But increase to $256 million for six months of year won't brake rate hike

Michael Kane, Vancouver Sun
Published: Wednesday, August 08, 2007

British Columbia's buoyant economy is driving a stronger bottom line for the province's government-owned auto insurer.

That doesn't mean the Insurance Corp. of B.C. will reverse a recent 3.3-per-cent hike in its monopoly basic coverage, said media relations manager Doug McClelland.

However, he said it reduces the pressure to raise rates again next year and increases the chance of bigger savings for safe drivers.

ICBC today announced net income of $256 million for the six months to June 30, a 132-per-cent increase from the same period in 2006.

"The strong economy means there are more vehicles being insured and our customers are opting for better levels of coverage," president Paul Taylor said in a release.

"As well, ICBC's investment income is strong and our operating costs continue to be lower than industry benchmarks."

While claims costs continue to climb, they netted out at $1.31 billion thanks to a $60-million turnaround in adjustments for prior years' claims. That's consistent with the $1.33 billion reported for the first half of 2006.

ICBC raised basic insurance rates in May -- pending approval from the B.C. Utilities Commission -- while cutting rates for optional coverage by 3.8 per cent.

"Rates have actually gone down this year or stayed the same for more than half of our customers," McClelland said in an interview. "In fact, when you compare rates today to 2004, they are either lower or the same for most customers who choose ICBC for both their basic and optional coverage [about 85 per cent of B.C. drivers]."

ICBC says it is looking at ways to reward better-risk optional insurance customers. Strong results also build retained earnings, which reduce pressure on basic rates and protect customers from spikes in claims costs or unexpected declines in investment earnings, McClelland said.

"Probably the most important thing for people to remember is that the money stays in the company and, in the end, strong results will benefit customers."

However, he cautioned that robust equity gains on ICBC's investment portfolio can't be expected to continue -- the market has tumbled in recent weeks -- and there is no guarantee of another positive adjustment in claims costs held over from prior years. Nor can the strong economy be expected to keep having an incremental impact on ICBC's bottom line.

And while increases in the cost of claims have moderated somewhat, they are still growing at four to five per cent annually, about twice the rate of inflation.

Helping ICBC's bottom line is a 3.4-per-cent increase in the number of vehicles on B.C. roads from this time last year -- double the growth rate at the beginning of the decade -- and the fact more people choose extended third-party liability, comprehensive and collision coverage.

ICBC's investment income in the first six months increased to $276 million, from $269 million in the same period last year. Equity gains saved the day because the bulk of ICBC's investments are in bonds, which have been hurt by rising interest rates.

At the same time higher interest rates reduce ICBC's costs by generating higher earnings on money set aside for claims.