ICBC Claims Management Review

i
!
1
i
Table of contents
D finitions. 1
I. Executive summary ....3
I. Claims costs findings and recommen ations - Areas within ICBC direct control.. 6
•i. Employee Engagement and Customer Satisfaction . . 6
2. Claims ana ement process :... : 6
3. Claim level reserve strategy i... 7
4. Claims operations 8
5. Investment income :
6. ForecastinQ 9
II. Claims costs findin s and recommendations - Areas that would require government involvement... 9
1. Product reform : 9
¦ 2. Transition to driver-based risk r ting I 10
3. Capital reserves ; .' 10
II. Scope and approach 12

1. Assessment of claims operations 12
2. Financial performance 12
3. Relationship efficacy 12
III. Understanding the drivers of rates .......14
IV. Claims cost review - Areas within ICBC Control : 15

. 4.1 Employee and Stakeholder ngagement 15
4.2 Claims management 17
4.2.1 Cl i diagnostic file re iew 18
. 4.2.2 Claims leakage analysis ;..... 19
. 4.2.3 Bodily injury claim value chain 19
4.2.4 Claim mitigation 20
4.2.5 Claim strategy 21
4.2.6 Claim resolution 21
4.2.7 Claim level reserve strategy 22 .
4.3 Claim operations 22
4.3.1 Claims anagement delivery model 1 22
4.3.2 Claims culture 23
4.3.3 Net impact of causes leakages 24
4.3.4 Procurement . 25
4.4 Forecasting...: 27
V. Claims cost review - Areas requiring government involvement 30

5.1 Product/reform 30
5.2 Driver-based risk rating.. 34
5.3 Capital 35
VI. Summary .............38
VII. 2012 Crown Report 40
Confidential - All Rights eserved - EY

Appendix A: Forecasting review.... . 41
Appendix B -Recommendations summary..... ......43
Appendix C - ICBC procurement spend 47
** Appendix B is not entirely removed, only any recommendations

related to government inter ention.
Confidential - All Rights eser ed - EY

Definitions
jirep OTfe losses/based

• ¦ identified bytheBctuafy
fej AWJtL rt .
'[J . J:,, ¦' l iriifriLir Ca ital:Test, . T. ':.' ' • :•¦¦ ¦ • ; ¦

- a-d Ssj-JlSMau-i •, j-iAUK. ti. _ , _ _ _
'.d'Yi rt
Confidential - All Rights Reserved - EY 1

Verbal Threshold A verbaTthreshold is a minimum li it, verbally expresse , suefi as a
serious injury, which must be met.or exceeded in order to be able to
sue for general damages. The alternative approach is to set a
minimu dollar limit or dollar threshol .
'Yieid b KBasia:. qijity i Currentyield available oh iCBC' ihv sted asse hoi3 ndl| ate is'
l.ased dmiscouht future clai ay ents for calculating, claim
j reserves. ' .
Confidential - All Rights Reserved - EY

I. Executive summary
The Ministry of Finance in cooperation with the inistry of Transportation and Infrastructure and ICBC
engaged EY to i entify and prioritize opportunities to control ICBC s claims costs growth, and to
identify additional opportunities to.reduce upward pressure on rates (or premiums) in the areas of
capital allocation and rese ving. The cope of the engagement was specifically to conduct an
indepen ent review to identify and prioritize opportunities to materially and sustainably reduce ICBC's
bodily injury claims cost base for the basic side, of the business, We were asked to conduct an
assessment of three components of ICBC s operations: Bodily Injury Claim Operations, Financial •
Performance, and Relationship Efficacy (customer and stakeholder engagement). In addition, we were
as e to co ent on ICBC's progress against the Government's 2012 Crown Agency Review
recommen ations. This work as to be done with careful consideration to the impact of any changes
on ICBC s customers and rate payers; •
In framing this report it is important to understand the dynamics that ICBC needs to balance in its role
of provincial auto insurer, which pro ides both basic and optional auto insurance to the residents of
Brit sh Columbia. Custo ers expect an deserve to pay reasonable and sustainable rates to receive
their basic auto insurance while also receiving quality and timely service and consistent an fair
payments for legitimate claims. ICBC needs to balance the expectations of both. Basic Insurance is
mandatory for all drivers and provides a minimum level of coverage which includes a minimum level of
third party liability coverage, medical cost and age loss reimbursement. O tional coverage offers
protection for a driver's vehicle, additional third part liability and other protection such as loss of use
coverage: The focus of EY s review was basic insurance clai s costs, and specifically bodily inju
claims.
Since 2009, ICBC's claims costs have increase 27% which is double the increase in premiums earned
during that same period. Persistent claim cost escalation beyond the rate of inflation has resulted in
significant increases in basic rates to consumers, despite recent efforts to manage rate volatility
inclu ing the adoption of a Capital Management Plan and the introduction of a Rate S oothing
Framework. In a dition, the Corporation has recently re uced the level of common shares being held in
its balance sheet, which resulted in reduced income volatility and increase capital ratios. While such
improvements are welcome, these changes alone are not sufficient to address long term rate
pressures. (As a point of reference, a decrease of $25 yl in claims costs would result in a one percent
decrease in rates,)
Our review has touched upon each of the four levers that influence insurance rates (shown below) and
has considered opportunities both within and external to ICBC control.
Insurance rate levers
Insurance Premium I
_ J
£Z~- j
Clalms Costs Operatin Costs j Investment Income Capital Re erves
i
Over the past fi e years, ICBC has undertaken a massive transformation effort to modernize its legacy
systems, implement new technology, and update processes to enhance customer service. This
ambitious $400 million transformation program is approximately 75% com leted although it will ta e at

