‘Far and away expensive’: Auto insurance brokers charged ICBC $434 million in commissions last year
Editor’s Note: An earlier version of the story said family doctors received compensation of $120 for a visit from a patient. In fact, the amount ranges from $31 to $40 per visit.
In the face of the ongoing “dumpster fire” at ICBC, the public insurer was billed $434 million in commission by auto insurance brokers last year.
An analysis by Global News found that the 902 brokers in the province billed 33 per cent more in 2017/2018 than in 2011.
The public insurer lost $1.3 billion overall last year and is forecasting a loss of more than $800 million this current fiscal year.
But ICBC CEO Nicolas Jimenez says brokers are an important part of the insurance process.
“Insurance is complicated, and what brokers do is they tend to provide expert advice on things that are more complicated,” he said.
“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.”
There is a huge difference between how much insurance brokers get from basic insurance compared to optional insurance. Optional insurance commissions total about $334 million per year, while basic insurance totals are closer to $100 million.
Every time you renew basic insurance the broker gets $13.72. For new insurance plans the broker gets $14.83 in commission.
Because there is competition with other insurance companies on optional insurance, ICBC pays brokers around 15 per cent on a renewal or new plan. In the case of a $800 optional insurance bill, brokers can earn $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 said.
“There is a need to incent brokers to try to sell ICBC insurance.”
The way ICBC runs is complicated. Operating costs account for only about 10 per cent of ICBC’s overall costs. The bulk of the costs are associated with paying out claims and legal fees.
One of the suggestions to fix the growing cost of broker fees would be to shift renewals online.
It is something ICBC was considering but has put on the back burner as it deals with other financial issues, including overhauling injury payouts and risk assessments.
“Every ounce of effort that we have right now is going into product reform and rate reform,” Jimenez said. “In the future we will absolutely be looking at different ways customers have to do business.”
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ICBC insists the interaction with the broker is also an important part of the insurance process but critics say it is far more important when it comes to optional insurance than basic insurance.
One suggestion would be to move the basic insurance online. Critics say that would create a savings of $100 million in commission per year minus the administrative cost of distributing the licence plate stickers and processing paperwork.
The Canadian Taxpayers Federation is in favour of a full shift online and is suggesting that change could happen in conjunction with the other changes taking place.
“This is far and away expensive,” Canadian Taxpayers Federation B.C. spokesperson Kris Sims said.
“Many of the times you can save money by going online and dealing with insurance directly, but of course here in B.C. we don’t have that option. We’re not online yet because ‘ICBC is a relic, it’s a relic of the 1970s and it’s a government-forced monopoly. So you can’t expect it to innovate, you can’t expect it to compete.”
The provincial government is not applying any pressure on ICBC to move quickly on the automatic renewals because of that ongoing “dumpster fire.” But there is a concession from Eby that eventually moving things online, and away from in-person renewals, is very likely.
“It is a very good idea,” Eby said. “That is definitely the direction we are going with for ICBC. It is common sense for a lot of British Columbians.”
The brokers themselves are in no rush to usher in an online renewal system. Insurance Brokers Association of B.C. executive director Chuck Byrne says brokers have already had to deal with ICBC completely changing the computer system and that caused problems for both themselves and customers.
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Byrne says the “complexity” of the insurance products also makes face-to-face interaction important and commissions have been pretty static recently while the workload has “gone up quite a bit.”
“I think brokers represent a highly efficient and highly valued distribution of the product here in B.C.,” Byrne said.
“In the immediate term, I know brokers will be very focused on helping explain the product reforms and rate design changes and the product as it affects the individual at the counter for the next few years.”
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