W E I S B E R G C O R P O R A T I O N

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1 C5-4 W E I S B E R G L A W C O R P O R A T I O N 2730 Ailsa Crescent North Vancouver, BC V7K 2B2 Fred J. Weisberg Barrister & Solicitor Direct: (604) fredweislaw@gmail.com November 29, 2016 Ms. June Elder Manager, Corporate Regulatory Affairs Insurance Corporation of British Columbia 151 West Esplanade North Vancouver, BC V7M 3H9 VIA EFile Dear Ms. Elder: RE: Insurance Corporation of British Columbia 2016 Revenue Requirements Application Toward Responsible Educated Attentive Driving ( TREAD ) Information Request No. 2 to ICBC Further to Commission Order G , please find attached Information Request No. 2 on behalf of our client Toward Responsible Educated Attentive Driving ( TREAD ). Should you require any clarification of the Information Requests please contact the writer. Yours truly, Fred J. Weisberg Barrister & Solicitor Weisberg Law Corporation Counsel to TREAD

2 Toward Responsible Educated Attentive Driving (TREAD) Information Request No. 2 to Insurance Corporation of British Columbia (ICBC) Insurance Corporation of British Columbia Revenue Requirements for Universal Compulsory Automobile Insurance effective November 1, Reference: APPLICATION Exhibit B- 1, Chapter 1, p. ii Basic insurance general Exhibit B- 2, TREAD 2.3 TREAD 2.3: Does ICBC currently expect that additional transfers from ICBC s Optional business to the Basic insurance business will be required in policy year 2017 and/or subsequent years? Please provide ICBC s rationale for ICBC s expectation, and the ICBC s current best estimate of the amount of any such transfer(s). (emphasis added) ICBC Response: ICBC is unable to provide future expectations of transfers from its Optional insurance business to its Basic insurance business since capital or income transfers are directed by Orders in Council. ICBC does not have the authority to do so on its own. (emphasis added) 20.1 Please confirm that it is ICBC s practice to estimate, forecast or anticipate many components affecting its Basic insurance business Recognizing that ICBC does not have the authority to order or direct capital or income transfers from Optional insurance business to Basic insurance business, please provide a responsive answer to TREAD IR 2.3 regarding ICBC s expectations Alternatively to 20.2 above, please explain why ICBC can t provide its expectations of additional transfers from ICBC s Optional insurance business to Basic insurance business that may be required in policy year 2017 and/or subsequent years. Discuss whether ICBC is unable or unwilling to state its expectations, or provide express justification for refusing to do so Reference: APPLICATION Exhibit B- 1, Chapter 1, p. ii 2

3 Basic insurance general Exhibit B- 2, TREAD 2.4 TREAD 2.4: Is ICBC concerned that the amount and frequency of transfers from ICBC s Optional business to the Basic insurance business may give rise to a public perception that Optional customers are financially propping up the Basic insurance business? Please explain and discuss whether such perception may reduce ICBC s Optional business, and whether that could have negative impacts on the Basic insurance business. ICBC Response included: It is possible that customers could perceive the Optional transfers, or their Optional insurance premium dollars, and supporting the Basic insurance portfolio. ICBC perceives no negative impact to the Basic insurance business Describe the distinction, if any, between the Basic insurance portfolio and the Basic insurance business If Optional insurance business customers perceive the capital or income transfers from the Optional insurance business or their Optional insurance premium dollars are supporting the Basic insurance portfolio (and/or business), does that create a risk of losing some Optional insurance business customers? Please explain Is it conceivable that Optional insurance business customers may be irritated by being forced to bear a disproportionate share of the costs of the mandatory costs of the Basic insurance business (e.g. by perceiving a transfer of their Optional insurance premium dollars)? Please discuss To the extent that Optional insurance business customers perceive that they are supporting or subsidizing the Basic insurance business, would that factor be likely to motivate them to purchase optional insurance from a competing private insurer rather than from ICBC Optional insurance business? Please discuss To the extent that Optional insurance business loses customers, or ICBC s custoners reduce their Optional insurance coverage, would that negatively impact the Basic insurance business by preventing or impeding the ability to make income or capital transfers that would otherwise benefit the basic insurance business? Please discuss. 3

