building trust. driving confidence.
December 9, 2015
British Columbia Utilities Commission
Sixth Floor
900 Howe Street
Vancouver, BC V6Z 2N3
Attention:
Ms. Erica Hamilton, Commission Secretary and Director
Re: 2015 Revenue Requirements Application - Response to Commission Request
and to Letter from Canadian Office and Professional Emplovees Union 378 (COPE)
Regarding ICBC's Objection to Certain Round 1 Information Requests
Dear Ms. Hamilton:
In accordance with the Commission's December 1, 2015 letter (Exhibit A-6), ICBC is
submitting the requested information. ICBC is also responding to COPE's submission (Exhibit
C3-3), regarding ICBC's Objection to Certain Round 1 Information Requests (IRs).
A. Responses to Commission Requested Information
In Exhibit A-6, the Commission requested ICBC to:
1. Provide the allocation between Basic and Optional insurance as it relates to the
Disputed IRs.
2. Quantify the component in the 2015 rate indication regarding property damage
coverages provided under Basic insurance as it relates to the Disputed IRs (with
references to the 2015 RRA if applicable).
3. Explain the circumstances where Basic insurance coverage may access ICBC's Express
Repair program.
4. Specify the time and resources needed if ICBC is required to respond to the disputed
IRs.
The information provided below responds to the above requests.
1. Allocation between Basic and Optional Insurance Related to the Disputed IRs
As noted in ICBC's November 27, 2015 letter (Exhibit B-4), the Disputed IR's focus on ICBC's
Express Repair program and c.a.r shop VALET facilities. 1
1
Under the ICBC c.a.r. shop program, ICBC accredits certain collision repair facilities that achieve and maintain the
high standards for customer service and quality repairs established by ICBC and set out in the ICBC c.a.r. shop
Accredited Collision Repairs Program Manual. Under the ICBC c.a.r. shop VALET program, also referred to as the
Express Repair program, ICBC designates certain accredited repair shops which meet and maintain the minimum
designation, qualification, and eligibility criteria, and maintain the high standards relating to estimating,
valet services, alternative transportation services, customer service, and quality repairs established by ICBC
and set out in the Express Repair Program Guide; available at http://partners.icbc.com/materialda mage/docs/express_repair_prograll)_guide .pelf.
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ICBC's Express Repair program was established to facilitate a faster, customer-centric claims
experience for customers with first party; i.e., Optional insurance, coverages.
The
overwhelming majority of customers who access the Express Repair program; i.e., 97%, have
purchased their Optional insurance coverage from ICBC.
Claims costs are the most significant factor in determining Basic insurance rates, and bodily
injury claims are the largest component of claims costs. Information showing the limited
impact of Express Repair Property Damage claims costs to the Basic insurance rate indication
is provided in Item 2 below.
Operating costs are a smaller component of the costs of ICBC's Basic insurance business. As
discussed in ICBC's 2015 Revenue Requirements Application, Chapter 4, in 2015, controllable
operating costs have a 0.0 percentage point impact on the rate indication. Various transaction
types are used in allocating Customer and Injury Services Operations (CISO) operating costs
between Basic insurance and Optional insurance. Material Damage (MD) Files transaction
types apply to Express Repair. As shown in the 2014 CISO Detailed Work Effort Study (2014
Detailed WES) filed in the Application, Appendix 4 D, Attachment 4 Dl, Figures 8 and 10, the
allocation to Optional insurance for MD Files transaction types ranges between approximately
70% and 100%. This supports ICBC's position that the overwhelming majority of work related
to the Express Repair program pertains to ICBC's Optional insurance business.
2. Component in the 2015 Rate Indication Regarding Property Damage Provided under Basic
Insu ranee as it Relates to the Disputed !Rs
The Property Damage (PD) claims reported on in the Application are the subset of MD claims
that are paid for as part of ICBC's Basic insurance business.
While PD claims costs are about 16% of Basic insurance incurred claims costs, the information
sought by COPE pertains to an amount less than this since the Express Repair program only
represents a portion of PD claims costs. PD includes losses that are not eligible for the Express
Repair program; i.e., non-vehicle damage, commercial vehicles, taxis, total loss vehicles, and
out of province claims. Express Repair estimates payments charged to Basic PD represent
about half of total Basic PD claims incurred costs.
For the proposed policy year (PY) 2015 rate indication of +5.5%, only +0.1 percentage point
is a result of the change in PD claims costs. Over the years, PD costs have remained fairly
stable and have had little impact on the rate change to cover costs. With no unusual changes
in PD claim severity trends, it stretches credulity that costs of claims handled through the
Express Repair program are having a negative, escalating impact on Basic insurance rates.