least another 18 months before all of its benefits can be realized. While enterprise wide in nature, a
major component is the replacement of the legacy claims system with Guide ire s Clai Center
soft are Which, when coupled with process re-design, will provide i provements in claim processing
efficiency and effectiveness. It will also cont nue to increase custo er interaction and overall claim
management opportunities.
The pace of change at ICBC has further accelerated in the last two years ith leadership changes and
the release of the 2012 ICBC Crown Re ie , hich tasked ICBC to institute a culture of cost
consciousness and financial discipline, hile still providing fair and quality customer ser ice. The
organization has reacted by implementing broad based structural reform and organizational redesign
including significantly flattening the organization. A ne HR strategy focused on individual
' performance and accountability has been introduced. Performance oals and ke performance
indicators (KPI's) tied to employee performance have been i plemented throughout the claims
organization, as have elevated levels of accountability. Further, In an effort to sharpen the focus on the
customer, the company has elevated the accountability and leadership of the Claims and Insurance
business units. •
Adapting to large scale change can be challenging for any organization, as there is often a natural .
tendency to resist.change. The challenges associated.with successfully navigating this'change should
not be underestimated. Continued focus an attention by the leadership team, coupled ith a sustained
investment in change management effort will help ensure corporate-wide acceptance'.
ICBC'Claims employees are aware of the need for ICBC to make these important process changes, but
as with any change anagement process there will li ely be challenges especially in the early stages as
new performance measures objectives and'production goals are imple ented. The ICBC claims
e ployee is a critical part of the customer e perience and it is'imperative that the ICBC customer •
experience is not impacted by this claims transformation. An increased public awareness regarding the
claim process and expectations will only assist with ensuring a positi e claims experience for the
customer. This will also increase the public's awareness of the claim process and the Impact that
increased and unnecessary claim cost ay have on rates/premiums. A more efficient and cost
effective ICBC will result in a more positive,,consistent customer experience that ensures that all claims
are handled consistently and fairly. The EY team obser ed that fair and appropriate initial offers were
being made on the majority of bodily Injury claims reviewed and that ICBC custome inquiries were
addressed promptly. ICBC s biggest challenge will be to continue to e ecute on its current strategy
while ensuring that there is a cor orate- ide acceptance of these important changes, which are aimed
at modernizing the organization and making it more accountable to British Columbians.
While the transformation efforts and claims anagement improvements (we have a number of
recom endations on ho to improve efficiency and perfor ance in this area see Appendix B for
Recom endations Summary) ill, oyer time, positively impact claims costs, these could be augmented
with ore fundamental policy reforms to support long term restore rate tability.
It is important to recognize that clai s costs and ultimately rate premiums, are made up Of a number of
complex factors. The areas within ICBC's control only account for a portion of the total drivers of
claims costs. The following diagram illustrates the inter relationship between these factors.
Confidential - All R ghts Reserved - EY 4

Insur nce Rat Value Drivers and Influencers
Insurance Premium
r~
aaImsC«>(# j * operatin Costs • -
Investm nt I come * Ca ital Rese ved
Commissions, salaries Interest and dividends Mggld assets (cash or

j Material andOlhcr I and benefits, road earne on Investment securities) thattCBC
Dodilyln|utv Claims 1 Claims Costs J safety, other capital must hold order to
r~ 1 \ . Influenced by: tnfJutttaj by;
! •Sintllly'1 FfNue cy I 1 Pro urement | Business Mode) Portf lio Design Inlluence bw .
| AVftCosIpirOsB) [ r/i» numb r v ki ns}
roductivity '¦R gtilatcdt oevf .
: ..•IptereStRates 1
Settlement costs, Influe ced byi
medical costs, legal | Drleer benavl r | | Stall Capability | f apital Martl ts |
costs
| Vehicle safety | | Culture |
InOuenced bys
| fload safety |
Clalmsstrategy
Claims management: | Consumer Frau |
Cullure j | Eto eml Cewillte ] icBcis v/orklno to realize the corporate manflate of hecomlng
a low costlnsu er wlthan effldeht claim operattan.
Staff CepaM ty |
Procurem nt | There a e many levers vailable to bring around the change
required to suppor the rive towar tha Future state vision.
legal re resentation
Consumer behaviour |
Customer perceptio |
Driver Behaviour 1
Primary Con troll
T#ftetivl(4npteflt '| . .Govewunem;.., *
ICBC Other teg.:
' .RlikWodsI | Customer)
. Jma fienot y.a.
, ; tJ ro cfc |
.. cRoad Ssfety ~ |
ICBC has made progress towards implementing a culture of cost consciousness and increased financial
discipline but there is still much work ahead. The organization s next significant performance
improvement opportunity is to ensure that a recent reduction in claims costs, particularly in the area of
B! claim pa ents, Is sustained and impro e . This effort is hi hly, material to ICBC s basic insurance
rates, as Bl claims payments re resent the highest proportion of its claims costs, and ha been growing
at unsustainable rates.
The increase in bodily injur claims costs are attribu ed to a number of factors riven by both the
frequency and severity of claims. Claim severity has been impacted by a persistent up ar tren in
le al representation rates and accident frequency is increasing due to distracte riving. Although
changin public perception regarding the percei ed need foran attorney is a key element in its
strategy to contain claims costs, ICBC must continue to work to address the other interrelated drivers
of claims cost growt .
EY s sample-based file revie to identify sources of clai s leakage (claim leakage is the additional '
amount ai , abo e hat should a e been pai , if applicable claim management lea in practices had
been applie ) determined that the claims leakage drivers contributed to ad itional costs in 56 /o of ll of
the files reviewed and 18% of the files revie ed with claims between $1,000 and $100,000. Leading
practice organizations typically experience leakage of 5% - 8% with a bodily injury industry average
leaka e of 10% -12 , leaving ICBC room for improvement1. *
The use of percentage is referenced as dollars vary insurer to insurer, based upon the policy count and t e frequency of claims.
Confidential - All Rights Reserved - EY S

