What ICBC Needs To Do Now, Summer of 2017 forward

Just to be completely clear, for the first 34 years ICBC worked well. Everyone got compensated ‘fairly’ as happens with a tort system and rates increased on average of only .8% per year between 1998 and 2008. It was only after the gross mismanagement of ICBC between 2008 and 2016 that we saw the structural problems that are now prompting a lot of panicked discussion about major changes to the system.

Financially, what needs to be done now, is for the government to pay back the $1.2 billion previously taken from ICBC and focus on the essential goal, which is the affordable delivery of timely and appropriate compensation to accident victims. It has demonstrated during the 34 years before the politicians started meddling with it in earnest, that it is perfectly capable of achieving that goal if allowed to act consistently within basic insurance principles and not being required to also fund schools, hospitals and sundry government pet projects.

From a public good perspective as well as financially, ICBC needs to be much more pro-active on reducing accident frequency. A 10% decrease in accident frequency would avoid a huge amount of human suffering as well as eliminate the need to collect $400 million a year in premium revenue (based on ICBC’s current gross revenue of about $4 billion). ICBC has actually overcome greater challenges vis a vis seat belt usage and public values on impaired driving.

Nick de Domenico
25 July 2017

A Case for a Separate Accident Benefits Department Within ICBC

The issue that is motivating elimination of the tort system today is the perception held by some that it is unnecessary and expensive.  The point is valid only to the extent that the tort system is utilized to deal with obvious, short term income and treatment related losses that have usually already been perfected at the time of settlement. As it stands now, in the absence of adequate accident benefits coverage and a concurrent, effective delivery system, the tort approach is used to fill the vacuum on these past losses.  Very expensive sledge hammers are being routinely used to swat mosquitos to the growing annoyance of the premium payer.

In 1973, when the concept of government insurance was initially conceived and communicated to the public, ‘no-fault insurance’ meant the immediate delivery of wage and treatment related support to people injured in car accidents. The 2016 version of the term has come to mean the taking away of the rights of British Columbians to fair compensation for all aspects of injury related loss.  We need to return to basic values.  It’s not too late to honour the promise that was so widely endorsed by the public at the time.

The Dual Claimant Problem

Almost every single time a person is injured because of a motorist’s negligence he/she has an accident benefits claim for medical expenses, wage replacement, and if required, rehabilitation costs.  At the same time, he/she has an additional claim against the negligent motorist’s third party liability coverage for all other losses.  Because ICBC is the monopoly provider of both accident benefits coverage and basic third party liability insurance, the injured person and ICBC must engage in the settlement of both claims.

Honouring the accident benefits contract that it has with the injured person often diminishes the defenses the Corporation is obligated to maintain on behalf of the tortfeasor. Notwithstanding the obvious and inevitable conflict created by the dual claimant situation, ICBC has always used the same adjuster, in the same department, working out of the same file to handle both claims.

This conflicted and confusing claims situation is created over 40,000 times a year. This leads to operational inefficiencies, process based inflation of tort settlement outcomes, poor customer service, and a negative relationship with the public generally and claimants individually.  From a societal perspective, the result is a diminishment of ICBC’s capacity to affordably deliver timely and appropriate compensation to all British Columbians involved in motor vehicle accidents.

The Solution

There is a solution to this problem that can realistically yield annual savings in the millions of dollars, and produce a dramatic improvement in the cost-effective delivery of both tort and contractually based compensation. Structural and regulatory changes could enable ICBC to effectively focus the considerable resources of the Corporation on the injury, which is the root of both tort and accident benefits claims, particularly during the acute stage when remediation is most effective and most needed.

Structural Changes:

At one time ICBC maintained a narrow commitment to a separation of the administration of accident benefits and tort coverages in the form of a Rehabilitation Department.  Even so, that department’s activity was limited to cases of severe injury; and even that minimal level of commitment has been reduced in the post-2008 era.  What is in fact needed now is a reversal of that trend.

An entirely separate and more vigorous ‘Accident Benefits Claims Department’ reporting directly to the Vice President of Claims must replace the existing ‘Recovery Management Unit’. This department should be staffed by employees equipped with specialized skills and the singular mandate of helping all people injured in motor vehicle accidents get better and, in the case of the disabled, get back to work.  The ideal Accident Benefits Claims Department employee would have a good knowledge and understanding of accident benefits coverage and the ability to understand and operate within the health care field.

Beyond Function to Perception

Within the world of formal law the handling of information is highly valued for good reason.  The Rules of Evidence loom large in civil litigation.  In the world of insurance, the obligation of an insurer to act with utmost good faith where potential conflicts between its interests and those of its insureds exist, is a hallmark of the profession.  Within the world of ICBC, information and decision making converge in a miasma of conflicting contractual obligations. The operational separation proposed here insulates the Corporation and protects the public from the specter of bad faith.

Regulatory Changes:

Now

Currently, Section 80 of the Regulations, titled “Disability benefits for employed persons,” acknowledges the need to stabilize the injured person financially.  Section 88, “Medical or rehabilitation benefits,” then provides for a limited array of treatments specific to the traumatic nature of motor vehicle accident injuries. However, accident benefits coverage, as it is currently written, is secondary to all other forms of insurance including MSP. Even when it is eventually made available, it is woefully inadequate.

The Critical Time Frame

The acute stage of any injury is already defined by Section 80 as “… the duration of the total disability or 104 weeks, whichever is shorter…”.  Indeed, this time frame is echoed in most private sector wage indemnity coverages.  It also resonates with my personal experience since 1971 that tells me a responsible prognosis is available on most injuries within two years of the trauma.

The Need for Early Engagement

For the injured person, this is an extremely traumatic time in their lives.  Finding their way to ICBC through a maze of complicated application procedures and coverage wordings that come with the need to first apply to Employment Insurance, and/or Work Safe BC and/or private sector carriers such as Great West Life or Blue Cross can be overwhelming.

