Werner Antweiler: Care-based auto insurance saves money and enhances services for injured people

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      By Werner Antweiler

      If a recent commentator in the Georgia Straight was to be believed (New ICBC scheme will discriminate against many people), the new care-based auto insurance system proposed by B.C.’s provincial government and ICBC would generate a pandemonium of discrimination against nearly everybody: the employed, the unemployed, the old, the young, women, minorities, and people with disabilities. The facts reveal an entirely different picture.

      The care-based model ensures that people who are injured receive the best possible care as determined by medical professionals, along with financial assistance that cushions against economic hardships throughout their recovery and recuperation. Naturally, lawyers and consulting firms see their lucrative business in jeopardy and concoct arguments to preserve the status quo. Readers should approach these arguments with a healthy dose of skepticism.

      Jurisdictions such as Saskatchewan and Manitoba that have adopted care-based systems already have some of the lowest insurance rates in Canada. ICBC spends nearly a billion dollars on legal costs, roughly a quarter of their total annual expenses. Eliminating legal costs and shifting more of the money from people with minor and temporary injuries to people who suffer permanent impairments will improve the lives of people who need help the most, while significantly lowering insurance premiums for motorists in B.C. The cost savings that can be achieved are real: the economic math adds up. The expected 20 percent reduction in insurance premiums—$400/year on average—can make auto insurance affordable again.

      Reform opponents argue that costs could be saved if ICBC didn’t push back against claim demands. That is nonsense. If ICBC didn’t push back, costs would explode even further and motorists in B.C. would pay the hefty bill. ICBC has increased the amount it pays for the average litigated injury claim from $104,869 in 2017 to $131,056 in 2019—a 25 percent increase in just two years. During the same time, lawyers’ demands have increased by 40 percent, without any economic justification. Lawyers have a strong incentive to ask for more and more money: they receive a 20 percent to 30 percent share of each settlement.

      The notion that ICBC is clogging the justice system is unsubstantiated. ICBC settles more than 99 percent of injury claims outside the court room every year. In 2019, only 345 cases proceeded to the trial stage—just 0.6 percent of all injury claims. Nevertheless, lawyers still earn their fees on any represented claim, regardless of whether a case goes to full trial or is settled.

      The new system is not simply “no-fault” where it doesn’t matter who causes an accident. Drivers who are responsible for causing an accident will face higher insurance premiums. Some no-fault systems in the United States failed to punish bad drivers because insurance premiums did not reflect driving history, thus driving up cost as bad drivers kept driving. As of last year, ICBC takes driving history into account more fully, and also captures if there is a secondary (sometimes inexperienced) driver using a vehicle. High-risk drivers will pay more, and low-risk drivers will pay less. Fault still matters under the new care-based system. It provides the correct economic incentives for bad drivers to drive less or stay off our roads altogether.

      In any system, some disputes will arise about benefits entitlements or who is at fault. Few people enjoy going to court and pursue lengthy adversarial trials. It is much better if disputes can be arbitrated fast and effectively. ICBC will remain responsible for assisting all their customers with their claims and inform them of the benefits that they are entitled to. Should a dispute arise, there will be recourse available through a new fairness office and the B.C. Ombudsperson, and through the Civil Resolution Tribunal. The CRT is fully independent from ICBC and has already become very effective for settling small claims and strata property disputes. Tribunals are already the preferred way to resolve accident benefit disputes in four other provinces (Ontario, Quebec, Saskatchewan, and Manitoba). Drivers who are criminally responsible for causing accidents (such as drunk drivers) can still be sued for certain types of compensation under civil liability.

      The most important change with care-based insurance is its reliance on medical professionals to make decisions about care and injury treatment. Legal settlements are often inaccurate because they cannot fully anticipate future needs. Some people get better more quickly, others may require more care if recovery is slower than expected. Care-based insurance enables physicians to determine what is needed, not lawyers.