4 22.0 Reference: APPLICATION Exhibit B- 1, Chapter 1, p. ii Basic insurance general Exhibit B- 2, TREAD 2.5 TREAD 2.5: What specific steps has ICBC taken to ensure that poor drivers (e.g. those responsible for more frequent or severe crashes) in BC are given appropriate price signals to encourage them to improve their driving? Please include a discussion of the extent to which ICBC believes the transfers from Optional to Basic may obscure or diminish appropriate price signals to poor drivers. ICBC Response: ICBC uses Claim- Rated Scale, Driver Risk Premium, Driver Penalty Points and Multiple Crash Premium programs to ensure that drivers pay Basic insurance premiums commensurate to their risk. These programs focus on controllable driving behaviour and serve as an incentive for safe driving. It provides drivers the opportunity to affect the Basic insurance premium they pay through their decisions on how they drive. The aforementioned incentives are undiminished by the Optional transfers and impact customers based on their driving behaviour. ICBC was not responsive to the information request. TREAD IR 2.5 clearly sought a discussion of impacts on price signals to poor drivers (e.g. those responsible for more frequent or severe crashes), not the impacts on the incentive programs identified by ICBC To what extent does ICBC believe that income or capital transfers from Optional insurance business to Basic insurance business may obscure or diminish appropriate price signals to poor drivers? Please fully discuss, specifically including impacts on appropriate price signals to poor drivers Would the addition of income or capital to the Basic insurance business, through transfers from the Optional insurance business, necessarily tend to obscure or diminish appropriate price signals to poor drivers by enabling lower Basic insurance rates than would be possible absent the transfers? Please explain Would an infusion of income or capital from a private party or group, amounting to half of the F2016 ICBC revenue requirement, be likely to obscure or diminish price signals to poor drivers? Please fully explain, including any distinction between the impacts of income or capital transfers 4

5 from private vs. public (i.e. Optional insurance business) sources Reference: APPLICATION Exhibit B- 1, Chapter 1, p. ii Basic insurance general Exhibit B- 2, TREAD 2.6 ICBC s response to TREAD 2.6 states: ICBC has a comprehensive array of risk- based pricing programs in effect today and have outlined these in the response to information request RR TREAD.2.5. A key priority for ICBC is to help reduce injury and death on BC roads, which is why ICBC invests in road safety initiatives and partners with the government and police on various awareness and enforcement campaigns each year. Fewer crashes and injuries also means lower claims costs which help keep rates as low as possible.) ICBC endeavors to find innovative ways to match Basic insurance premium with risk that are in the best interest of its policyholders. Improving price signals to higher risk drivers may require changes in ICBC s rate design; however, that is outside the scope of ICBC s revenue requirements application. (emphasis added) 23.1 Please reconcile ICBC s claim that it endeavors to find innovative ways to match Basic insurance premium with risk that are in the best interest of its policyholders with its apparent abandonment of its May 14 June 22, 2012 Consultation and Engagement with customers Please file a copy of ICBC s May 14 June 22, 2012 Consultation and Engagement report and provide links to that document, and any related documents or discussion, on ICBC s website Please confirm that ICBC has removed discussion of the May 14 June 22, 2012 Consultation and Engagement and related process from the ICBC website. Please specify the date that content was removed from the ICBC website statement, and explain in detail why it was removed. Alternatively, provide current links to that and related material on ICBC s website Please file a copy of ICBC s May 14, 2012 press release titled ICBC announces public consultation and engagement and provide the link on ICBC s website Reconcile Mr. Blucher s statement that "Our goal is to redistribute insurance premiums to benefit lower- risk drivers and give an incentive to others to drive more safely. Depending on public feedback during the consultation and engagement process, about two- thirds of drivers could pay less than they 5

6 do today and about one- third of drivers could pay more." 1 with ICBC s current claim quoted above that it keeps rates as low as possible Please provide in tabular format, for each Policy year, all costs incurred by ICBC s Basic insurance business since May 14, 2012 related to the referenced Consultation and Engagement or potential changes to rate design Please confirm that rather than keeping Basic insurance rates as low as possible as ICBC currently claims, ICBC has not taken any action to make it possible for two- thirds of of BC drivers (e.g. lower- risk drivers) to pay less (i.e. lower rates) than paid by the other one- third of BC drivers. In the response please exclude the impacts of incentive programs that were already in place as of June 2012 and general rate increases since that time. If ICBC has taken such action, please describe in reasonable detail Please confirm that ICBC is not suggesting that anything and everything related to rate design is out of scope in the 2016 (or any other year) ICBC revenue requirements application. Please confirm that issues related to costs or revenues in Basic insurance business, whether or not they may be related to rate design, are in scope in ICBC revenue requirements applications. Please discuss Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, p B Bodily Injury Severity (Prior to Prospective Adjustments) Exhibit B- 2, TREAD 3.1 TREAD 3.1: Please explain why ICBC expects that claimants would be motivated to settle their claims for a lower amount as result of ICBC having more claims staff. ICBC s response states: ICBC does not expect that hiring more Claims staff will motivate customers to settle their claims for a lower amount. ICBC expects the addition of Claims staff will result in a decline in the number of pending injury claims and that claims will close, on average, earlier than would be the case with prior staffing levels. ICBC will continue to apply the same file handling expectations; settlements are to be fair and reasonable. Through the hiring of additional Claims staff, ICBC expects to be able to increase its ability to investigate, evaluate, and settle more claims than could otherwise be 1 icbc/newsroom/pages/icbc- announces- public- consultation- and- engagement.aspx 6