Some give up immediately and turn to legal counsel for support.  Even for those who overcome this hurdle, the experience lays the ground work for an embittered perception of ICBC.  People don’t consider their car accident injury as a workplace event or an illness.  They don’t understand why ICBC isn’t immediately stepping up to the plate.  The opportunity to lay a positive foundation for the resolution of all their injury related claims is replaced with a sense of disappointment, and frequently, anger.  When ICBC and the injured person eventually do come face to face on the claim, what ICBC can offer pursuant to accident benefits coverage is too little, too late.

Needed Benefits Expansion

Wage indemnity is maxed out at $300 per week, which is $15,600 a year, well below the poverty line.  Real financial barriers to treatment, such as user fees ranging from $40 to $60 per physiotherapy treatment, are not payable by ICBC under the contract and often not affordable by the injured person in their circumstances.  Neither are MRI’s and other diagnostic procedures that doctors often rely on to expedite treatment.  Wait times under MSP coverage for diagnostic and surgical procedures can easily be six months or longer.

For the catastrophically injured, even the current level of coverage, $150,000 doesn’t meet the need.  It was set in 1990.  Homemaker benefits need to be extended to family members to reflect the common practice of relatives substituting for an injured homemaker and set at a level that is 50% of professional care services.

Particularly for soft tissue injuries it would be beneficial for ICBC to have the capacity to pay under Part 7 for counselling services given that there is a psychological component to almost any physical injury.

Funeral expense of $2,500 is obviously inadequate for even a basic disposal of a body.

The Business Case for Change

The Injury

People get stressed when they can’t pay the rent and can’t afford treatment.  Stress easily transforms into compensable psychological injury, best encapsulated in, but not limited to, the DSM 5 diagnosis of “Adjustment Disorder”.  Such a diagnosis is common in motor vehicle accident injury cases.  Even without an official diagnosis, any doctor will tell you that stress increases the perception of physical pain and consequent loss of function. Providing coverage to meet a general practitioner’s recommendation for counselling would allow for addressing all aspects of the injury itself.  The recommendations for expanded financial support would work with counselling, or often obviate the need for counselling, all of which would mitigate the injury effects and expedite recovery.

The Person

At this critical time, not only is the opportunity to establish a positive relationship lost but it is replaced with a perception that ICBC has shirked its duties at a time when the injured person needs ICBC most.   The help injured people need is either significantly reduced or put entirely out of reach by the confusion and inefficiencies currently present in the administration of what should be the primary compensatory coverage for motor vehicle accident related injuries.

The Corporation

In the tort world, the difference between a $50,000 moderate soft tissue injury claim and a $350,000 chronic pain case is intensity, duration and an absence of hope.  The difference between a $15,000 Bill of Costs and a $70,000 Bill of Costs is often an embittered plaintiff.   Stabilizing the injured person financially so that they can take advantage of accessible and cohesive treatment and rehabilitation options during ‘the critical time frame’ minimizes the negative effects of the injuries that cost ICBC dearly on the tort side.

The Changes

This means making accident benefits coverage primary.  It means raising the weekly indemnity limit to a level that would effectively replace the net income of most injured persons, that is $1,000 per week or 100% of net income, whichever is the lower.  It means broadening the base of covered treatments to include the psychological element and removing the restriction to MSP rates.  It means providing coverage for diagnostic and surgical procedures necessary to expedite treatment.   For the catastrophically injured it means bringing the administration of benefits in-house to reverse the erosion of coverage precipitated by payments to outside contractors for the supervision of benefits, a task they are not actually even trained for.

The Advantages

From the injured person’s perspective

  • timely financial stabilization through adequate weekly indemnity rates
  • timely access to fully underwritten and expedited, professionally guided treatment programs
  • clarity in the relationship between the injured person, health care professionals and the different facets of ICBC
  • restoring the coverage for the catastrophically injured, previously taken away by ICBC’s post-2008 decision to outsource aspects of benefits administration and restoring real limits of coverage currently eroded by inflationary effects over the significant time frame that has elapsed since the limits were last adjusted

From the Corporation’s perspective, the advantages can be summarized as follows

  • opportunities to collect premium income congruent with the actual exposures
  • more effective administration of coverage
  • appropriate information management and claims related decision making where both the tort and accident benefits claims interrelate
  • a more positive, informed and simplified environment for the settlement of tort exposures
  • improved public image

Concerns

If weekly indemnity is set at the level of usual net income, then more people will be off work longer

Payment of weekly indemnity is based on medical opinion.  That medical opinion would be provided in the context of an appropriate treatment plan, designed by the treating physician and  underwritten and actively managed by a skilled employee of the Insurance Corporation.  Legitimate claims would be paid, fraudulent claims would not.

Being employed, in addition to providing money to ‘support individuals and their families and explore interests, also gives them a sense of pride, identity and personal achievement, and enables them to socialise, build contacts and find support’[1].  In the critical phase of the injury, people are motivated to regain their employment status for all of these reasons.  Providing money to allow them to focus on treatment does not reduce the other motivational factors, it allows fulfilment.

Making ICBC primary will mean ICBC now must assume the expenses normally incurred by other benefit sources

In the case of injured persons with additional tort claims, Work Safe BC and the various private sector accident and sickness insurers all collect premiums for this exposure but ultimately recover the amounts they have paid from the liable motorist’s basic third party liability coverage, which is always written by ICBC.  The only difference ICBC’s provision of greater accident benefits coverage to tort claimants will make is that ICBC will then be able to collect that portion of the premiums now collected by other entities; and they will be able to directly administer coverage.

In the case of people that do not have a tort claim the effective administration of adequate accident benefits coverage has always been squarely within ICBC’s mandate.  The proposed changes will finally fulfill the original promise of ‘no-fault insurance’.