      Allegations that auto insurance reform will trigger all sorts of discrimination are baseless. Listen to what some of the top medical professionals in the province had to say about care-based auto insurance.

      • Kathleen Ross, president, Doctors of B.C.: “Physicians are going to be in the driver’s seat, so this will be more care able to be led by the patient’s treating physician, rather than waiting for approval by various sources to access care.” (CKNW, Simi Sara Show, February 7)
      • Justina Loh, executive director, Disability Alliance B.C.: “We’re glad that there’s going to be increased care and supports and benefits for people who suffer accidents.” (CKNW, Simi Sara Show, February 6)
      • Christine Bradstock, CEO, Physiotherapy Association of B.C.: "We see the changes as being a plus for those people that are injured in a motor vehicle crash. The enhanced treatment that patients will see with respect to the improved benefits and ability to access physiotherapy after they are injured in a crash has improved." (CFAX, Ryan Price, February 7)
      • Canadian Association of Occupational Therapists—B.C. Chapter: “The Canadian Association of Occupational Therapists—B.C. Chapter supports the plan outlined… to provide better care and recovery benefits while reducing barriers and cost for ICBC customers.” (CAOT-BC, news release posted on Twitter)

      The new system also offers improved wage loss benefit, covering 90 percent of net income for nine out of ten British Columbians. This level is comparable to WorkSafeBC. People will be better off, not worse off. Insurance never pays 100 percent of net income because that would provide a disincentive to return to work as soon as workers have recovered from their injuries. This is a well-known application of the theory of economic incentives. 

      High earners (the remaining one out of 10 British Columbians who make more than $93,400 in gross annual income) will not suffer either. They can purchase additional optional coverage to top-up the amount of wage loss replacement. Making this optional ensures that high-income earners bear the cost of this additional coverage rather than saddling the majority of motorists with this high cost. This is only fair. You should not be paying higher premiums because others get a much bigger paycheque than you.

      Under the current litigation-based system, what an injured party receives for care and wage loss also depends on the liability coverage of the at-fault party. If an at-fault driver has only $2 million in liability insurance and no further assets, court and legal fees can bring down the net payout to less than $1.5 million. This may not be enough for someone who has been catastrophically injured. The new system allows for up to $7.5 million in lifetime benefits—with no deductions for legal fees and medical expert reports. The care model offers much larger benefits to those in need. 

      Nicholas Coleman’s article is right about one important issue, however. There is much scope for improving road safety in British Columbia. Our accident statistics are still lagging behind many other rich countries. We can and must do more, and he lists many sensible initiatives. Several municipalities in British Columbia have embraced “Vision Zero” plans to drive down road deaths to as close to zero as possible. In a recent poll more than half of British Columbians favoured reducing speed limits to 30 kilometres per hour in residential neighbourhoods. B.C.’s road fatality rate (5.7 per 100,000 people) remains high among rich countries. While the U.S. has worse fatality rates, most European countries have lower rates than Canada, and B.C. is slightly above average in Canada.

      Nevertheless, high auto insurance costs are driven by rising claims cost and frequency and not by rising accident rates. In fact, some recent programs have started to show progress reducing road accidents. ICBC reports that crashes decreased in 2018 by 20,000 compared to the previous year, and in the same year injuries in police-reported crashes decreased by 7.4 percent. Additional road safety measures will complement the benefits of moving to care-based auto insurance in B.C., but they are not a substitute for reforming auto insurance.

      British Columbians have an easy choice. Listen to the injury lawyers with their vested economic interests, and you will end up with rising insurance premiums because there will be no end to the cost spiral. Or embrace care-based auto insurance, get lower rates like our neighbours in Saskatchewan and Manitoba, and rest assured that you will receive fast and proper care when injured. ICBC’s new plan, due to be launched in May 2021, will make auto insurance affordable again. It really is possible to make auto insurance better and cheaper at the same time.

      Werner Antweiler is an associate professor in the Sauder School of Business at the University of British Columbia