With the Insurance Corporation of British Columbia (ICBC) facing mounting pressure to open the province to auto insurance competition, one new report is pointing fingers as to how the insurer ended up in its current financial dilemma.
An analysis by Global News found that the public insurer was billed $434 million in commissions by auto insurance brokers last year alone. The media group also found that the 902 brokers billed the province 33% more in 2017/2018 than in 2011.
ICBC lost $1.3 billion overall last year. For this current fiscal year, the insurer is projecting a loss of more than $800 million.
Though Global News’s report suggests that brokers are harming the public insurer more than they are helping, ICBC CEO Nicolas Jimenez insists that they play an important part in the insurance process.
“Insurance is complicated, and what brokers do is they tend to provide expert advice on things that are more complicated,” he explained.
“You will hear people say, ‘Oh auto insurance, it’s easy. I renew without changes every year.’ We have hundreds of thousands of people changing their policies every single year. And it is not always simple. People want to make sure they have the protection they need and you need to understand what the product is covering and what it’s not covering.”
Typically, insurance brokers earn differently from selling basic insurance compared to selling optional insurance. Whenever policyholders renew basic insurance, the broker gets $13.72 in commission, but new insurance plan sales result in a $14.83 cut.
Due to competition with other insurance companies on optional insurance, however, ICBC pays brokers about 15% for a renewal or new plan. This means that for an $800 optional insurance bill, brokers can earn around $120.
“I think it is important for British Columbians to know that because we have a public insurer on basic insurance that ICBC actually gets a much better deal on brokers than a private insurance model would. So ICBC’s costs in terms of policies is about half to brokers what it would be in a fully private model,” attorney general David Eby explained.
“There is a need to incent brokers to try to sell ICBC insurance.”
There is also the matter of how ICBC itself is run, Global News suggested. The news group noted that operating costs account for only approximately 10% of ICBC’s overall costs, while a good portion of the insurer’s expenses are associated with paying out claims and legal fees.