In 1973, when the concept of government insurance was initially conceived and communicated to the public, ‘no-fault insurance’ meant the immediate delivery of wage and treatment related support to people injured in car accidents. The 2016 version of the term has come to mean the taking away of the rights of British Columbians to fair compensation for all aspects of injury related loss.  We need to return to basic values.  It’s not too late to honour the promise.

Premiums will increase

The public is willing, and in some cases, compelled to pay premiums for similar coverage in other aspects of their lives.  Statute provides for compulsory contributions to Employment Insurance, Workers Compensation plans and the Canada Pension Plan.  Employers and workers pay premiums to private sector companies through their collective agreements.  Individuals pay premiums directly in self-employed situations.  What the public does not want to pay premiums for is mismanagement, waste and greed.  None of these negatives are encouraged in the proposals outlined here.

Widening of accident benefits coverages in the ways discussed does not necessarily mean an increase in the overall cost of Basic Insurance.  The application of this approach will reduce tort severities by reducing negative injury outcomes.  It is entirely likely that implementation of these ideas would lead to an overall reduction in the total amount of premium collected for Basic Insurance coverages.

Expanding Accident Benefits Coverage will weaken or even eliminate the tort system

Quite the contrary.  The tort system, which operates in a precedent based, legal environment, provides truly independent recourse to institutional decisions.  An increase in contractually based rights cannot replace that.

Elimination of tort rights are generally considered worthwhile in the case of WCB, where the relationship between potential litigants is more important and more enduring.  Taking away tort rights from motor vehicle accident injury claimants however means we would be left with a system where the individual needs of the injured person would be subjugated to the needs of the institution created to address them; all this without a corresponding, WCB type of counter weight in that the relationship between car accident litigants is usually a one off.

The issue that is motivating elimination of the tort system today is the perception held by some that it is unnecessary and expensive.  The point is valid only to the extent that the tort system is utilized to deal with obvious, short term income and treatment related losses that have already been perfected at the time of settlement. As it stands now, in the absence of adequate accident benefits coverage, the tort approach must be used to fill the vacuum on these past losses.  Very expensive sledge hammers are being routinely used to swat mosquitos; to the growing annoyance of the premium payer.

On the other hand, settlement discussions on the long-term effects of injuries deal with losses that are not yet perfected and therefore are always speculative.  The fact patterns are often complex.  They often involve significant sums of money. In this environment, appropriate application of the law is essential to the interests of all parties.  Recourse to judicial review where lawyers’ skills, both defense and plaintiff, are indispensable in the assessment of future losses. is absolutely essential.

Conclusion

A separate Accident Benefits Claims Department providing compensation for income loss and treatment and rehabilitation expenses at the time the losses are incurred and can be dealt with most effectively, is the key to eliminating the confusion, inefficiencies and excessive expense of personal injury compensation in BC.  The changes suggested here are just one component of a series of overall changes necessary to reverse the consequences of the failed post-2008 claims management strategy.

[1] Paraphrased from the Fit to Work website, http://fitforwork.org

Ten Things You Should Know About ICBC Before You Vote

  1. An Ounce of Prevention is Worth a Pound of Blame

If you ever drive eastbound on the Barnett Highway, just by the cement factory on the Burnaby side, on your right you will see the carefully preserved colour photos of two young men, twins it looks like, cut down by a traffic accident.  This memorial is often supplemented with fresh flowers.  It has been for years.  A parent’s grief does not go quietly into the night.  It’s a constant ache that lasts forever.

This is one of thousands of such shrines to lost loved ones that dot the city streets and highways all around our Province.  If you look for them you will see them everywhere.  Some are just bouquets fading in the rain, others are small white crosses, some have a written sentiment that recalls something unique about that particular human being, that friend, family member, contributor to the community, that will be missed – always.

They are also reminders of the chronic mismanagement of our public roadway systems, of a lack of imagination, a lack of caring that shows up in the very manner of the Government’s administration of the key publicly owned device for addressing the problem, the Insurance Corporation of BC.  The Government points an accusing finger at public fraud and greed, all the while hiding its flaccid and underfunded accident prevention arm, ICBC’s nearly non-existent Traffic Safety Department, behind its back.

  1. The Moving Definition of No Fault Insurance

Back in 1974, when ICBC was young, and creative, and effective ‘no fault insurance’ meant delivering financial and health care support to injured motorists when they needed it, in the accident’s aftermath – because they were hurt, not because they could sue someone!  Today there is talk of ‘no-fault insurance’ in the context of taking away an injured person’s right to have compensation for their losses independently adjudicated.  It’s like trusting the Canadian Parliament, Liberal or Conservative, to act without the check and balance of the Supreme Court of Canada.  It would turn ICBC into a rolling Worker’s Compensation Board.  Must the citizens of this Province pay for the Government’s chronic, incompetent political meddling in ICBC’s operations with this clumsy, wholesale sweeping away of citizen rights?

  1. Minister Stone is Experiencing Unusually High Call Volumes

It’s so frustrating and such a waste of time being put on hold with a large corporation because of the ‘unusually high call volume’ that is … well … really just ‘business as usual’.  And then when you finally get to speak to a human, they don’t have any authority to help you actually solve your problem.  That’s what the Government has done to ICBC.  And Minister Stone wonders why people hire lawyers.

  1. A Step Too Far for The Government

Want to reduce ICBC expenditure by millions of dollars? Eliminate the Subrogation inequity. Here’s what that is.  Someone pays a private insurer a premium for collision coverage on their vehicle.  They get rear ended.  The private collision coverage insurer exercises its right of Subrogation, meaning they are legally entitled to collect what they have paid to their insured from the negligent motorist.  ICBC, because it’s the only provider of basic liability coverage, always insures the negligent motorist and is therefore always required to pay the private insurer.