7 accomplished within the same time- frame with existing staff levels. ICBC s data indicates the average cost per claim increases as the age of the claims increase for both the represented and unrepresented claims segments. This has consistently been true at different closure rates in the past, which supports the expectation that it will remain true as closures are accelerated in the coming years. Therefore, an earlier closure pattern results in closing claims at a younger age with a corresponding lower average cost. (emphasis added) 24.1 If closing claims at an older age results in higher average cost per claim, and closing claims at a younger age results in lower average cost per claim, please explain ICBC s view that closing claims earlier will not necessarily involve claimants settling for lower amounts If the lower average cost of closing claims earlier does not reflect lower corresponding average settlement amounts, please confirm that ICBC attributes the lower average cost of closing claims earlier entirely to lowering ICBC s costs of claims management (i.e. exclusive of settlement amounts). Please explain Please quantify ICBC s expected net reduction of average cost per claim, expressly accounting for all costs of additional Claims staff Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, Appendices E.0 through E.4 Prospective Adjustments for PY 2016 Application ICBC 2013 RRA, Transcript Volume 7; 1105, l , l. 6. Exhibit B- 2, TREAD 4.1 ICBC 2013 RRA, Transcript Volume 7; 1105, l , l. 6: MR. WEISBERG: Q: I think you just said that the end of 2015 is your best estimate, and the best estimate for completion of a rate design filing? MS. PRIOR: A: No, I was talking about for the systems work to be implemented. So we would basically hope to implement then, have a bit of a stabilization period as you do with any large system. And so I guess the point of that, Mr. Weisberg, is we wouldn t be able to implement anything out of any rate design work until subsequent to that. And frankly, right now we don t have resources we can put to the rate design work. MR. WEISBERG: Q: So what s the earliest that you believe that ICBC would be prepared to file a rate design application? MS. PRIOR: A: It would definitely be post- 2015, and I think there s got a few things on our plate to determine from a regulatory perspective what the priorities are. But it would be something that would have to be post that time frame. 7

8 TREAD 4.1: Is Claims Transformation now complete? If so, when was it completed? If not, what remains to be done and when is completion expected? ICBC response: Yes. Claims Transformation was completed in late April Following a stabilization period, ICBC has fully operated in steady state since fall (emphasis added) 25.1 Please identify and quantify all costs incurred by or allocated to ICBC s Basic insurance business in connection with any rate design work in PY 2015 or (including forecast costs) PY If no costs related to rate design work have been incurred or allocated, or will be, in PY 2015 or PY 2016, please explain why that is or will be the case given ICBC s steady state operation since fall 2015 should have enabled ICBC to have such work underway as contemplated by Ms. Prior in her sworn testimony If no rate design work with costs incurred by or allocated to ICBC s Basic insurance business in PY 2016 is underway or contemplated, please fully explain all factors that prevent ICBC from beginning such work now that the circumstances described in Ms. Prior s testimony have been satisfied Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, Appendices E.0 through E.4 Prospective Adjustments for PY 2016 Application Exhibit B- 2, TREAD 4.2 TREAD 4.2: Please describe ICBC s confidence in the likelihood of achieving $21.1 million of savings as a result of Counter- fraud program improvements. Given the covert nature of fraud, how is it possible for ICBC to estimate counter- fraud savings with such precision? ICBC Response, in part: $21.1 million is ICBC s best, unbiased estimate of claims cost savings. The estimate is based on the available credible evidence, as ICBC s standards for prospective adjustments require. (emphasis added) 8

