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Driving in B.C. is unpredictable.
No one knows that better than ICBC and its projected $1.3 billion deficit for their 12-month fiscal year. The auto insurance company says increases in claims are to blame, however, a deficit of this size suggests car crashes might not be the only culprit.
Why have a monopoly?
ICBC is not a monopoly in the classic “Mr. Moneybags” free market sense. As a Crown corporation, it adheres to strict government regulation. The objective of these monopolies, in theory, is to be revenue neutral. It is owned by the public, therefore intended to benefit the public, with lower rates and premiums than could be funded on the open market.
Keeping ICBC involved in the insurance market is a united stance across party lines. Not a single candidate for MLA during the last election campaigned for the dissolution of the company.
Why do monopolies fail?
Running a deficit in a public monopoly is understandable, according to Dr. Noriko Ozawa, economics professor at UBC Okanagan. The number of upcoming claims in a year cannot be predicated with certainty. The premiums offered are based on historical claim data and, according to ICBC, these claims are growing “by the thousands” each year. Pair these growing costs with drivers’ unwillingness (or inability) to pay more for insurance, and a deficit is not a surprise.
About 94 crashes happen on #SuperBowl in B.C. Win the MVP award among your friends - be their designated driver this Super Bowl Sunday. #SafeRideHomeBC pic.twitter.com/YAgO0L95gV
— ICBC (@icbc) February 1, 2018
The problem is that as a public monopoly, “ICBC is isolated from market discipline, with no incentive to cut costs or increase efficiency within the company,” said Dr. Ozawa.
“The objective is not to maximize profit, it is to generate enough to break even.”
If the insurance market were private, many companies offering different prices would keep ICBC’s costs in check. They would need to look at internal inefficiencies, or be driven out by streamlined private companies.
Drawbacks to going private
Doing away with ICBC altogether “would lead to sky-high rate increases for our youngest and oldest drivers as insurance would more closely reflect higher risk of accidents for these two groups” according to Norm Letnick, MLA for Kelowna-Mission with the BC Liberals.
The privatization of ICBC itself, giving it a private monopoly, would expose BC drivers to higher and unchecked rates and premiums. Competition is absolutely necessary if privatization is to occur, according to Dr. Ozawa.
ICBC, in its own words, “is not sustainable.” No matter what the alterations are, change is coming the BC auto insurance market.
Those changes were announced earlier today by the province of B.C., which you can learn more about by clicking this link.
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