While our file review was not a full blown file leakage revie , the findings within the files showed that a
number of the leading practices that have been introduced to the adjusters are not being executed
consistently. While a efinitive root cause anaiysis was not possible within the scope of this effort, we
believe that the drivers behind the adjuster's underperformance are a result of claims mana ement
processes not being consistently followe , a need for more training, or a skills set mismatch.
Findings from our Review, summarized below, have been grouped in the followin two categories:
1. Claims costs findings and recommen ations - Areas within ICBC direct control. These are
improvement opportunities that ICBC can influence and control on its own accord (i.e., claims
strategy and processes, staff Capability, 'or anizational design, procurement practices, culture,
" etc.); . • ¦
2. Claims costs findings and recommendations Areas that would require government involvement.
These are improvement o portunities that would require Government actfon (i.e., product reform,
ris rating model, and capital reserving policy, etc.),
I. Claims costs findings and recommend tions - Areas within ICBC

direct control
1. Employee Engagement and Customer Satisfaction
As outlined throughout our revie , ICBC has undergone tremendous c an e in terms of mandate,
culture, structure, systems, and processes, it is in the midst of a massive transformation hich is not
yet com l te. The leadership tea has also changed substantively over the past couple of years, with
the introduction of some ex erienced external insurance specialists who have brought ith them
leadin practices and expeetations of i creased accountability and transparency that have been met
with a range of acceptance within the or anization. The organization has predictably been challenged
ith navigating this volume and velocity.of change, as evidenced by a drop in e ployee engagement in
201 , which is stabilizing no .
A formal review of ICBC customer surveys was not included in the scope of this claim review. However,
EY did validate with ICBC that although so e external customer survey scores did dip during the
employee training sessions to learn abou the ne Clai s Transforma ion processes, those survey
scores have since begun to increase in conjunction with improve claims performance results, As
ICBC s claim metric results have improved, t e external customer service results have Improved, as
well. .
It is our belief that the leadership of ICBC is making the necessary changes to drive enhance
accountability as well as a sharpened focus on the customer. It will take some time for the or anization
to adapt to these Chan es, which in the long run will rive better service as well as more efficient and
accountable bperations. It will be important to carefully onitor the morale and areas of resistance, to
ensure that those staff hot yet comfortable ith the chan es do not impe e the critical transformation
work that is necessary and underway. ¦
2. Claims management process
Further analysis into the root causes of t is leakage wit in the end-to-end bodily injury claims
management process illustrate below, determined thatthe greatest sources of lea age were
Occurring during Initial In estigation, Claim Mitigation, and Claim Resolution. We identified a number of
actions ICBC could take to mitigate an improve their claims management rocesses.

One of the areas of greatest concern was the common practice of increasing offers to claimants based
on whether they had Jegal representation or not, regardless of any change in the cl im facts other than
the knowledge of representation. This couple with a quick acceptance of claimant deman s within the
adjuster's authority range has led to a continuous cycle of claimants feeling that they need legal
representation to obtain a higher settlement supported by this reality. The goal of chan ing this
practice is not to reduce fair payments to claimants, but rather reduce the unnecessary burden of
increased legal ex enses to both sides which contribute to the overall cost increases to the system
without adding compensatory value to claimants. We are concerned that while the overall payout is
higher with legal representation, this increa e may not benefit the claimant at the end of the day
because of the large percentage that the lawyers take, estimated at one third of the overall payout
base on general Industry practice. Breaking this cycle'will play a significant role in ensuring long term
rate stability.
To become a low cost insu er and efficient operator, ICBC ust break the cycle' of increasing
claims costs.
ft cnMarmKKtMnmoen'MmnmcatiahvreTSW
ICBC
* Impmvesyiteftts, pracasscs
ICB ami conlrols toensute claims
* . Cammunkatfon strategy to orttpaftl bas eii facts, not
Inform consumer perceptions by mwe prese ce of lawyers
» Consider tryi g more

precedent selling cases
I voMny clilmsiMtti minimal
auto physical damages
to p rc iv b llal ilrah
asternal faclors'putsi e of direct contrqft&gi tort) drive claim everity;
* ft gen era a versio to contest; and
« ereSve lack of cost c'ontalrirtent c lture
3. Claim level reserve strategy
Another area t at EY recommends ICBC ake action in is building additional rigour and consistency in
the setting of reserves (which is the acti ity underta en to identify the probable ultimate cost to
resolve each claim and ulti ately informs lea ers ip as to the organization s total exposure). T e ICBC
claims.adjusters establish the claim level rese ves an adjust as needed, ithin their designated
authority. If reser es exceed a claims adjusters au hority, ICBC has established a process whereby the
adjuster needs to consul with senior leadership to get approval for ad itional increases. An example of
the need for a reserve increase would be a significant change in anticipated medical treatment,' related
to the accident for that particular claim.

