Rob Shaw (November 23, 2016). Vancouver Sun. http://vancouversun.com/?s=ICBC+drops+luxury+car+insurance%2C+but+savings+won%27t+prevent+rate+hikesVICTORIA — A plan by the B.C. government to cut off ICBC auto insurance for Lamborghinis, high-end Maseratis and similar vehicles won’t save enough to prevent massive hikes to basic insurance rates, and is only a small fraction of the savings needed to end the financial crisis at the beleaguered public auto insurer.
Transportation Minister Todd Stone admitted Wednesday that his move to end public insurance for super high-end luxury vehicles will only save $2.3 million in claims costs annually at the Insurance Corp. of B.C.
That represents a drop in the bucket of what ICBC needs to save to avoid the worst-case scenario that it reluctantly released Wednesday, showing basic rate hikes climbing by as high as 42 per cent, compounded, over the next five years.
“We are not going to allow a scenario that would provide for that level of basic rate increases to actually happen here in British Columbia,” said Stone, who promised additional reforms in coming weeks, and a push to reduce fraud, claims costs and other financial factors.
The $2.3 million in savings is dwarfed by the $472 million ICBC needed to take from its optional business this year just to cut a projected 15 per cent increase in basic insurance rates down to the 4.9 per cent cap promised by Premier Christy Clark.
ICBC has had to use $1.4 billion earned by its optional insurance business to keep basic rates artificially low for the past several years, leading to questions about what effect, if any, the small savings from stopping insuring of luxury vehicles would have on ICBC’s bottom line.
“It might provide a couple million of savings on an annual basis, but just as importantly, it’s a fairness question for motorists across the province,” said Stone, who portrayed the move as a way to protect middle-class ratepayers from subsidizing the province’s wealthiest citizens.
NDP critic Adrian Dix said the luxury vehicle announcement was just to disguise the fact that ICBC was forced to publish Wednesday a series of damaging hypothetical rate forecasts to 2020, after losing a fight with the B.C. Utilities Commission to keep the information secret.
Those scenarios (which use various assumptions around capital levels and investment returns) suggest basic rates could rise a compounded 42 per cent by 2020 if ICBC makes no progress in reducing claims costs, 25 per cent with modest progress and 16 per cent in the best case for the corporation.
Stone criticized the BCUC for forcing ICBC to release forecasts built upon “unreasonable assumptions” using “extreme projections.”
Dix noted ICBC hasn’t hit internal financial forecasts in several years, so it’s hard to take seriously the argument it could meet four years of its optimistic projections.
Analysts have said ICBC is caught in an unsustainable cycle of politically-motivated rate caps by a B.C. Liberal government facing re-election in May, rising claims costs, and a diminishing amount of reserve capital available to earn money to artificially subsidize basic rates.
Stone called the scope of ICBC’s financial challenge “significant” and the pressures it is facing from rising claims, injury and repair costs “enormous.”
He said the luxury car move would not address the challenges of ICBC but was one step toward reducing pressures on rates.
ICBC will refuse to offer basic insurance on vehicles worth more than $150,000 once the law is changed next spring, said Stone.
Luxury car owners will have to go to private companies to get basic insurance. ICBC will maintain its monopoly on basic insurance for everyone else.
Until the law is changed, high-end drivers will find their premiums doubled to cover the skyrocketing cost of repairing their vehicles, which Stone said is now being borne by ordinary ratepayers. The change doesn’t apply to limos, trucks, motorhomes or collector vehicles.
It costs up to six times as much to repair luxury cars in an accident as an ordinary vehicle, and the number of luxury vehicles on the road has risen 30 per cent to 3,000 in the past three years, said Stone.
ICBC officials illustrated the situation by pointing out repairs to the bumper on a Ferrari cost $6,000 compared to $390 for a Toyota Corolla, and yet the basic insurance premiums for drivers of both vehicles were comparably priced.
The number of super-high-end exotic sports cars has nearly doubled over the past six years on Metro Vancouver streets, from 1,300 vehicles in 2009 to 2,500 in 2015.