The private insurer collects the premium, ICBC pays the loss.  You and I pay the loss because we must buy basic liability insurance from ICBC.  It works the same way for disability insurance.  The private sector collects the premium, ICBC pays back the wage and medical expense benefits.  You and I pay the loss while the private sector, having already accounted for these losses when they set premiums, receives a gift.

There’s a simple solution.  It can be done at the stroke of the Government pen.  The Conservative Government did it in Alberta.  The private sector automobile insurers did it in Quebec.  It could easily have been done here in British Columbia at a savings to ICBC of literally tens of millions of dollars a year.  Minister Stone, take a deep breath, step up to the plate, and eliminate the Subrogation inequity.

If a long-term incumbent Conservative government in Alberta could take away disability insurance subrogation privileges, if the private sector in Quebec could agree among themselves to do it, then why can’t you?

  1. The Amber Light The Government Ignores

Last minute lane changes, charging amber lights and blindly turning left across oncoming traffic add up to the most common cause of violent intersection accidents – collisions between left turning and oncoming vehicles.  Flashing overhead amber warning lights, set at safe stopping distances from intersections, are already installed at a few intersections such as Boundary and Vanness.  Install more of them and make it illegal to enter an intersection against them. Enforce with existing red light camera technology.

Fewer violent intersection collisions equals less personal injury, less property damage, and lower premiums. Perhaps if ideas like this had crossed the Government’s mind, when they were removing restraints on speeding motorists, they would not now be in the position of complaining about the high accident rate and looking for someone else to blame.

  1. The Blind Eye of the Government and a Bucket of Paint

Turning blind across multiple lanes of oncoming, speeding traffic – we do it all the time, like at Granville and 41st Avenue, Main and 49th, Broadway and Clark, to name a few.  Sounds crazy right?  But it’s just normal.  This is the normal way the government designs city intersections.  The painted lines on the road at these intersections, and hundreds of others in all of our cities and towns, design left turn lanes so that opposing left turners can’t see past each other.

A bucket of paint will drastically reduce the number of violent head on collisions at each of these intersections.  It’s a simple thought but perhaps the Government has been too busy raising speed limits, dismantling photo radar and dreaming about the Christy Clark Bridge across the Deas Slough to take this simple, inexpensive, life-saving step.

  1. The Government’s Thoughtless Public Transportation Statistics

The Skytrain moves literally millions of people a week all over the Lower Mainland.  Number of fatalities caused by the negligent operation of the Skytrain – Zero.  Number of people injured in collisions between skytrain vehicles – Zero.  Number of people killed in motor vehicle accidents each year – over three hundred.  Number of people injured in motor vehicle collisions or run over as pedestrians each year – countless, in the tens of thousands.  The danger of texting while sitting on the skytrain – none.  The danger of texting while driving a car – immense.

Why hasn’t the Government thought about the safer and less expensive options to get people where they need to go?  Obvious solutions have been staring them in the face for years!

  1. Think Public Surface Transit Minister Stone – Or Just Think Period

Think Toronto Go Train, Calgary C Train, our own West Coast Express.  Then think 3.9 billion dollars to build the new Port Mann Bridge and the half billion dollars a year that it is currently losing operationally.  Now think twenty car pile ups, falling lumps of ice and the fact that building bigger roads invites more traffic, which leads directly to more congestion, more pollution, more accidents, more injuries, higher insurance premiums and longer commuting times.

We the people already own a strip of land, ideal for building safe, public, at-grade, light rapid transportation, complete with overpasses and space for parking lots, from the Skytrain nexus at Lougheed Mall, all the way to Abbotsford.  It’s called the median between the lanes on Highway 1.  Maybe Minister Stone and Premier Clark should think a little more deeply before rushing into recreating the Port Mann Bridge fiasco over the Deas Slough.  Highway 99, like Highway 1, has a similar strip of land ready for public surface transportation linking the communities south of the Fraser River to existing Skytrain links at YVR and Surrey Central.  Build it.

  1. To Be a Premium or Not To Be a Premium – That Is the $1.2 Billion Dollar Question

At a time when average loss payouts and litigation costs were dramatically increasing, and premiums were (and still are) going through the roof, the government took $1,200,000,000 out of ICBC’s bank account. How could that possibly have made sense operationally?  ICBC’s big but that’s 118 dump truck loads of loonies.  You could lay a trail of loonies, edge to edge, from Vancouver to Calgary and back with One Billion, Two Hundred Million Loonies.

In the Legislature, Minister Stone recently admitted to taking this money, which was collected as ICBC premiums, and spending it on health and school programs.  As if the end justifies the means.  As if saying one thing and doing another is acceptable conduct for a government minister.   I’ve never been a finance minister or an insurance executive, but it seems obvious to me that money collected as school taxes should be spent on schools and money collected as insurance premiums should be spent on claims and loss prevention. That way all us dummies actually get what we’re told we’re paying for.

  1. Wither Goest Thou ICBC?

ICBC is in trouble financially.  We’ve all heard about it in the papers.  Some say we can’t keep the ‘tort system’ (the right of motorists to have the value of their injury claims independently adjudicated by the courts) as is.  In terms of ICBC’s financial viability, the only thing that’s changed in the last 45 years, is the Clark Government of the last 5 years.  Clearly, they are not up to the task.  We are all very, very tired of paying for their mistakes.  They now understand that much so it’s not likely to stay the same. So what are the options going forward?

