The proposed change is intended to be revenue neutral, and to better align premium with risk in individual cases. Structurally, it’s a switch from “vehicle-based” insurance to “driver-based” insurance. Under the current “vehicle-based” system crash history follows the insured vehicle. So, for example, if “A” crashes “B’s” car, the crash is recorded against “B’s” insurance. If “A” has had a bunch of crashes in one vehicle and then insures a second vehicle, the second vehicle is insured at a rate reflecting zero crashes. Under a driver-based system, “A’s” crash history would follow “A”. In either system, vehicles/drivers are only penalized for “at fault” crashes, which ICBC defines as having been at least 25% at fault in a collision.
Statistically, if you crash your car, you are much more likely to have a second crash within the next year than is someone who didn’t have the first crash. Insurance premiums go up after a crash, not because the insurance company is trying to recover past losses, but because you are more likely to cost them again in the subsequent policy year.
Factors that predict your crash risk
ICBC is prohibited from considering age, sex, race or any other prohibited ground of discrimination in determining crash risk. The factors they do/propose to use for determining premiums in the new system are:
Driving experience – the likelihood of having a crash decreases dramatically with each year of driving experience for the first 5 years, continues to decrease a fair bit over each of the next five years, and continues to decreases a little bit for each additional year of experience….forever. The current system recognizes the number of years of crash-free driving, but doesn’t recognize that a person with more years of driving experience is less likely to crash than a person with an equivalent crash history but fewer years of driving experience. According to ICBC, experience isn’t just a stand-in for age. Even if you don’t start driving until you are older, you are more likely to have a crash in the first several years of driving than you are with more years of experience. ICBC proposes to recognize years of driving experience, not just years of crash-free driving experience. ICBC wants feedback on how often premiums should be adjusted to reflect driving experience.
Number of past crashes – The more crashes you have had in the past and the more recently you’ve had them, the more crashes you are likely to have in the future. It takes 15 years for the statistical effect of a single crash to wear off completely. So, for example, someone who had a single crash 9 years ago is still 15% more likely to have a second crash in the current policy year than is someone who has never had a crash. The current system recognizes the effect of a previous crash for only 3 years. ICBC proposes to extend the number of years that a crash will continue to count in calculating your insurance premium to up to 15 years. They want feedback on how long you think crash history should count for. ICBC is also considering a system that also weights more recent crashes more heavily than crashes that occurred longer ago, which is in keeping with statistical risk. But, ICBC thinks this might be too hard for people to understand(!??) Surely it’s not.
No more free crashes: ICBC currently has a policy of giving drivers one “free” crash after 12 years of crash-free driving. A person with a very long term crash-free record can have up to 3 crashes in quick succession with no impact on premium. There is no good rationale underlying this policy. Statistically, if you have a single crash, you are 40% more likely to have a second crash in the policy year than someone who didn’t have the first crash, and this is true even if you’ve previously had a long period of crash-free driving. ICBC proposes either getting rid of the free-crash policy or offering an opt-out option in exchange for a premium reduction. And, of course, there’s really no such thing as a “free” crash, since the $$ have to come from somewhere. Failing to penalize a driver for having a crash means penalizing drivers that don’t have crashes.
Other Driver crashes: About 20% of crashes are by drivers other than the registered owner/principal driver of the at-fault vehicle. Under the current system, the vehicle owner pays the increased premiums regardless of whether they were driving at the time of the crash. Under a driver-based system, the crash would follow the driver rather than the vehicle. The problem for ICBC is that not all crash-causing drivers have an insured vehicle, so they need to work out how to collect from uninsured drivers who crash. Three options that have been proposed to deal with this problem are: spread the cost of the uninsured driver across all insured drivers, continue charging the cost against the vehicle owner, or send a bill for $500 to the crash causer and then try to collect. Personally, I think ICBC can come up with something better, like maybe true driver based insurance where you have to be insured to drive. Just not sure how this would be enforced. Also, most “other driver” crashes are by members of the same household, e.g., child driving parent’s car, so this may affect the best options for enforcement.
Driving Violations: Driving violations are a strong statistical indicator of crash risk. ICBC tried to introduce driving violations into its assessment of crash risk a couple of years ago, but was prohibited from doing so by the Provincial government (call it, the leading edge of the tsunami of political interference in regulated utilities that we’ve seen lately). Now, they are trying again, but this time proposing to limit consideration of driving violations to the most serious ones, such as, impaired driving and street racing. Again, there is no reason for basing crash risk on only the most serious driving violations. Statistically, every driving violation correlates with higher crash risk, and there is no reason why lower risk drivers should be subsidizing higher risk drivers. This is especially true when you consider how many un-ticketed driving violations occur and the police focus on the most egregious ones. Also, it seems to me that including all driving violations in the assessment of crash risk is a good way to provide drivers with an incentive to follow the rules of the road. ICBC just needs to spin this issue better next time, and they really need to hear that the public supports the use of driving violations in calculating insurance premiums.
Some things that came up in discussion
- Giving credit for higher levels of driver training, similar to discounts that can be obtained on fleet insurance for organizations implementing safe driver programs
- Relationship between distance driven and crash-risk. Proposal for distance-based insurance and better availability of alternative types of insurance such as temporary or occasional coverage.
- The system doesn’t include any impact to premiums based on the severity of the crash. There must be correlations or indicators of severe crash risk, such as high risk driving violations, or past crash history that help to predict the risk of a severe crash.
- Insurance brokers don’t want the system to be too complicated to explain to people, or to take too much risk in people not understanding or not being told the right thing.
- BC has a very low % of uninsured drivers compared to other jurisdictions. We need to consider whether there is a tipping point where high risk drivers just stop insuring their vehicles in large numbers.
- It’s good to have incentives that prevent owners from loaning their vehicles to high risk drivers (re other driver crashes).
- Driving records are at the heart of driver-based insurance and all violations should be considered, though not weighted equally.