An open letter from ICBC President and CEO Jon Schubert to insurance customers
ICBC President and CEO Jon Schubert has written an open letter to BC insureds in regards to the company’s Q3 results and their impact on rates. The letter is posted here in full:
At ICBC, we know our privileged position in British Columbia’s auto insurance market comes with additional responsibilities and our customers rightly expect us to provide superior service and coverage at the lowest possible price.
Great service and excellent insurance coverage at competitive rates are the core goals for any successful insurance company. At ICBC, we strive to achieve these three goals for 3.3 million British Columbians, while handling approximately 900,000 claims and 1.5 million driver licensing transactions every year.
We provide our customers with some of the best insurance coverage in Canada. As just one example, our customers’ medical and rehab benefits are three-times more than those offered in Alberta and New Brunswick, and six-times those of Nova Scotia.
We’ve been able to match this level of service and coverage while working very hard to keep auto insurance rates as low as possible, and we’ve had some successes. In the last few years, we’ve implemented a number of rate decreases including a reduction last year to both our basic and optional insurance rates. As a result, the average auto insurance premium our customers pay today is approximately the same as it was in 2008.
Today, however, we are facing new pressures. Like other companies and individuals, the challenging world financial markets are negatively affecting us. While our investment returns continue to perform well against the markets, our investment income has dropped by $38 million compared to last year. Our best estimate is that our investment income at year-end will be $90 million less than in 2010.
We are not alone – other insurers are also suffering from declines in their investment income. In past years, we’ve been able to rely on our investment income to help keep rates down but we can no longer do so to the same extent.
Even more concerning is that we have seen a $200 million increase in our claims costs this year, which is attributed mainly to bodily injury claims costs growing at a much higher rate than anticipated. This year, our bodily injury costs will be approximately $1.7 billion – $350 million more than five years ago.
Approximately 88 cents of every premium dollar we’ve collected this year has gone straight back out to compensate victims of accidents and to repair damaged vehicles and property. This is not sustainable.
Other jurisdictions are facing the same issues. Over the past two years, injury claims in Ontario have increased by approximately nine per cent. In Alberta, the 2010 increase was five per cent.
The net result of our diminishing investment income and rising claims costs is a $279 million drop in our net income for the first nine months of 2011.
After four years of not having to increase our rates, we unfortunately face a different reality today and intend to make an application to the British Columbia Utilities Commission (BCUC) for a basic insurance rate increase.
Reduced investment income and rising bodily injury claims have their most significant impact on our basic insurance costs, which unfortunately means we need to increase our basic rates. At the same time, we are able to implement a decrease in our optional insurance rates thanks, in part, to the continued drop in auto crime in B.C. and a decrease in material damage claims.
If our basic rate application with the BCUC is approved, I can tell you that, combined with a reduction in our optional rates, the majority of our customers – those who purchase their full personal vehicle insurance coverage with ICBC – will see an average increase of less than $30 a year.
Of course, this is an average – each individual premium is based on a number of factors including claims history, type and use of vehicle, where you live, years of experience and the level of coverage purchased.
While our operating costs make up a small portion of insurance premiums and have been held around the rate of inflation since 2002, we are continuing to keep a close watch on our own spending. We have already reduced our 2011 operating costs by $26 million and these costs savings will continue into 2012.
Going into 2012, we remain committed to providing our customers with the best service and coverage at the lowest possible price.
Sincerely,
Jon Schubert
President and CEO, ICBC