Here’s the inside gossip on the choices about ICBC that any new Government will consider after the May election:

  • No Fault – WCB on wheels, no thanks.
  • Caps – limit the amount payable on ‘mild injuries’ and argue about what ‘mild’ is. A further complication to a system already creaking and groaning under the weight of its own process.  Didn’t work in Ontario, didn’t work in Alberta, not likely to work here.
  • Deductibles – a set amount is automatically deducted from the pain and suffering part of your injury claim. It’s like the collision coverage on your car only for injury claims, EXCEPT:  You pay it even though you’re not liable.  You pay it from the compensation you need to recover from your injuries.  You pay it so that the government can continue to make the same mistakes it’s making now.
  • Choice – this is the worst of the bunch. You pay extra for what you already have – the right to sue; or, you pay the same for less. Your choice.  An overly complicated motor vehicle version of two-tiered health care.  Of course, if you’re Mark Blucher, ICBC’s CEO, who we premium/tax payers shovelled out $409,179.00 to last year, then you can probably afford the extra hit for the really good coverage.  For those of us making less than $409,179.00 every year, we must quite literally settle for less.

The Hybrid Option – This is a three- step recipe for constructive change – Start with a large helping of financial and health care support at the time of the accident.  For everyone.  Delivered directly by ICBC.  That’s called Enhanced Accident Benefits Coverage.  Season with careful consideration of compensation for future losses.  That’s keeping the part of the tort system we actually need.  And then, for the first time ever, bake into the basic psyche of ICBC the importance of a meaningful, comprehensive and ongoing loss prevention program.

Thousands of accident victims over the last 45 years have all told me the same thing:

“It doesn’t matter how much money I get, I would rather not have had the accident”

They can’t all be wrong.  What happens to ICBC is very important to all of us.  Ask your politicians which option they endorse, but don’t waste your time with Minister Stone.  He’s already said he doesn’t know what to do. He’s got someone reviewing it.  Rome is burning, Minister Stone.

 

Nick de Domenico has been on the front lines of motor vehicle accident claims settlements since 1971.  Out of that experience he has become a strong believer in both the tort system and the concept of publically owned automobile insurance.

ICBC Since 2008 – Outcomes, Analysis and Recommendations

INTRODUCTION

The motivation for this memo comes from the recognition that ICBC is at a critical point in its history. Dramatic improvements to Corporate function are urgently required. It is hoped that the comments provided here will assist in identifying the problems and potential solutions.

The good news is that such solutions are immediately attainable. The Corporation already has the benefit of a skilled work force, an effective organizational structure, and a solid history of good Corporate performance. However, a complete revision of the overarching claims management philosophy that was adopted in 2008 is clearly required at this point.

Properly implemented, such a revision will restore positive Corporate outcomes in terms of:

  • Financial performance
  • Premium affordability
  • Quality claims settlement
  • Employee morale

Factual content for this memo is derived principally from “A Review of the Insurance Corporation of British Columbia, August 2012” prepared by Internal Audit and Advisory Services, Ministry of Finance, together with the content of the attachments to the 31 August 2015 letter from ICBC to the British Columbia Utilities Commission supporting ICBC’s latest rate increase request.

 

OVERVIEW

The Corporation’s approach to the settlement of bodily injury claims is a major determinant in its ability to deliver both affordable insurance and timely and appropriate claims compensation.

Affordable insurance delivering timely and appropriate claims compensation is now and has always been the fundamental mandate of this Crown Corporation.

Eight years ago ICBC began the implementation of significant changes to its strategic approach to the settlement of bodily injury claims. Given that these changes have taken several years to be fully implemented, and that the effect of these changes has taken several more to work their way through the thousands of pending claims, their actual effect can only now be clearly viewed and appropriately analyzed.

The conclusion of this review is that, as a direct result of fundamental changes to the overall management philosophy of the Claims Division begun in 2008, the cost of insurance is significantly higher than it should be, and the delivery of compensation has become burdened with unnecessary delay and process based costs.

The first part of this memo is a brief, fact based summary of the outcomes of these changes in terms of four key indicators of Claims Division performance:

  • Impact on Premium Rates – (affordability of insurance)
  • Pending – (number of unresolved injury claims)
  • Severities – (average cost to settle claims)
  • Work Force Efficiency

The second part of this memo provides an analysis of how those outcomes were produced in the context of the same four key factors.

The third part provides recommendations for positive change.

 

PART 1 – SUMMARY OF OUTCOMES

Premium Levels – Affordability of Insurance:

Premiums in 2012 increased by 3.6%. The overall average premium increase per year in the ten years previous was .8%. ICBC is currently before the BCUC with a request for further increases in the amount of 11% over 2012 levels in terms of Basic Insurance.

Premium increases between 2001 and 2011 averaged at 1.6% for Basic, -.3% for Optional for an overall average premium increase of .8%. In 2012 ICBC advised the BCUC that an 11.2% increase in Basic Insurance premiums together with a -6% decrease in premiums for Optional Insurance, resulting in an overall premium increase of 3.6% was necessary (see table on page 7 of the Internal Audit and Advisory Services Review of ICBC of August 2012). The impetus for the 2015 overall rate increase request from ICBC is also based mainly in the need for revenue to supplement Basic Insurance Operations.

The acceleration of premium increases since 2011 is attributable to the financial performance of Basic Insurance Operations.

 

Pending – Number of Unresolved Injury Claims:

The average pending injury exposure count per adjuster has gone from 218 in 2006 to 245 in 2012. There is every indication that now in 2016, average pending case-loads range from 250 to 300.

Given that roughly the same number of new claims come into the system each year, increases in the number of unresolved or pending claims document the fact that individual claims are taking longer to resolve.

On the affordability side, higher pending case-loads lead directly to greater operational costs and higher settlement values. Investigations on coverage, liability and quantum issues are delayed, leading to reduced quality of information necessary to assess risk and missed opportunities to mitigate the incidence of process based inflation of settlement outcomes.

“Process based inflation of settlement outcomes” refers to the increase in the legal value of the claim proportionate to the length of time it is in the litigation system; as opposed to the intrinsic value of the claim based on the effects of the injuries claimed for.

Timeliness of settlement is also important from the perspective of delivery of compensation.

