BACKGROUNDER: BASIC AND OPTIONAL INSURANCE - HOW THEY DIFFER

1. ICBC’s basic and optional insurance products

ICBC is the sole provider of basic insurance in BC. ICBC competes with other insurers for customers’ business for optional insurance products.

Basic insurance is the minimum insurance coverage legally required to get a vehicle on the road. Basic insurance:
- Provides the minimal required level of coverage against claims from third parties for injury or other losses.
- Protects those involved in a crash, whether they are at fault or not, by providing specified medical, wage replacement and other benefits.
Basic insurance bears more than 75 per cent of the cost of injury claims.

Optional insurance protects the registered owner and/or operator of the vehicle insured and their assets, including:
- Providing coverage to the registered owner for damage to or theft of the vehicle.
- Additional protection for the registered owner and operator from third party liability.
Less than a quarter of the cost of injury claims is borne by optional insurance.

ICBC’s Basic and Optional Insurance Products

Basic Coverage

The minimum amount of insurance any vehicle must carry to legally operate in BC:

Third Party Liability – generally $200,000
Accident Benefits – $150,000 in medical and rehabilitation benefits, plus wage replacement and death benefits
Underinsured Motorist Protection – $1 million
Protection Against Hit-and-Run and Uninsured Motorists

Optional Coverage

Additional coverage to meet customer needs:

Vehicle

Equipment

Individual

In 2002, through the core review process, government:
- Affirmed ICBC’s mandate to be the sole provider of basic insurance.
- Confirmed that basic insurance would be provided without discrimination on the grounds of age, gender or marital status.
- Appointed the British Columbia Utilities Commission (BCUC) as the regulator of basic insurance rates and service, replacing cabinet as the body that sets basic rates.
Under this public policy framework, ICBC manages basic insurance:
- To ensure affordability and accessibility.
- To ensure low and stable rates.
- To make steady progress in achieving its capital target.

BCUC ensures that:
- ICBC’s basic insurance rates are just and reasonable.
- ICBC’s costs are reasonable in light of the products and services provided.
- Basic and optional insurance costs and revenues are properly allocated in order to avoid subsidization between the two.
- ICBC sets its basic insurance rates in such a way as to be able to meet its capital requirements.
BCUC is an independent, quasi-judicial body, ensuring the depoliticization of rate setting.
The BCUC process is open and transparent.
To have basic insurance rates approved:
- ICBC submits a proposal by filing with BCUC.
- BCUC holds a public hearing process. The public and interested parties are able to ask questions of ICBC as intervenors in the process.
- BCUC renders its decision.
The process is designed to give ICBC’s customers and the public at large the assurance that their interests have been properly represented in deciding basic insurance rates.

ICBC competes with other insurers to provide customers with optional insurance coverage.

Government has introduced a number of measures designed to level the playing field and increase competition between ICBC and its competitors.
The goals of these changes are customer choice and reduced premiums.

The ICBC Board of Directors sets rates for optional products, based upon the forecasted risk represented by customers.
ICBC’s goals are to keep optional insurance rates low and stable and to avoid the kind of rate shock seen in other parts of the country in the early 2000s.
Optional rates used to be reviewed by cabinet. Since 2002, ICBC has set its optional rates independently, as do its competitors.

In 2004, despite accounting for 56 per cent of ICBC’s earned premium revenue, basic insurance only generated 13 per cent of total net income.

($ Thousands)	Basic	Optional
Premiums written	1,711,703	1,377,632

Premiums earned	1,692,314	1,334,167

Claims and operating costs	1,671,874	876,3638
Prior years adjustments	(26,505)	(19,758)
Net claims incurred and related costs	1,645,369	856,580
Operating expenses, premium taxes and commissions	152,693	274,898
	1,798,062	1,131,478

Underwriting (loss) income	(105,748)	202,689
Investment income	260,254	135,065

Insurance operations income	154,506	337,754
Non-insurance costs	105,346	-

Income before the under noted	49,160	337,754
Gain on sale of property and equipment	1,474	907

Net income	50,634	338,661