While difficult to quantify precisely, we believe there is a linkage between excess reserving and
increased claims costs based on the cultural acceptance of adjusters feeling that they can pay up to the
reserve amount ithout negative consequence. It therefore becomes the acceptable baseline. EY
recommends a ore comprehensive review of reserving practices and potential introduction of
actuarial calculated average reserves, ICBC ay also want to consider a opting Standard (Bulk or Case
estimate) reserves for designated claims as it would support consistently in case level reserving. The
Standard reserves are calculated by the actuary for each loss type.
4, Claims operations
Procurement - ICBC is a major purchaser of goods and services ith some of the largest spen
categories being external legal services, auto repair, glass replacement, to ing, and medical and health
services (See ICBC Spend Summary in Appendix C). There is an op ortunity to be much more strategic
and apply.commerciai procure ent practices to these spend categories, with conservative estimates of
' annual saving in the range'of $35M - $70M without negatively impacting rural suppliers. In addition,
ICBC s policy of automatically replacing all damage glass ndshields should be.re-examined as.
repairing instead of replacing glass where appropriate could deliver savings of between $7,5M and
$9.4M annually. Any safety concerns ould need to be carefully considered. . ,
Claims Management Delivery Model - The claims management model at ICBC has undergone significant
redesign over the past couple of years, ith the Introduction of increased accountability as well as a
specialized claims management approach which triages and assigns claims to dedicated units based on
defined types, Many of these changes have been positive. We ould note the following key.
opportunities for improvement: . . • ¦ '
ICBC currently doesn't have a for al Quality Assurance (QA) program
The specialized model results in multiple handoffs and through lack of individual ownership can
lead to increased clajm severity and negatively impact the custo er experience, •
The current ICBC adjuster caseload is lower than industry averages without a corresponding
ncrease in effective claim anagement •
While many leading practices had been introduced to the operation our team did not see an
indication that they had broadly been adopted. A further emphasis on change management, as well
as investment in a technology solution such as NICE (reference Definitions), would be .heipful to
support coaching and development of adjusters, ..
Claims Cultur an Legal Repre entation - EY observed that ICBC adjusters ar generally offering fair
initial offers for settlement. However, as soon as a lawyer is introduced to the claim, the ICBC offer is
consistently increased with no other changes to the case that would support an increase. Fair offers
can be defined as the appropriate and timely payment of roceeds by an insurance company to the
insured to settle an insurance claim within the guidelinesstipulated in the insurance policy. The
evaluation of each insurance claim is often subjective and any factors are considered: i.e. the
circumstance of the i pact, the injuries sustained, the treatment incurred o required for the injured
parties, lost wages incurred by the customers as ell a.s their ability to return to work and other
amounts attributed to an injury. Continuation of this tren ill continue to drive increase legal ,
representation rates and clai s costs ithout necessarily providing increased benefit to clai ants.
Confidential - A Rights Reserved - EY 8

Some specific recommendations for further improvement in this area include:
Implementation of NICE technology to assist with the ability to record and listen live to calls around
clai s negotiations may assist with creating a ditional ownership of the claim p ocess and
incentive for the' clai employee to assist the claimant with resolving the claim in a timely manner.
or reference, NICE technology is afready being utilized by ICBC in their FNOL (First Notice of Loss)
call centre. This group is the first point of contact for the customer reporting notice of a new claim,,
and it is very helpful to. assist to ensure that ICBC employees are navigating he claim syste
properly and Communicatin the appropriate information to the customer during this initial
conversation. While expanding the licenses would require further investment, ICBC has advised that
they are currently reviewing their 2015 project priorities and are considering expansion of this tool
to the unre resented clai s adjusters. EY agrees that this tool will provide greater support for
ICBC to ensure quality customer service is being consistently provided to its customers.
Claims settlement negotiation arid resolution remain areas for improvement. This combined ith
lo litigation frequency and high success rates for litigation would indicate an opportunity for ICBC
to take a stronger stance on borderline an suspicious claims via targeted litigation, as needed. In
particular for precedent setting cases where there is little or no vehicular damage.
*¦ ICBC must realize the mandate of becoming a low cost insurer, balanced with the need to provide
consistent and fair levels of coverage for claimants who have suffered a legitimate loss. It is
recommended that ICBC consider changing their claims evaluation processes and support the
adjusters in not increasing settle ents solely due to legal representation.
5. Investment income.
ICBC's invested assets are segmented among fi ed income securities, equities or common shares and
alternative investments. The allo able ranges for each asset class are governed by a Statement of
Investment Policies and Procedures. The current asset mix and accounting treatment of investment
income results in increased volatility and a potential accounting mismatch. The returns on equities will
fluctuate causing income volatility; The accounting mismatch arises from removing market related
gains and losses from income, b t including them in the claims discount rate. Solutions are addressed
Within the body of the report.
6. Forecasting
• Overall, ICBC has a robust and comprehensive forecasting process in .that ail significant financial Items
are handled reasonably and independently. Inherently variable actual-to-forecast comparisons are
primarily due to the fluctuations in claims experience and investment performance. There are '
opportunities for improvement in this area such as providing increased disclosure and transparency to
financial projections.
II. Claims costs findings.and recommendations - Areas that would

re uire government involvement
In addition to the opportunities for ICBC to reduce claims costs through actions directly ithin that
organization s control, there are other philosophical or policy decisions that government could choose
to ake that would sup ort longer term rate sustainability. We encourage the Province' to explore and
consider introducing change In the following areas:
Confidential - All Rights eserved - EY • 9