Two obvious examples are those who are suffering income loss and/or are in need of rehabilitative services not provided for in the Accident Benefits coverage. Not so obvious but equally important is the fact that injuries suffered by people cast in the role of ‘victim’ by the nature of the tort system in which ICBC operates, have a psychological component.

Unresolved litigation leaves people in a position of conflict and uncertainty which exacerbates the psychological component of the injury thereby increasing the settlement value.

 

Severities – Average Cost to Settle Injury Claims:

Bodily Injury claims costs have increased by 33% for claims under $40,000 and 45% for claims over $40,000, between 2008 and 2014. Inflation over the same period would only account for a cumulative increase of 12%.

The following information is drawn from ICBC’s own submission to the BCUC in support of their latest request for a rate increase.

BI Claims Costs, excluding litigation costs, for claims under $40,000 in 2008 are 300 million, which is increased to 395 million in 2014, an increase of 33%. If litigation costs are included they go from 339.3 million in 2008 to 431.1 million in 2014, an increase of 27%.

BI Claims Costs, excluding litigation costs for claims over $40,000 in 2008 are 641.1 million, which is increased to 928.6 million in 2014, an increase of 45%. Again if one includes litigation costs, they go from 825.7 million to 1.1948 billion in 2014, also an increase of 45%.

We know that the Courts adjust awards for the rate of inflation. The most prominent example of this is the regular adjustment of the ‘rough upper limit’ for non-pecuniary damages. Inflationary increases pertinent to wages and the cost of health care indirectly lead to rising levels of compensation for related losses. That accounts for only 12 % of the 33% and 45% increases (above and below the $40,000 valuation marker previously noted) in the rate of injury claim payouts. This difference that is unrelated to inflation needs to be addressed in terms of what contributing factors within the Corporation’s control can be better managed.

 

Work Force Efficiency – Employee Morale:

The more knowledgeable an employee is about injury assessment and settlement, the lower the level of Corporate engagement. Employee disengagement ranges from two thirds to over 90% depending on which segment of the work force is surveyed.

ICBC’s Annual Report for 2013 (the latest one available on their web site as of January 2016) shows only a 34% engagement rate among employees generally. I understand the rates in the Claims Department are lower, down to as much as 8% at the most senior levels of technical staff. Later surveys show better results but apparently the questions asked were revised to effect this positive result.

It’s axiomatic that the more inspired and enabled any work force is the more productive it becomes.

 

PART 2 – ANALYSIS OF OUTCOMES

Affordability of insurance:

The BCUC rate increase application presented by ICBC in 2015, like the one presented in 2012, calls for the use of surpluses achieved in the Optional Insurance Operations division of ICBC to subsidize losses sustained in the Basic Insurance Division. This indicates that the problem lies primarily in the management of the type of injury claims encountered in the Basic Insurance Division.

The Basic Insurance Division deals primarily with soft tissue injury claims where improvements to risk management practices within the control of the Corporation would lead to reductions in Pendings and Severities.

 

Pending – Number of Unresolved Injury Claims:

When the number of files in a case load exceeds the adjuster’s ability to complete investigations and respond to medical rehabilitation and settlement opportunities in timely and technically appropriate ways, operational costs and loss settlement amounts go up.

Soft tissue injury claims, often referred to as “whiplash claims”, the stuff of Basic Insurance Operations, are essentially the physical and psychological pain experienced by an individual as a result of injuries that have minimal obvious physical manifestation.

There is ‘no broken bone to x-ray’ so severity and duration are defined through subjective complaints and expert opinion. The value of soft tissue injury claims is based therefore, on the recognition afforded through litigation of the extent of this pain and suffering together with consequent loss of ability to earn income, and the requirements for medical treatment and rehabilitation.

The longer soft tissue injury claims are left both in terms of treatment and settlement discussions the more entrenched they become in the individual’s life, within the medical records, and thus within the legal construction.  In other words, time equals money.

Adjusters can only handle so many files. As pendings increase files are left for increasingly longer periods of time in terms of file management. It’s often the case that, due to a lack of funding, medical treatment is also delayed resulting in missed opportunities to achieve greater levels of recovery.

Current pending levels exceed practical file management capacities and are continuing to climb.

To understand why pendings continue to increase, one must first make note of the fact that an integral piece of the directional change in Corporate strategy begun in 2008 involved a drastic reduction in the level of discretion previously held by the professional staff directly involved in the management of claim files.

The adjusters who handle the files on a day to day basis, who interact either directly with the public, or indirectly through plaintiff lawyers, went from an ability to make decisions at their own discretion on most of their work day tasks, to a requirement to meet with, and/or write reports to, various levels of management, on almost all of their files.

This has the effect of at least doubling and more likely tripling the amount of work they are required to do to handle the same number of files. Additionally, authorized decision makers are frequently not available when needed. There’s not enough of them individually and certain matters procedurally now require committees of decision makers. The logistics of organizing committee meetings creates further delays. This then bottlenecks both the investigative and settlement processes and leads to further increases in pendings and delays in settlement.

Now that the problem has become impossible to ignore, rather than improving efficiency through devolution of authority back down to technical staff, in February 2016 management posted for an additional 225 injury adjusting positions. This will only result in an even larger work force ensnared in excessive and unnecessary red tape.

If the current management approach is extrapolated, then once these adjusters are actually hired this could likely be seen by management as yet another opportunity for more micro-management, which will eventually lead to yet another call for more staff.

 

Severity – Average Cost to Settle Injury Claims:

No matter how much documentation has been accumulated, no lawyer worth their salt will guarantee a trial outcome. It is by nature unpredictable. The more embedded the litigation process becomes in any particular claim, notwithstanding the discovery of outright fraud (a rare occurrence), the more it costs to manage, and the greater the litigated value. Even after extensive document discovery and oral examination, each litigated file still has a significant level of unpredictability in terms of trial outcome.