9 26.1 Please explain why ICBC chose to introduce the unexpected qualifier unbiased Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, p. 2-16; Appendix E.0, p.11; Chapter 9, p. 9-2 ICBC 2015 RRA, Exhibit B- 5, RR BCUC.29.1 Other possible Prospective Adjustments Exhibit B- 2, TREAD 5.1 and BCUC 15.2 ICBC s response to TREAD 5.1 stated, in part: Please see the response to information request RR BCUC.15.2 for why ICBC considers that increased fines and penalty points for distracted driving will not significantly impact claims cost in policy year What thresholds, both percentage reduction of claims costs and the $ amount of any reductions, would ICBC consider to represent a significant impact on claims cost in PY 2016? Please discuss Given ICBC s view that increased fines and penalty points for distracted driving will not significantly impact claims cost in policy year 2016, does that heighten the need to make the rate design changes contemplated in the 2012 Consultation and Engagement both to reduce Basic rates for two- thirds of BC drivers and to provide additional price signals and motivation for poor drivers (e.g. those responsible for more frequent or severe crashes) to improve their driving? Please explain If increased fines and penalty points for distracted driving will not significantly reduce claims cost in PY 2016, isn t that a clear indication that ICBC needs to do more or explore new approaches to reduce claims costs including consideration of changes to rate design? 27.4 Please confirm that to the extent that rate design changes may result in reduced claims costs, for example by motivating improved driving behavior, ICBC should actively pursue that initiative and have reflected related costs in the 2016 RRA. Please explain Is ICBC aware of any data, academic or industry studies, or other materials that clearly indicate rate design changes that increase rates for poor drivers drivers (e.g. those responsible for more frequent or severe crashes) do not tend to result in reduced claims costs, in BC or other jurisdictions? If so, please provide copies and/or electronic links to such materials Please provide all references in the 2016 RRA record to evidence regarding 9

10 ICBC s consideration of rate design changes that may reduce claims costs. If there are none, please fully explain why ICBC gave no consideration to that issue as part of its efforts to control costs in PY

11 28.0 Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, p. 2-16; Appendix E.0, p.11; Chapter 9, p. 9-2 ICBC 2015 RRA, Exhibit B- 5, RR BCUC.29.1 Other possible Prospective Adjustments Exhibit B- 2, TREAD Please confirm that increased fines and penalty points for distracted driving in BC will apply to offending drivers whether or not they cause or contribute to a crash that results in claims costs Please confirm that drivers may remain unaware of increased fines and penalty points for distracted driving in BC unless and until they are ticketed or face other enforcement action Please confirm that the rate design changes proposed by ICBC in 2012, but never developed or implemented, could be structured to increase rates only for drivers who have caused or contributed to a crash that results in claims costs Please confirm that drivers required to pay higher Basic rates as a result of rate design changes would invariably be notified of that consequence in their next Basic insurance renewal Would implementation of rate design changes similar to those proposed by ICBC in 2012 reasonably be expected to have a more positive impact (i.e. a reduction) on claims costs than increasing fines and penalty points for distracted driving in BC? Please explain and provide evidence supporting ICBC s view Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B- 1, Chapter 2, p. 2-16; Appendix E.0, p.11; Chapter 9, p. 9-2 ICBC 2015 RRA, Exhibit B- 5, RR BCUC.29.1 Other possible Prospective Adjustments Exhibit B- 2, TREAD 5.3 ICBC s response to TREAD 5.3 stated, in part: ICBC believes that a multi- tiered approach, including education and enforcement, may change behaviour with the potential to reduce claims costs in future years Does ICBC acknowledge that rate design changes similar to those it proposed in 2012 should be part of a multi- tiered approach that may change behavior with the potential to reduce claims costs in future years? If not, please explain and provide supporting evidence. If so, why has ICBC apparently taken no action to make rate design changes that may reduce 11

12 crashes and claims costs? 30.0 Reference: OPERATING EXPENSES AND ALLOCATION INFORMATION Exhibit B- 1, Chapter 5, pp to 5-15; Chapter 10, Appendix 10 C, p. 10C- 4, IR RR BCUC FTEs and compensation Exhibit B- 2, TREAD 8.3 and BCUC 26.2, Attachment A 30.1 How much of the increase (2016 outlook vs actual) in compensation expense is due to potential payouts under the Holdback Incentive Pay (HIP) Plan? 30.2 Please describe the $ amount of payouts under the HIP, corporate as well as individual, if the Commission approves a rate increase of 5.6% or higher for the 2016 RRA How much of the increase (2016 outlook vs actual) in compensation expense is due to potential payouts under Gainsharing? 30.4 Will the percentage rate increase approved by the Commission for the 2016 RRA have any impact on the Gainsharing portion of the increase (2016 outlook vs actual) in compensation expense? Please explain and provide the $ amounts of any impacts Reference: CLAIMS COST MANAGEMENT Exhibit B- 1, Chapter 7, p Fraud Exhibit B- 2, TREAD and RM 5.3 ICBC s response to RM 5.3 indicates a sharp drop of over 50% for Charges Laid and Number of Convictions in 2016 (through August 31, 2106) relative to both 2014 and ICBC s responses to TREAD 16.5 and 16.6 stated: 16.5 No, ICBC does not have a reward system in place to provide a financial incentive for the reporting of fraud ICBC has not undertaken jurisdictional research on the return on investment of a fraud reporting reward program in comparison to the fraud analytics technical solution. Fraud reporting programs rely on members of the public to notice and 12