1. Product reform
British Columbia s automobile insurance product is tort based with no limits on amounts payable.for
soft tissue injuries, unlike many other Canadian provinces who have intro uced limits and restrictions
on tort benefits for non-catastrophic soft-tissue (minor) injuries. In 2013, ICBC incurred losses of
approxi ately $1.7 billion ue to bodily injury claims for basic Insufance. A reasonable range of
expected sa ings would be appro imately 8% ~ 10% of claims costs, or $136M - $170M of savings
annually based on the savings experienced by other provinces with the introduction of soft issue caps
for minor injuries.
Any reforms to the automobile product must balance the benefits to consumers in ter s'of reduced
rates with fairness in settlements to clai ants.
2. Transition to driver-base risk rating
Unli e the standar practices of other Canadian provinces BC has a vehicle based, as opposed to a
driver based, risk rating model. More sp cifically:
If an individual with a history of at-fault claims obtains insuranc on a new vehicle then their history
of claims is not considered in deriving, the rate for that vehicle.
In addition, certain unsafe driving infractions such as distracted dri ing or convictions have only
recently been restructure to provide for a potential penalty to be added to a drivers' insurance
costs, and these changes ill still not specifically change the rates paid by a driver.
Essentially the rating is based on the vehicle and not on the driver s track record or behaviour. The
impact of the current rating model is that safe and responsible drivers are subsidizin poor n risky
drivers. There is an issue of fairness to be considered here. Further, this model does not incent safe
and responsible driving and hence may ultimately drive up the occurrence of accidents freguency) and
therefore claims costs.
3. Capital reserves
ICBC has adopted a Capital Mana ement Plan (C P) for Basic Insurance hich includes capital
thresholds an a rate smoothing frame ork. The plan is p rt of ICBC s overall effort to promote
financial stability and pre ictabilit In asic insurance rates.
1, EY o served that the capita! tructure is similar to t at found for a private insurer, which generally
have a higher r s profile than ICBC. Our belief is that the overall capit l reserves may be higher
t an necessary gi en t e relatively lo risk of ICBC as t e sole provi er of basic insurance ithin
the province. 2
2, EY further observed that the level of common s ares being held by ICBC as a percentage of its total
investments as relatively higher than would be expected for a private insurer with similar risks.
Investments in common shares increase expected investment income, but also increase income
state ent volatility and the level of capital that is required to be held.
Confidential - All Rights Reser ed - EY 10

3. Other provinces with government insurance programs haye adopted lower capital targets and more
straight-forward rate c anging mec anisms to achieve si ilar goals.
We.woul recommend t at given the potential impact of capital reserving strategy to the organization s
rate structure, that ICBC review their current capital policy and framework.
In sum ary, ICBC's on oing transformation coupled with the above recommended claims management
improvements will, over time, positively i pact overall claims costs. Roughly 40% of overall claims cost
impact is within the control of I.CB.C, while the remainder requires some involvement from government;
ICBC has some work to do in further optimizing its operations; however, these changes alone will not
contain claims cost growth to within sustainable levels in the medium and long term, particular with
regards to bodily injury claims costs. In order to sustain low ra es going forward while continuing to
work in the best interests of the olicy holders, the Province could consider the levers at its disposal
such as introducing limited product reform to cap benefits for minor injuries an a justing the premium
structure to ensure equity among policyholders by driver risk rating. This would require a bold change
in policy direction but the results observed in other jurisdictions in terms of claims cost reduction are
compelling. ; ¦
Major savings opportunities2
Sav ngs Opportunities
Together, these recommendations present considerable savings opportunitiesS for ICBC that ill
ultimately maximize the value delivered to its rate-holders through low, stable rates and continued fair
and equitable payouts. 2
2 Utilizing a Driver Based Risk Model Is expected to yield additional savings. Quantification of the e pected savings is beyond the
scope of this report.
Confidential - All Rights eserve?) - EY 11

II. Scope and approach
EY was engaged to conduct an independent review to identify and prioritize opportunities to materially
and sustainably reduce ICBC s bodily injury clai s cost ase (ICBC Claims Management Review, the
Review). We were asked to conduct an assess ent of three components of IC C s operation: Bodily
Injury Claim Operations, Financial Performance, and Relationship Efficacy. In addition, we were asked
to com ent on ICBC s progress against the government's 2012 Cro n Agency Review
recom endations. ' . .
1. Assessment of claims operations
Through interviews with key stakeholders EY conducted a detailed review of the bodily injury claim
management function from a business architecture perspective This included an nalysis of the
current operating odel, policies, philosophy, and claim handling practices and procedures as they
relate to the management and mitigation of bodily injury claims.
In order to assess the effectiveness of the claim management function, EY conducted a rigorous review
of a mutually agreed sample of claims files. The files were randomly selected by an EY associate and
were a small sampling of Bodily Injury claims that occurred in the last 3 years, and had closed prior to
May, 2014. Specifically, the sampling was as follows:
Accident Year 2014 5 claims