All insurance claims divisions, but particularly those that are publicly mandated, have an essential duty to handle funds entrusted to them responsibly and competently. This involves the concurrent application of two disciplines that are theoretically in apposition to each other, Accounting and Risk Management.

Accounting requires that ideally each expenditure is documented. Risk management involves weighing the advantages of settlement opportunities in the present against possibilities in the future and acting on that assessment, most usefully before substantial amounts of documentation and process related expense and value are in fact accumulated.

Healthy claims divisions are characterized by a well-adjusted balance between the two. At present, accounting practices enjoy an unhealthy prominence over risk management techniques at ICBC.

The actual production of a great deal of these documents requires the services of lawyers, ones acting on behalf of the plaintiff and others that are billing the Insurance Corporation. Consequently, and again drawing from ICBC’s own submission to the BCUC in 2015, the legal representation rate in 2013 was 48%, up ten basis points, or more than 20%, from the 2008 level of 38%. 2008 was a time when emphasis on Accounting began its ascendancy over Risk Management.

The presence of legal representation is driven by many factors however the over-documentation of files is a significant one.  Claimants need lawyers to develop the documentation that ICBC now demands.

Over-documentation also leads to significant disbursement and legal fee expenditures that could simply have been avoided were responsible risk management practices more prominently employed.

The more extensively a matter is explored through litigation the more value related credibility it builds within the system. The presence of legal counsel in turn, leads directly to a greater incidence of process based inflation of settlement outcomes in other ways.  Remember there are no black and white manifestations of soft tissue injury claims so their value is largely a matter of interpretation of subjective complaints combined with often partisan, expert opinion.

The cost of obtaining this documentation leads to a greater vested interest in the prosecution of the claim and thus greater motivation to maximize the value.

Extended litigation creates delays in settlement that embitter injured people and turn their focus away from rehabilitation and onto compensation.

All of these factors upwardly influence the value of soft tissue injury claims, which are the essence of the Basic Insurance Operation, which is where the greatest impetus for higher premium rates originate.

Work Force Efficiency:

Claims professionals, like other professionals, are involved in a lifetime of skill development. They take pride in what they do. They see their work as meaningful.

Unnecessarily taking away their proven ability to manage their case-loads is seen by adjusters as both demeaning and stressful. Add to this the consequent degradation of work product outcome and accordingly, the high levels of disengagement documented in recent surveys result. A further indicator of the negative effect of the 2008 strategic changes in claims settlement approach then can be seen in terms of employee morale.

Injury adjusters are dealing with people who have suffered traumatic events that have significantly and negatively affected lives, so what adjusters do is important. The positions they adopt can have serious consequences on both the Corporation and the injured party. All of this occurs within the tort environment, which is by definition, adversarial.

This inefficient use of the professional capacities available within the Claims Division work force, with its concomitant deteriorating outcomes in an adversarial world, results not just in low morale, but also in poor claims service and increased costs; these eventually translate into higher premiums and a perception of unfairness amongst injury claimants; which is inexorably creeping daily into the psyche of the general public.

 

PART 3 – RECOMMENDATIONS FOR THE FUTURE

Overview:

Over the last nine years the number of people getting injured as it relates to available premium payers, and the law that governs the parameters of settlement, has not changed substantially and yet the demand for premium increases not only continues, but since 2011 has begun accelerating. The key to reversing the trend is a set of changes involving leadership, work force efficiency and litigation strategy.

The philosophy behind the recommended changes noted here is essentially to make better use of existing resources through a devolution of decision making authority to the public interface together with a greater emphasis on risk management. As such, the recommendations do not require an increase in the size of the existing work force, nor significant revision of the current organizational structure.

The following is an overview of how real, constructive change can be accomplished in the immediate future while avoiding the expense and disruption that is commonly associated with significant corporate change.

 

Leadership:

The mandate of the Corporation can be succinctly put as

affordable insurance delivering timely and appropriate compensation

This mandate needs to be prominently expressed and actively endorsed in all areas of the Corporate work force, starting with the upper levels of leadership, i.e. the Minister, the Board, and the CEO and the Vice President of Claims all the way down to the entry level clerk, particularly in the Claims Division; and in all phases of Corporate activity from operational matters to strategic initiatives.

 

Work force efficiency:

Responsible, audit based management supervision of technical staff coupled with a process where authority to investigate and settle injury exposures is methodically devolved back down to the adjusters actually managing case-loads must replace the current, overly bureaucratic micro-management model.

The current situation in the Claims division is analogous to a military operation where front line soldiers must rush back to the General for a new bullet every time they fire their rifle.

It must also be recognized that part of the ‘work force’, paid for in some instances directly and in others indirectly, by the Corporation goes beyond management and union staff at ICBC.

It includes the health care professionals that provide treatment and prepare reports. Engineers, accountants, actuaries, and other professionals that provide expert opinion used in litigation; as well as private investigators, independent adjusters, defense lawyers and mediators that provide related professional services. Relationships between ICBC and these entities have deteriorated and need to be redefined and rebuilt.

Ancillary entities not paid for by ICBC but integral to the resolution of claims such as the police, and court house facilities and personnel, and the plaintiff bar also need to be recognized as playing important roles in the efficient resolution of injury claims with due attention paid to those relationships as well.

 

Litigation strategy:

Leadership and the implementation of work efficiency improvements, together with a restoration of an appropriate balance between accounting and risk management practices, will make possible a major shift in litigation strategy. Such a shift, if properly executed, will reduce operational costs and the process based inflation of actual settlement values as well as increase the incidence of timely and appropriate injury compensation.

Litigated and non-litigated negotiation of injury settlements are inextricably linked by virtue of the fact that ICBC operates in a tort world. A properly managed litigation strategy, in conjunction with an enabled and inspired technical staff, and better integration of ICBC into the relevant communities, will also enhance non-litigated settlement activity to the benefit of both the Corporation and the claimants.

