According to budget documents from the Insurance Corporation of British Columbia (ICBC), the insurer is projecting an $833m deficit by the end of this year.
An earlier estimate by the government said that the provincial insurer would generate a $678 million surplus over the course of three years.
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Former deputy minister Richard McCandless, who is also the author of an ICBC historical review, told CBC News that three factors contributed to the insurer’s current financial plight.
The first factor, according to McCandless, was a rapid increase in claims costs, in both total number and the average cost of each claim. The second was that low interest rates lowered the ICBC’s investment income.
“The third thing — which is fairly unique here — is this government policy of suppressing the basic rate increase each year,” he explained to CBC News. “They’ve been doing that since 2010. That’s really hurt the revenues, so the revenues can’t balance their cost increases and they run a deficit.”
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McCandless argued that the strategy of keeping rates low and taking out dividends from the corporation is backfiring, with the ICBC running out of capital reserves. He also said that there is a massive structural deficit in the basic coverage rates, noting that it would take, at the very least, a 20% rate increase to cover the deficit.
“The government has to get out of the business of price controls,” he maintained. “You’ve got to let the revenues go back up, but perhaps not immediately by 20% as that would be rate shock.”
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