3. Circumstances where Basic Insurance Coverage May Access the Exoress Repair Program
Basic insurance is universal compulsory insurance, so all claimants under the Express Repair
program will have Basic insurance. The more pertinent issue is when the Basic coverage (i.e., ·
PD) is involved in the use of the Express Repair program.
The overwhelming majority of customers who access the Express Repair program; i.e., 97%,
have purchased their Optional insurance coverage from ICBC. Customers who do not have
Optional insurance coverage with ICBC may access the Express Repair program in two
relatively infrequent circumstances, as discussed below. These circumstances comprise
approximately 3% of all estimates processed through the Express Repair program. However,
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the customer must have a vehicle that is eligible for the Express Repair program, which
excludes commercial vehicles, taxis, total loss vehicles, and out of province claims.
•
First, when there is a clear obligation for ICBC's Third Party Liability coverage to pay
for the repairs to a vehicle owned by a Basic insurance policyholder with no Optional
coverage, ICBC may allow the vehicle to be repaired through the Express Repair
program. ICBC's initial analysis of data suggests this occurs in approximately 2% of
all claims handled through the Express Repair program.
•
Second, when a Basic insurance policyholder suffers a Hit and Run or Uninsured loss,
which ICBC has confirmed will be covered, ICBC may allow the vehicle to be repaired
through the Express Repair program. ICBC's initial analysis of data suggests this
occurs in less than 1% of all claims handled through the Express Repair program.
In all other cases, the vehicle repair costs handled under the Express Repair program are
initially paid on the purchased Optional insurance coverage. In less than half of these
circumstances, the final costs for vehicle repair are later charged against Basic insurance
coverages. This occurs in situations where liability rests against another ICBC insured
motorist and vehicle PD repair payments are transferred to the at-fault motorist's Third Party
Legal Liability coverage.
In summary, the circumstances in which a claimant with Basic insurance coverage only may
access the Express Repair program is very limited.
4. Time and Resources Needed if ICBC Were to be Required to Respond to the Disputed !Rs
COPE is correct that ICBC's current system is a significant advancement over the
cumbersome, labour-intensive, paper-based legacy system; however, not all data is recorded,
or recorded in the manner requested by COPE. For this reason, ICBC will not be able to
provide the data sought in !Rs 19.2.d and 19.9.
Other disputed COPE !Rs seek information that, while technically feasible to provide,
represents a significant volume of information, and/or would require a significant amount of
work to provide.
•
The response to IR 19.10 would involve over 30 hours of work to provide iterative
historical copies of the Material Damage Procedures manual for both Legacy (9 CD
versions) and ClaimCenter® (69 PDF versions) systems for each time a change was
made since 2010. It should be noted that current versions of both sets of procedures
are available online from the MD section of the ICBC Business Partners website; i.e.,
http://partners.icbc.com/material-damage/default.asp. Also, a considerable number
of the versions will have been caused by updating procedures for the new system, but
have little or no substantive impact to the estimating· process or procedures.
•
The data sought in the !Rs 19.13.1 and 19.13.2 could only be provided through a
labour-intensive manual review of sample files, which ICBC estimates could take an
additional 50 hours to complete.
In other words, responding to these three !Rs would take an estimated 80 hours in total. This
is in addition to the typical IR processing time that is required for all !Rs. ICBC submits that
the amount of work involved in responding to this request would be disproportionate to the
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value of the data, particularly in the context of a revenue requirements proceeding where the
Express Repair program has little to no impact on the rate indication.
B. Responses to COPE's Submission
COPE has sought to position ICBC's objection to the COPE !Rs as a jurisdictional argument.
In fact, the crux of ICBC's objection, is that the extent of COPE's focus on the ICBC c.a.r.
shop VALET facilities and Express Repair program is significantly out of proportion with the
potential for that program to affect Basic insurance rates.
In its November 27, 2015 letter (Exhibit B-4), ICBC cited the Commission's November 13,
2014 Decision on First Round Information Request Dispute (Order G-174-14), in which the
Commission determined that, " ... when considering the disputed !Rs the Commission Panel
has considered the apparent workload for ICBC to answer questions versus the expected
probative value of the answers." The probative value of the responses, and the balancing
exercise that the Commission has described, should consider whether the line of inquiry is
reasonably going to affect the Basic insurance rate indication. This was explained in Exhibit
B-4, and as demonstrated by the information provided in Section A of this letter, the line of
inquiry that COPE seeks to pursue regarding ICBC's Express Repair program would have little
to no impact on the 2015 PY rate indication.