Accident Year 2013 20 cl ims
Accident Year-2012 37 clai s
Accident Year 2011 17 claims
Closing Year 2014 40 claims

The focus of this review was to identify and quantify improvement opportunities ithin the claims
manage ent environment as they relate to claim severity, operational efficiencies, allocated ex enses,
operational expenses and customer experience.
2, Financial performance
¦EY was asked to assess ICBC s financial performance, specifically as it relates to claims management..
The revie included an assessment of the forecasting process used for business planning,, an
assessment of the appropriateness of the capital lev l, and an assessment of the factors ost
significantly affecting rate changes.
EY s approach as to revie available financial.data including the annual business plan an quarterly
Updates, the 2013 rate filing and supporting exhibits, and the 2013 financial state ents. EY
supplemented the analysis by Interviewing ICBC management and soliciting additional supporting
material. . ¦

3. Relationship efficacy
As part of its Review, EY was asked to comment on the efficacy of customer and stakeholder '
engagement and to evaluate ICBC s progress in regard to the relevant recommendations contained in
the government s August 2012 Crown corporation revie .

Ill Understanding the drivers of rates
ICBC insurance rates are a funct on of the four drivers presented in the schematic belo : claims costs,
operating costs, investment income, and the requirement to maintain a sufficient level of capital
reserves. Each driver can be influenced by a number of variables, some within ICBC control and some
external such as the government, customer, and driver behavior.
Findings from our Review have been grouped in the following two categories: •
1. I prove ent opportunities that ICBC can influence and control on its own accord (he-, claims
strategy an processes, staff capab lity, organizational esi n, procurement practices, culture,
etc.);
2. improve ent opportunities that would require Govern ent action (i.e., roduct refor , risk rating
model, and capital reserving policy, etc.).
Insurance rate value drivers an influencers
Insurance premium
... ,,.
Claims Cosis + ffwostmenl Income */- Capital Reser es
| OiKfaling Casts C- -
t - Commissions, satarios Interest anddiv dends tinuid assets (cash or
f* ' ' ' Material agd Other | landbeneilto. read ea e on investment securities) that ICBC
Claims Costs .[ {safely, other capital. must hold order to
I BotfHyfnjury laims remain solvent
Iniluqoted by; I nuenced by;
fj procurement
| "Severity * | x j " equency J | Busimaskfodet Portfolio Design ' | influenced byr .
I Ave.CosfperC/afm \ ne number of clafms j flcgulated&ygoyt.
| Productivit ¦ • ' intere t Rates.; ..
Settfemenf costs, fniluenced by*.
| Sfalfcamblllly
mcdkat costs, legal I" Dtlvorbch r |
costs .> Culture
[ Vehicle safety |
Iplipencedby,
( goad safety
Galfnsstrflteqy j
Claims management | \ Consvmgr/Fraud
ICBC is working to ealize the corporate mandate of be oming
L Cultu e | Economic Condillons*)
a fov cost insurer with an efficient cfafm operation,
1 staff Capability )
There are many levers available to brfngarotmd the change
I probut en egt |
reoulre to support the rive to ard t at future state vlsion,
| legal ropCescntatlon")
[ Consumer beheiyioar [
[ Customer perc ption)
1 Driver Behaviour 1
Primary Control;
oovemnmnfi Ofherfe.g.;
ICBC Regulstortdr
RIs Ma et | Customer)
-BttatlfiEE tQiii -
Product j
Road safety j

IV. Claims cost review - Areas within ICBC
Control
4.1 Employee and Stakeholder Engagement
Overall observations
Since the 2012 Re iew of ICBC conducted by the Ministry of Finance, there has been significant
organizational restructuring, elayering and an Increase in accountability and transparency. Change is
an e olutionary process and will not happen overnight, but EY.believes that the leadership of ICBC has
been making many positive changes and It is moving in the right direction. The organization is focused
on its ke priorities of increasing efficiency and a sharpening focus on the customer.
The leadershi team has shrunk substantially over the past two years and some positive strides have
been made to recruit and elevate key talent Into critical roles (e.g. HR, Claims and insurance). These
leaders have set expectat ons for more accountability and transparency through the introduction of
many leading practices, previously absent. Based.on interviews and observations EY believes that this
leadership team is working together well, is engaging in the right level of strategic conversations, and
is holding each other to account for objective KPI s more so than in the past.
ICBC continues to make progress towards instituting a culture of cost consciousness and financial
discipline and its HR strategy, guiding principles and performance metrics have been reworked to align
to their strategic oals of maintaining financial stability and delivering value to customers. This
realignment is Underwa and will take ti e to produce results.
In response to calls to become more transparent and customer-centric, the leadership of ICBC has
recently undertaken significant restructuring that will elevate the accountability and leadership of key
customer facing business units (Insurance and Claims). Corporate areas such as Finance that
previousl held a central control function are being refocused to pro ide finance services and analytics
to the business, while ensurin regulatory compliance and effective risk management. EY supports this
direction as a move to ards increased accountabilit for the core business units.
Em loyee engagement
Employee engagement at ICBC had traditionally been assessed through a standard AON Hewitt sur ey
process that has compared their engagement to other general best in class organizations. ICBC saw a
decline in engagement scores durin and follo in the 2012 revie and uring the launch of the
enterprise transformation program, although engagement has re ained level since that dip in 2012.
Based on the work ICBC has undertaken to redefine their culture as a cost conscious organization,
management ade the decision to redefine their engagement frame ork around their core Hr
rinciples of Alignment, Enablement, Motivation, and Accountability. They have retained Harris Decima
to deliver their engagement surveys starting this September, and then going forward on a two year'
cycle. With this organization s enhanced analytic capability ICBC hopes to gain greater p actical insight
into the engagement drivers that matter ost to a low'cost insurer:
Confidential - All Rights Reserved - EV 15

