Vancouver Province
for June 21, 2001

The new government is going to do something about the Insurance Corporation of British Columbia - the question is a resounding what?

There is a legend about automobile insurance pre 1973 when the NDP government of Dave Barrett created ICBC and as with all legends, it is a mixture of truth and fiction. The old line companies refused to honour claims, or were s,low to do so, they canceled good policyholders after one measly accident and discriminated against young drivers. These matters had to be put right said Mr Barrett. Well, some companies were not the best corporate citizens it’s true – but many were. And the one company that was perhaps the least liked, Allstate for whom I once worked in claims, did pioneer the drive-in claims centre where damage was instantly assessed and paid for – and idea sensibly adopted by ICBC. Many companies, like Allstate "high graded", taking only the best risks and then did cancel after one accident. Some companies, notably Western Union out of Calgary, would even try to wiggle out of paying for someone whose car was struck from behind.

But there were benefits. For one thing there was choice – lots of it. And if you wanted to risk being cancelled after an accident, there were very low rates available. But most of all, insurance was just that, assessment of rate based upon probable risk, not the extension of palatable political social policy into the automobile insurance field.

You see, there is an elephant in the house the presence of whom no one wants to acknowledge – the under 25 male (and now I suspect female) driver and the chronically dangerous driver of all ages.

Insurance is about spreading the risk. To do that, the risk must be assessed in advance, a very fine art indeed. Let’s use Life Insurance as an example. Suppose you are a 35 year old who is overweight and smokes heavily. You might live to be 100 but the odds are you won’t make 60. The life insurance companies don’t assess your risk as against all 35 year olds but as against all 35 year olds with your life style.

Unfair? To whom? Why should the non smoking fit 35 year old who will statistically, though not necessarily in fact, live to 85 pay what you do? Insurance is assessing risks by statistics – unless it’s car insurance. Then for political reasons the government steps in with hearts a-bleeding for the poor under 25 year old who, statistically is an accident just waiting to happen. The solution, of course, is a simple one. Take away, for substantial periods or even forever, the privilege to drive. But that is politically painful, especially for political parties whose hearts bleed easily. So in the old days governments forced private companies to take all bad drivers under what was known as "assigned risk" thus parceling them amongst all companies. While under this plan the bad driver paid huge premiums they still weren’t enough to keep the good drivers from subsidizing their enormous, predictable losses. ICBC was forced to insure these drivers and when they came even the slightest bit close to charging them dearly, the government (of which I confess to have been a part) stepped in with the so-called "FAIR" plan to insure all drivers individually, not as a class. This violated all insurance principles and simply has not worked. All the good driver discounts in the world don’t offset the money paid by safe drivers to subsidize the predictably bad ones. Using the life insurance example again, this is as if the government forced life insurance companies to accept grossly overweight, heavy drinking applicants despite that fact that these enormous highly predictable risks would be paid for by those who took care of themselves.

If the new government is to bring more competition to ICBC – a very good idea indeed – it is going to have to grasp this nettle. The under 25 half cocked, half pissed driver - and to be fair, the predictably bad driving older people - will either have to be forced upon competing insurance companies, and thus on the better drivers, or taken off the road.

It will be a brave government indeed that admits that the chronically unsafe driver should be a social problem and dealt with as such, instead of an unwanted insurance risk.