13 report potential fraud. The technical solution that ICBC is assessing, which is one part of ICBC s fraud strategy, will provide broader investigative opportunities than would be available if ICBC relied solely on the public reporting of fraud. ICBC s long- standing Tips line fraud reporting program is available to the public In light of the significant decline in fraud- related Charges Laid and Number of Convictions in 2016 relative to the two past years, why has ICBC not taken the apparently straightforward step of conducting jurisdictional research on the return on investment of a fraud reporting reward program in comparison to the fraud analytics technical solution? 31.2 Does ICBC acknowledge that piloting or implementing a reward system to provide a financial incentive for the reporting of fraud would be likely to provide additional investigative opportunities and/or enhance investigative opportunities created by other means such as the fraud analytics technical solution? Please explain Why did ICBC s response to TREAD 16.6 assume that ICBC would rely solely on the public reporting of fraud? Why didn t ICBC contemplate that reward- motivated public reporting of fraud could be a complementary tool? 31.4 Doesn t ICBC s long- standing Tips line fraud reporting program provide an established platform to pilot or implement a reward component? Doesn t BC Crime Stoppers approach of offering rewards of up to $2,000 for tips leading to an arrest and charge provide a proven, readily accessible model for ICBC to follow with minimal cost and effort? 2 Please explain Reference: APPLICATION Exhibit B- 1-1, Chapter 1, pp. 2-1 Rate Smoothing Framework Exhibit B- 2, TREAD Please provide a copy of and electronic link to ICBC s ICBC Files 2016 Basic Rate Application Rising Pressure on Rates press release dated August 25, Please confirm that the August 25, 2016 press release is ICBC s most comprehensive communication to the public regarding the 2016 Revenue Requirements Application. If not, please provide a copy of ICBC s communication to the public that ICBC considers the most informative regarding the 2016 Revenue Requirements Application Please confirm that the August 25, 2016 press release:

14 a. Makes no mention that government regulations require the Commission to approve a rate increase of no less than 4% (the 2015 rate increase of 5.5% minus 1.5%) and no more than 7% (the 2015 rate increase of 5.5% plus 1.5%) for 2016; b. Makes no mention of the Rate Smoothing Framework by name or even by general concept; c. Does not identify Special Direction IC2 as the underlying regulations that created or amended the Rate Smoothing Framework; d. Provides no indication of the rate impacts that Commission approval of a 4.9% or other rate increase for 2016 must have in subsequent years, absent legislative change; e. Fails to notify the public that Commission approval of a 4.9% rate increase for 2016 will trigger a mandatory rate increase between a maximum of 6.4% and a minimum of 3.5% - in 2017, absent legislative change; f. Makes no mention that government regulations prohibit any decrease in Basic insurance rates from one year to the next; and g. Offers no electronic link or other suggestion for where to obtain more information or additional detail regarding mandatory rate increases in subsequent years that must result from Commission approval of a rate increase for Please provide copies of and electronic links to all ICBC- issued news releases that provided information on the Rate Smoothing Framework or the underlying regulation and that specifically noted mandatory rate increases that must follow in subsequent years Please identify all publicly available sources, other than the press release note in IR 32.1 above or filings in RRA proceedings, that provide information on the Rate Smoothing Framework and specifically noted mandatory rate increases that must follow in years subsequent to the year of a Revenue Requirements Application Reference: APPLICATION Exhibit B- 1-1, Chapter 1, pp. 2-1 Rate Smoothing Framework Exhibit B- 2, TREAD 18.2 ICBC s response states in part: ICBC believes that the requirement that the rate must not decrease as specified in Special Direction IC2 is in place to address upward pressures and to keep rates 14

15 stable and predictable Does ICBC consider annual Basic rate increases averaging approximately 5% to be stable from a customer perspective? Please explain In what way are ICBC Basic rate increases predictable from a customer perspective if the public, and ICBC s customers in particular, are given no reasonable notice or understanding of mandatory Basic rate increases that must follow in subsequent years? 15