Some of the Thundering Pundits have been complaining lately about the fact that ICBC has been able to return what it calls excess capital to government over the past several years.
They are upset that government is dipping its “dirty fingers” into ICBC’s “coffers” to “scoop” cash which government presumably then has the gall to spend on some of its lame brain programs like heart surgery, disability benefits, and high school science labs.
Well, I beg to differ.
To begin at the end, just remember that the basic complaint here is that ICBC is paying money to government which government gets to use, gasp, to pay for public services. So understand this. If ICBC did not make these payments to government - and the same goes for BC Hydro and every other commercial Crown that is able to distribute some or all of its profit to government - one of two things would have to happen. Either public services would be cut, or taxes would have to rise. The Thundering Pundits never admit this, because it is so desperately inconvenient for their argument. I use the word “argument” loosely, because it is not really an argument; it’s just a bunch of half-baked facts thrown at a wall with the intention of making you indignant about those nasty folks, government, who apparently actually need money to build highways, hire teachers, and pay social assistance. The pirates! How dare they!
So in case you hadn’t already cottoned on, I happen to be in that very tiny group of British Columbians who think that if government-owned business are actually able to operate at a profit, and return some of their profits to government to offset the costs of government, that’s a good thing. It keeps taxes lower than they would otherwise be. I know, I know, you’re like the Thundering Pundits: you think that government should provide an infinite amount of service at no cost, delivered by people who, if you had your way, would earn slightly less than minimum wage. More’s the pity for you, because you’re being sold of bill of flawed goods on this issue, let me tell you.
So let’s cut right to the chase. That ICBC payment to government is from the operation of ICBC’s optional insurance business. It’s not the required coverage side of the business, the “basic coverage.” It’s the coverage you don’t have to buy at all, and you certainly don’t have to buy it from ICBC. ICBC competes in the private market for the sale of this product. It has no monopoly. It’s a business like any other. It makes a profit on that business. That’s the money we’re talking about.
We’re not talking about the basic insurance business. In the year 2012 ICBC lost money on its basic insurance business. $120 million, according to its annual report. Its premiums were not high enough to cover the cost of the services it provides its customers. ICBC is prohibited by law from internally cross-subsidizing its optional business from its basic business and vice versa. That was done to protect customers and competitors from the risk that ICBC would subsidize its optional business with the money from its basic business. Without that guarantee, which is backed by the requirement of BC Utilities Commission approval for basic rates, the concern was that private insurers would not enter the BC market to offer optional insurance.
But because of that guarantee there are private sector insurers in BC who will sell you that optional insurance coverage.
And as I have already said, ICBC has to compete for that business. And it appears they have done so very successfully. So much so, that the optional business makes money ($369 million in net income for 2012, according to ICBC’s financial statements - see page 37).
So here’s a question. What should ICBC do with that profit? I can think of three options:
One, they could reduce the premiums it charges for optional insurance. Huh? Why on earth would it do that? The price it charges for that product is already at a level which the public are willing to pay, even given the opportunity to buy the same product from another provider. There’s zero point in asking someone who is making a profit selling something in an open market to reduce its price still further.
Two, they could use the excess from the optional business to offset the losses in the basic business. This is something that the people who buy the basic coverage would probably like to have happen. I’m not going to say this would be a manifestly stupid thing to do. But it’s not the right thing to do. The right thing is option three - return that profit to its owner.
Now please don’t get all indignant about my rejection of option two. You need to remember that ICBC’s rates for basic coverage are regulated by an independent regulator, the Utilities Commission. This safeguard ensures that ICBC cannot overcharge or gouge for basic coverage just to enrich its own coffers. No, what the regulator does is make sure that the purchasers of basic insurance are charged a premium which, over time, allows ICBC to make enough money to operate its basic insurance business sustainably.
But to return for a moment to the nonsense peddled by the Thundering Pundits, don’t let them fool you into thinking - as they would have you believe - that ICBC is being forced by government to jack up basic insurance rates so it can return a phony profit to government. That is simply, utterly, and completely untrue. Basic rates are protected by an independent regulator. And the income from basic rates is not being used to make the excess capital payments to government.
But to the main point, here’s why I like option 3. I love the fact that a government corporation, competing in the open market, can run a business so profitably that it generates excess capital, that can be paid to government to help offset the cost of all those public services we hold dear and depend upon. Indulge me in a thought experiment for a moment. If, heaven forbid, government owned and controlled enough profitable businesses that it received not just hundreds of millions of dollars every year from them, but billions of dollars, think of the services that could be delivered, the vulnerable people who could be helped and the relief from the ever-present pressure to increase taxes to pay for those services.
That’s why I prefer option 3 to option 2. I know it’s tempting to think that these dollars should be used to reduce the cost of basic automobile insurance. But we have strong mechanisms in place to prevent ICBC from over-charging for basic insurance, so those of us who choose to drive will pay a fair premium for that basic coverage. I’d rather use that profit to pay for textbooks, disability assistance, and transit services.
So instead of complaining that ICBC is sending these dollars to government, I think we should congratulate them.
And the next time you hear someone complain that government is drawing profits from ICBC to pay for public services, ask them to explain why it’s so wrong that government should be able to draw upon profits earned in the open, competitive market, to help offset the cost of services to the most vulnerable and needy among us.