ICBC and the reasons behind increasing costs
The Globe and Mail published an interesting article on ICBC’s need for an increase in basic rates. The article states that ICBC opened 3200 fraud investigations in 2014, the most ever in a single year. The article goes on to quote industry studies which have estimated 10 – 20 % of insurance claims contain an element of fraud or exaggeration. ICBC has also said that higher legal and medical bills have increased the cost of injury claims but they do not provide particulars on the costs associated with either. They report that bodily injury costs increased nearly 10 percent last year. In 2014 ICBC also transferred $139 million to government.
So what actually is behind the need for higher basic rates? In September 2013 the Vancouver Sun reported that ICBC was paying 19% more in legal costs than it did five years ago and that statistics indicated that more injured people were turning to lawyers to help them settle claims. In their 2013 application for a rate hike ICBC blamed “soaring legal costs” as one of the main reasons for the increase being sought. In 2014 ICBC sought a rate hike citing increasing injury costs, referencing higher legal and medical costs as being a contributor to the increased cost of claims. The recurring theme behind all of these applications is what ICBC refers to as “soaring injury costs”. Statistically the number of motor vehicle accidents itself has not changed much so what, if anything, is behind the claim of increasing injury costs? ICBC does not provide the statistical breakdown of where those costs are being incurred although presumably they have that information. A look at the various elements that contribute to the cost of any injury claim may give us a better understanding of what is happening.
There are a number of different components to any injury claim. There is the claim itself, in terms of the amount of damages that the person ultimately settles for or is awarded at trial by a judge or jury. The damages awarded are meant to put the injured individual back in the position that they would have been in if they had not been injured. It will include an amount for pain and suffering, an amount for lost wages or the lost ability to earn income in the future, an amount to compensate them for costs incurred in obtaining treatment and an amount for any care required in the future.
The amount that is awarded for pain and suffering has not changed much in the 22 years that I have been handling these types of cases, and in fact really only keeps up with inflation. The Supreme Court of Canada in 1978 set a cap on non pecuniary damages at $100,000. That meant that the most that could be awarded for pain and suffering regardless of injury was $100,000. That number is adjusted for inflation and currently sits as of July 2015 at $362,678. In July 2014 that number was $358,120. Wages earned over the years also increase roughly in pace with inflation as do the costs of care.
ICBC over the last couple of years has spent thousands of dollars on ads discouraging people from hiring lawyers after they have been involved in an accident. We need to ask why ICBC would care whether a car accident victim hires a lawyer or not, particularly considering that the person who hires the lawyer is the person who will be paying the lawyer. The reasons are clear. When you hire a lawyer you get appropriate compensation for the injuries that you suffered in an accident. When you don’t you are at the mercy of the ICBC adjuster and their mandate is very clearly to pay as little as possible to settle your claim. ICBC would have the statistics available to tell us whether the rate of people hiring lawyers for their accident claims has increased but to date those statistics have not been released. Is part of the reason for “soaring injury costs” the fact of increased representation that is resulting in people being paid fair and appropriate settlements?
Another component to an injury claim is the cost of the evidence to prove the claim. ICBC is requiring more and more documentation to support a settlement. Obtaining that documentation is increasingly expensive. ICBC is also utilizing more and more service providers to conduct defense medical examinations. All of these items are called disbursements. This has the potential to increase the cost of injury claims. The statistics documenting that the amount that is being paid in disbursements on injury claims and how that has changed over the years could help us understand why injury costs are increasing. This is a factor in a claim that ICBC has a very large degree of control. They can choose to hire an expert to support the defense of a case (at a cost ranging from $2500 – $5000 typically) or they can choose to look at what the doctors who are providing care and treatment for the injured individual have to say at no cost to them.
Finally, a component to the injury claims cost for ICBC is the cost of their legal counsel. Again this is something that ICBC has not released and something that ICBC has control over. They can choose to spend their money on lawyers defending a case or they can choose to resolve claims. They can instruct their defense counsel to take positions on things that drive the cost of the legal fees portion of a claim up or they can be a responsible, reasonable litigant and take steps to ensure that legal fees are spent proportionately. In the years that I have done this type of work I have seen ICBC take positions on matters that result in lengthy trials, or trials that are completely disproportionate to the amount at issue. Unlike a normal litigant, ICBC does not take into account the amount of legal fees in negotiating a claim. Should they continue to do this? Or should they be held accountable for the manner in which they are running their files?
The reasons behind increasing claims costs is complex and multi factorial. In my personal opinion, no rate increase should be given when ICBC is transferring $139 million over to government coffers. Surely this is being done because of an excess in funds. I am hoping that some tough questions will be asked at the BC Utilities Commission about ICBC file management and how they are contributing to increasing costs. How much of our premium dollars are being spent on making sure that people are properly and fairly compensated following an injury that was not their fault versus how much is being spent by ICBC on the adversarial process?