As part of the Transformation program, ICBC has been assessing employee change readiness for the
impending system and process changes on an ongoing basis. Most recent assessment results for the'
Claims Transformation are trending positively. Change management and training strategies have been
developed and implementation is underway for both the ClalmCentre and Policy Cen tre programs.
It is important to note that the change that ICBC is undergoing is enormous and cannot be
underestimated. ICBC has not been immune to experiencing pockets of resistance associated with
large-scale change. We encourage enhanced and ongoing investment in enterprise change
management, linked'to the cultural and accountab lity changes that the organization is trying to drive.
Stakeholder engagement
A revie of ICBC customer surveys was not included in the scope of this claim revie . However, EY did
validate With ICBC that in general, although some external customer survey scores did dip during the
employee training sessions to learn about the new claims transformation processes, those sur ey
scores have since begun to increase in conjunction with improved claims performance results. As
ICBC s claim metric results have impro ed, the external customer service results have improved, as
well.
ICBC has developed a stakeholder engagement plan focused on those organizations or individuals ho
can impact ICBC's operations, finances, or reputation, are affected by company actions, or influence
the opinions/perceptions of others.
The organization's stakeholder enga ement goals are based on: 1) Building trust ith stakeholders to
enhance a shared commitment to achieving common business objectives, 2) Actively involve
stakeholdefsin efforts to optimize I BC's business model, processes, and systems, and 3) Build loyalty
among stakeholders so that they speak positively about ICBC with customers and other stakeholders.
EY would observe that it may be helpful to take a more strategic approach to stakeholder engagement
as there are currently multiple and potentially inconsistent touch points with key groups Induding
brokers, customers, media, business associations, business partners, the Pro ince, etc. It may enhance
com unications and responsiveness if ICBC centralized its stakeholder management function, utilizing
the principles of strategic account management. It Is diffused across the organization today and more
consolidated relationship anagement might provi e better service to key stakeholders.
in summary, based on our interviews and observations, the leadership team is cohesive and has
communicated a focused strategy to deliver on its mandate. ICBC's biggest challenge will be to
continue to execute on its strategies while implementing the culture change necessary to support this
. transformation, all the ile delivering the results it s accountable for. Continued emphasis on ensuring
ICBC employee and public a areness regarding the impacts and causes of excessive claims costs is
imperative.
Confidential - All Rights Reserved -'EY 16

4.2 Claims management
Since 2009, ICBC's claims costs have increased by 27% which is double the increase in premiums
earned over the same period1. Persistent claims cost escalation beyond the rate of inflation is putting
considerable upw rd pressure on rates charged to customer . Managing claims costs was identified in
the 2012 Crown Report as the main challenge facing ICBC and Is considere a top priority by ICBC in its
Service Plan 2014 - 2016.
The frequency or rate of bodily injury claims steadily decreased from almost .0 per 100 insured
ri ers In 2003 to less than 1.5 perlOO drivers in 2009. Since 2009 this trend has flattened, 1
remaining steady at approximately 1.5% of Insured drivers. This flattening in frequency is being
attributed to the increase in distracted driving, which offsets any gains resulting from vehicle and road
safety improvements.
1 2014 forecast claims costs 2014 - 2016 Strategic plan compared to 2009 actuals.
Ultimate Bl Incurred Severity
ICBC has experienced a steady increase in severity or ultimate incurred cost per Bl claim over the last
seven accident years. The Inc ease Is cost per claim is positively correlated with an increase in legal
representation rates and lack of consistency across adjusters'in negotiation approaches.
Confidential - All Rights Reserved -EY 17

EY conducted a review of ICBC's claim management processes and performance with the objecti e of
Identifying improve ent Opportunities that ICBC can implement to contain growing claims costs.
The review consisted of:
A Claims Diagnostic File review - A detailed file review, hich included reviewing all file documents
and claim documentation to identify variances against industry leading practices; an
A review of ICBC s bodily injury claims management operating modelthe goal of this review was
to identify the organization design and process workflow and gain an understanding of the nature
of clai s and how efficiently and effectively claims are managed.
4.2.1 Claim diagnostic file review
The focus of the claim diagnostic file review is to i entify financial leakage, deter ine root causes of
identified claim leakage, and make recommendations for improvement.
What is claim leakage?
Claim leakage is the additional amount paid, above what should have been paid if applicable claim
management leading practices had been applied.
How as ICBC's leaka e determined?
Conducted a review of a sa ple of ICBC's close claims to identify improvement opportunities for
ICBC;
Identifie gaps between observed ICBC claims handling practices and industry leading practice;
Identified specific opportunities for im ediate and long term claims cost sayings; then
EY quantified the costs to ICBC of failing to meet leading practices across the selected claim
ample,
Confidential - All Rights Reserved - EY IP