From this base there are dozens of specific steps that can add to a positive momentum in areas affected by the operation of the Insurance Corporation.

On a final point, beyond ICBC specifics, it should be noted that the Insurance Corporation of BC is the elephant in the world of civil litigation. It sets the tone for other civil litigation. Right now the effect of its policies over the last eight years has been one of polarization, which has affected all areas of civil litigation. If you care to research court use statistics you will see that the waiting time for trial dates, the incidence of bumping, the expansion or need for expansion of court facilities and personnel has all increased over that eight- year period.

 

About the Author

There is a full biography on my web site but here are the salient parts that I think explain the motivation and qualification to write this paper. 

My first experience with automobile insurance was as an Information Officer in Winnipeg in 1971 taking phone calls from the public to assist in the introduction of government owned, universal automobile insurance.  I did the same thing again at ICBC from November 1973 to February of 1974. 

On 1 March 1974, at 9:00 a.m. in Campbell River I opened ICBC’s very first claim file. 

From 1975 to 1977 I was the Resident Adjuster in Port Hardy, which in real terms meant that I was the personification of ICBC in an isolated community.  That experience taught me how citizens view and respond to policy changes in claims handling. 

 From 1982 to 1984 I ran an injury desk in ICBC’s Out of Province Claims Department which forced me to think about claims settlement beyond the culture and statutory framework of our home jurisdiction.   

I have also held first level management positions in material damage and bodily injury centres.  This piece has given me further understanding of how administrative decisions impact on customer service and severity control at the public interface in an urban setting. 

In October of 1989 I resigned from ICBC to start my own independent adjusting company, contracting my services back to a wide range of casualty insurers.  For the next ten years a number of Head Office Claims Examiners at ICBC and I developed a collaborative and cost effective approach to the settlement of catastrophic injury claims.  Since 2000 I have acted as a mediator in well over 2,000 files, about 80% of which involved ICBC as the defendant insurer.

For the past three years, in addition to my active mediation practice, I served as a member of MediateBC’s Roster Committee.  Currently I am the Vice President of the Commercial Mediators Association. 

Follow-up Discussion on Integration

Since publication of the article Integration: The Next Step in Conflict Resolution in the summer edition of the Verdict, I have had several interesting conversations around the idea.  In case you haven’t read the article, here is the executive summary:

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Something Positive

I did a mediation recently that was different in a couple of ways and that actually improved my view of us flawed human beings. It doesn’t happen often so I thought I would share it here.

It was about an assault that began in a licensed premises. One young man (I’ll refer to as B) was suing another (A), and also a drinking establishment, for injuries sustained in an altercation that took place about four years ago.

While A was invited to attend the mediation, he had no assets, no insurance and no lawyer. Quite frankly there was no expectation on anyone’s part that he would show up. But he did, full sleeve tattoos and all.

The rough outline of the fact pattern is that after a few drinks there were words exchanged between the two and then A threw a beer bottle across the room that hit B in the head. Some time later, A further assaulted B in the parking lot with some sort of weapon, maybe a pistol, maybe a piece of pipe. The police that attended never did find a weapon. The injuries weren’t catastrophic but they were significant.

Enough time had passed between the event and the mediation that A and B were not impossibly uncomfortable sitting in the same room together, although I was careful to provide for some physical space to reduce awkwardness.

There were legal liability issues debated, A’s obvious blame was discussed, sometimes provocatively, as well as the additional potential responsibility of the bar, and how B had been a part-author of his own misfortune.

Once the lawyers had finished their opening discussion, and B had answered some questions about his claim from his personal perspective, I asked A if he wanted to say anything.

He launched no personal defense. Without prompting or coaching, he looked directly at B and expressed a genuine regret in having caused the injuries, and accepted responsibility for his actions.

A was accompanied by his grandfather, a retired fireman, and with that person by his side in their separate caucus room, he was more than just a passive listener in the negotiations that followed the discussion. He had earned the right, not only by showing up and taking responsibility, but also by making a cash contribution. It wasn’t much in terms of the eventual settlement amount but it was meaningful in terms of his own resources.

During the discussion B also allowed that he would conduct himself differently if that sort of situation ever came up again. At the end of the process, both of them shook hands. We all went home with a conflict resolved, from both the legal and the human perspective.

Each one of us ‘professionals,’ who see human trauma parsed and pecuniarized on a daily basis were moved. Here was a moment of courage, as well as confirmation, that out such a negative event, better humans can be made.

 

Integration: The Next Step in Conflict Resolution

Update: The editor received a letter in response to this – please click here to view it:
Letter to the Editor Jim Hanson

This article published in the Verdict, Summer Edition 2015 outlines a new process up for discussion. All views welcomed and published here on my blog. Nick

Integration electronic version from the Verdict

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Co-mediation Part 2

This post originally appeared on MediateBCBlog.com as a third post in the “On Co-Mediation Series” 

http://www.mediatebcblog.com/2015/05/19/on-co-mediation-part-ii-by-nick-de-domenico/

In Part I, I expanded upon how the applicant (Ms Sainty) and I saw benefits in our partnership, confirmed our pairing and began the process of working with mediation parties in seeking their permission to proceed with a co-mediation model. Below, I would like to continue and expand upon the co-mediation structure we employed, and the benefits, as I see them, of our co-mediation approach.

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On Co-Mediation Part One by Nick de Domenico

This post originally appeared on MediateBCBlog.com as the second post in the “On Co-Mediation” Series

I recently had the very positive experience of co-mediating with a new applicant to the Civil Roster. I thought I would share what happened on this blog as I saw benefit obtained not just by the applicant in terms of fulfilling the paid mediation requirement for Roster membership, but also as a learning process for both of us, and as considerable added value to my clients and to my practice as a mediator.

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