As outlined in the Application, Chapter 6, ICBC continues to adapt its claims handling and
business practices to help manage claims costs, leveraging industry best practices to achieve
consistent quality claims handling. As discussed in ICBC's response to IR 2015.1 RR
COPE.19.1, Attachment A - Response to Information Request 2014.2 RR COPE.36.2.5, direct
repair programs of this nature are not unique to ICBC and, in fact, a 2012 industry estimate
was that 62% of all body shops in the United States were participating in direct repair
programs.
As COPE notes, policyholders "want their cars fixed quickly, conveniently and well." In the
case of the Express Repair program, customer service is improved by greater accessibility to
repairs in more than 470 locations at hours that, in some instances, may be more convenient
than those of ICBC. Results from recent customer research regarding MD services indicate
that rather than first going to a claim centre, customers prefer going directly to c.a.r
shop/VALET facilities.
In some cases, making claims processes more efficient and effective means that fewer
employees may be required to deliver the same, or improved, services. COPE suggests that
all estimates were done by ICBC-employed estimators in the past. While the majority of
original estimates were done by ICBC-employed estimators in the past, virtually all of those
estimates were supplemented by estimates done by the body shops once the vehicle was
taken in for repairs; that is, body shops have always do.ne estimates on vehicles. ICBC's
accredited c.a.r. shop VALET facilities use the same estimating system as ICBC estimators,
and there are strict protocols to justify the repairs they attribute to the claim. ICBC has
robust key performance indicators (KPis) that all c.a.r shop VALET facilities are measured
against, and shops must perform well against the KPis in order to maintain their good standing
in the program.
As discussed in the Application, Chapter 4, section C.1.1.1, with Claims Transformation, the
Claims Division has undergone significant changes. This included implementing the functional
organizational model for the Claims Division and, in 2013, realigning staff to this model with
the Claims job hierarchy.
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ICBC discusses changes in claims roles in the 2014 Detailed WES. Appendix B of the 2014
Detailed WES includes information about these roles, including that Estimators continue to
provide "office-based and traditional estimating and repair/replace authorization on personal
claims, including technically complex vehicles. Also performs rotations mobile services to
support and audit vendors." COPE is incorrect in suggesting that the changes mean there is
little or no review. As discussed in the response to IR 2015.1 RR COPE.19.1, there are roles
for estimators, auditors, and other Claims staff; this is discussed in the Express Repair
Program Guide, which is publicly available on icbc.com.
While COPE suggests that there is "an unjustifiable escalation in Material Damage costs
despite the decline in the property damage frequency", the evidence already on the record
demonstrates that is not the case. PD severity, as shown in the Application, Exhibit D.1.1 for
personal PD (as discussed in Section A above, commercial vehicle claims do not access the
Express Repair program), is increasing only slightly over time. It decreased in one of the
years in question. There are many factors that affect PD severity, including increases in
labour, material, and paint supply rates; sophistication of vehicle type and technology; nature
and type of fleet makeup (European, Japanese, and domestic); parts supply, etc. It is not
possible to attribute PD severity to any one, or even several, factors.
COPE has cited a percentage from the Application, Figure 4A.2, to say that "46% of MD losses
are allocated to Basic"; however, this Figure and the cited percentage have nothing to do with
MD losses (i.e., claims costs). As indicated in Appendix 4 A, this figure shows "detailed views
of the amount of ICBC's 2014 corporate operating expenses" (emphasis added) that are
allocated to the Basic, Non-insurance, and Optional lines of business. In addition, the impact
on Basic operating expenses is far less than the number cited by COPE and, as discussed in
Section A above, corporate operating costs are only a small percentage of ICBC's total costs.
ICBC has provided correct information about Basic insurance PD claims costs in Section A
above.
Other elements of COPE's assertions are also based on incorrect assumptions. As shown in
Section A above, PD claims, which are the subset of MD claims that pertains to Basic
insurance, are not a significant contributor to the rate indication.
In summary, ICBC is committed to providing information that will help the Commission
determine Basic insurance rates. However, the interests of policyholders are not served by
requiring ICBC to invest resources to provide information that has little to no material impact
to the Basic insurance rate indication and is of little to no probative value to the 2015 Revenue
Requirements Proceeding.
There are other avenues available to COPE to address
employment-related matters of interest to its members.
Yours truly,
June Elder
Manager, Regulatory Affairs
Cc:
Registered Interveners in ICBC's 2015 Revenue Requirements Proceeding
Steve Yendall, Vice President, Insurance and Driver Licensing, ICBC
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