-fault scheme

      When Premier John Horgan and David Eby, the minister responsible for ICBC, announced their new ICBC scheme, I immediately read the "Technical Briefing Presentation" that was published on the ICBC web site.

      I looked at the new system through a nonpartisan lens and I was actually pleasantly surprised, until I looked further into the actual plan[5] and thought about what was not highlighted in the presentation. At this point I realized that I had been hoodwinked by a piece of propaganda.

      This is not no-fault insurance scheme in the traditional sense because those who are at fault will have their premiums increase. It is no fault in the sense that those who are at fault will still be compensated by the insurance. 

      Studies have shown that the accident rate increases when no-fault insurance systems are introduced. British Columbians should expect this to be the case under the new ICBC scheme because it rewards at-fault drivers with compensation.

      The biggest downfall of the new ICBC scheme will be that people will not have any recourse if ICBC determines their loss to be less than what they believe it to be. In effect, people will have to trust that ICBC will not rip them off, when ICBC will invariably short-change people—whether it is for budget pressure, political reasons, or a predisposition to err on the side of conservative losses.

      On top of the trust issues, the new scheme calls for compensating people for only 90 percent of their wage losses. Thus, every person involved in a motor vehicle collision in B.C. that suffers a wage loss will be under-compensated by law.

      In effect, British Columbians are getting all the downside of a tort system (premium increases after an accident) and all of the downside of a no-fault system (under-compensation and increases in the number of accidents).

      Discrimination

      The new scheme places a value on the life of each British Columbian:

      • Spouse (tied to deceased’s age and income at time of death) or, if no spouse, any dependents: $60,000 to $500,000;
      • Dependant (based on age of surviving dependent): $30,000 to $60,000:
      • Dependant with disabilities (based on age of surviving dependant and in addition to the dependent benefit noted above): $28,000;
      • Nondependant child or parent: $14,000.

      The new ICBC scheme actively discriminates against many British Columbians including:

      1. The unemployed. Wage loss benefits for these people will be based on the average earnings of British Columbians, or about $50,000 per year. This will be the case for all of the unemployed—even those waiting for a job to start that might have paid them well above that average.
      2. People who are not participating in the labour force—including parents of young children. If the person was not in the labour force at the time of the accident (not working and not looking for work), they will not be entitled to wage-loss benefits. There are many reasons one might not be participating in the labour force at a given time, but still have the intention to return to the labour force in the future (parenting, extended vacation, nonpermanent disability, et cetera). People who are not participating in the labour force will not be entitled to a wage loss under the new ICBC scheme.
      3. Students. Wage-loss benefits for these people will be based on the average earnings of British Columbians, or about $50,000 per year. Many students, especially those enrolled in postsecondary education have the potential to earn much more than $50,000 per year.
      4. Young people. Wage-loss benefits for these people will be based on their earnings at the time of the collision. As a person gains experience their wages increase. Young people will be locked in to a wage-loss benefit that is sure to under-represent their earning capacity.
      5. Part-time workers (including parents of young children). Again, there are many reasons a person might choose to work part-time at one time, but fully intend to return to full-time work in the future.
      6. High earners. The new scheme will only compensate wage loss up to about $93,000 per year. Those who earn more than this amount will be under-compensated.
      7. Women and minorities. Women and minorities experience a discrimination-based wage gap. In 2018, women earned 13.3 percent less per hour than men[6]. Under the current system compensation for wage loss cannot take into account historical and present discrimination. However, the wage benefit under the new ICBC scheme will be based on this existing discrimination.
      Studies show that under no-fault insurance systems, the number of crashes increases.
      Charlie Smith

      Cost savings of “20 percent”

      The government has announced that rates will fall by 20 percent next year. For the reasons the set out above, this new ICBC scheme is not worth 80 percent of our current premiums. But putting this assertion aside, the new scheme will rely on private disability insurance to compensate injured parties for their wage losses, whereas previously, private disability insurance was recoverable from the person at fault in the collision.

      The private disability insurance issuers are undoubtedly going to raise rates in response to this change. This rate increase will be borne by British Columbians either through premiums—or, for those whose employer pays for disability insurance—through lower wages. It is not clear what the average amount people in B.C. will save on premiums for insurance as a result of this change, if any, but premium savings will most certainly be less than 20 percent.

      Alternative ways forward

      Notwithstanding the above, we agree that there are inefficiencies within the current system, and that some reform could improve results for both ICBC and for collision victims.

      The best way forward would be to keep the current ICBC scheme but change the adversarial approach taken by ICBC toward injury claims. Making collision victims fair and timely settlement offers would greatly reduce the number of cases that lawyers are involved in, and even among the cases in which ICBC and the collision victim engage counsel, will reduce the number of cases that go to trial.

      Similarly, making fair offers to plaintiffs (or accepting fair offers from plaintiffs who have retained counsel) will reduce the number of cases that go to trial and the number of cases in which the plaintiffs are awarded double costs.

      Additionally, or alternatively, the most effective way to reduce ICBC’s deficit without artificially lowering the value of victims’ claims is by reducing the number and severity of vehicle collisions. Given the pace of technological advances in the auto industry and in the world in general, there are many ways ICBC could take action to reduce the number of (and the severity of injury resulting from) car collisions. We list the most obvious of these here:

      • introduce mandatory continuing education[7] for drivers;
      • tie insurance rates to real-time driving performance and distance driven;
      • increase minimum insurance rates for people driving older vehicles because these vehicles have less safety features and provide greater incentives to get older vehicles off the road;
      • introduce barriers for high-risk drivers to maintain the privilege of driving;
      • lower speed limits and implement variable speed limits across the province;
      • reintroduce photo radar and traffic cameras;
      • increase distracted driving and drunk driving enforcement;
      • and increase traffic violation penalties to make them more punitive.

      Thank you to all the others who have written their own open letters and letters to MLAs and who've inspired me to do the same. 

      After I learned that the B.C Green party was supportive of the new ICBC scheme, I was apathetic, ready to keep my mouth shut, and prepared to leave this jurisdiction without further comment by May of 2021.

      Instead, thanks to your initiative I will be writing to each MLA in B.C. and urging everyone who is able to see the folly of this new scheme to do the same.

      Footnotes

      [1] ICBC 2013 Annual Report.

      [2] ICBC 2018/2019 Annual Service Plan Report.

      [3] RoadSafetyBC, Road Safety Highlights, November 1, 2019.

      [4] Recently Nobel Prize-winning economist Joseph Stiglitz argued that it is time to kill the GDP measure because it is not taking into account the environment, inequality, or political stability (three metrics that are of utmost importance), stating that “If we measure the wrong thing, we will do the wrong thing.” Measuring ICBC’s bottom line in a world of artificially reduced claims will have B.C. measuring the wrong thing.

      [5]Better benefits, lower rates: Moving to a care-based insurance model. A paper detailing government’s intended changes at ICBC.  For discussion and consultation purposes only. February 2020.

      [6] Labour Statistics: Research Papers. The gender wage gap in Canada: 1998 to 2018. Rachelle Pelletier, Martha Patterson, Centre for Labour Market Information, Statistics Canada and Melissa Moyser, Centre for Gender, Diversity and Inclusion, Statistics Canada

      [7] Newly licensed drivers in British Columbian can drive for decades without further education after passing two practical examinations.

      Editor's note: An earlier version of the article contained a misinterpretation of the death benefits for the disabled.

      Comments