Findings summary
44 of the 79 (56%) files reviewed were determined to have quantifiable leakage.
Total leakage identified was approximately $540*000 across the 79 claims. The ost significant
opportu ity for improvement exists In claims valued bet een $1,000 and $100,000 which was
determined to have lea age of 17.6%. Leading practices organizations typically e perience leakage of
5% - 8 with the bodily injury industry average range of 10 -12%. Please note that since the sample .
size of this claim review was not large enough to support any annual projections for ICBC at this time. A
complete file leakage study review would b required for this additional detailed analysis.
** As a result of the small sample size, the seven claims valued over $250K significantly reduced the
overall leakage figures. Across .the 72 other claims the overall leakage was 16.5 .
4. .2 Claims leakage analysis
In conjunction with the iagnostic file review, the EY team complete further analysis to identify the
most significant areas of opportunity within the end-to-end claims management-process. We identified
quantifiable leakage in six of the.nine sub-processes within the claim management value chain with the
most significant fin ings coming from Initial Investigation, Claim Mitigation, and Claim Resolution. The
two processes without any evidence of quantifiable leakage were Coverage Analysis and Recovery.
.2.3 Bodily injury claim value chain .
Confidential - All Rights eserved - EY 19

l®Sticeand ilgiament
'eo &fdgdai aly .' ; ; , ¦ '
: *4f|0O.O m 0.7%
o.o j:
'48,430.0
o'.o"
1
Initial Investlgatton " 15,260.0 '
9.0
. i-- T
1
fReedvery 0.0 ¦ o;6
Reserving o.o"-
' "': 39:i '
j
"Clairnmitigatlon ; 211.050.0
18,000® 7;""; :
iSiaim resolution 243.220.01
':.$s 9;96.o;p' 45.0% .
The following ineffective claim practices were evident in the file review and are inconsistent ith
industry leading practices. These practices were the major drivers of leakage based on the file sample
reviewed.
Notice and assignment root causes
F ilure to assign a newly received claim to a qualified adjuster within 24 hours based on the
anticipated claim severity at first notice of loss.
Initial investigation root causes
Failur to secure detailed information regarding severity of the accident from ail parties to the
claim (e.g., speed at impact, alleged injury sites, etc,).
Lack of a reconciliation of point of impact or amage, that alleged medical Injuries and edical
severity are attributed.
A failure to establish a medical profije concerning prior injuries/accidents, medical treatment,

occupational information, hobbies, interests, and health/other insurance information.
Initial investigation
Failure to consider all information obtained during the initial investigation to complete a proper
liability evaluation that takes into account apportionment of liability between the parties Involved
4.2.4 Claim mitigation

Lack of rigorous follow u to secure medical records and up ated treatment and diagnosis
information from all treating providers, before estimating exposure of claim value.
Failure to actively review ail medical and disability information concerning the Injured claimant.
Failure to utilize external medical services ro ctively to assist ith evaluation of medical severity,
necessity, and cost of medical treatment.
Failure to utilize external investigations such as surveillance, activity checks, and social media
investigations Upon recognition of Indicators of potential fraud or symptom magnification.
Confidential - All Rights Reserved - EY HO

Lack of development of a focused, fact-specific resolution-focused action plan for each and every
claim and updated upon receipt of new information aterial to the manage ent of the claim.
Failure to consistently incorporate fa orable defense evidence into the claim resolution proce s
when evaluating a claim. • '
4.2.5 Claim strategy
Files lacked evidence of any type of claim resolution strategy or plan. Effective resolution.plans
address the following; short term goals, long term goals, activities required to reach.goals, and
timeframes associate with each activities completion.
4.2.6 Claim resolution
Settlement preparation and documentation consistently lacked:
Detailed settlement evaluation, to address the relate ness and necessity of claimed medical
treatment (past an future).
Specific, fact-base valuation range.
Detailed negotiation plan to d ress initial offer value and anticipation of claimant objections, and '
plan to overcome.
Consistent negotiation plan documentation
Consistent application of ineffective negotiation practices, such as:
Increasing offers based on lawyer retention without any change in the claim facts was consistent
across the clai s reviewed.
>¦ ' Increasi g offers without a reasonable counter from the claimant's counsel.
>¦ Quick acceptance of claimant demands once within established authority range.
The following initiati es have the potential to reduce overall claim leakage and bring ICBC s leakage
results closer to leading practice:
*• Contract with third party resource, investigate support from the Ministry of Health, or create in-
house specialized medical unit within the claims operation to assist in revie ing and analyzing
medical exposures, and as an ongoing training resource, Consider implementation via pilot in a ¦
targeted region and evaluate the i act on lo s an expense spend before provincial wide
adoption.
*•. Increase training on common medical aspects that lead to high exposure claims such as, soft tissue
injuries, impact of co morbid conditions, subjective diagnosis, and evidence base medicine.
Increase training on settlement planning and negotiation. Leverage existing NICE technology to
assess the effectiveness of adjusters telephone interactions with lawyers in the negotiation
process.
Create more robust settlement authority requirements and controls. Require that adjusters and
front line supervisors outline both the strengths and weaknesses and chances of success.

Increase in-house counsel s role and authority.
Continue planned claim analytics initiatives specifically aroun se erity predictive modeling and
fraud identification.
Leverage ClaimCenter capabilities to support process controls and tools to support adjusters fully
evaluating claims to etermine value and settlement strategy.
4,2.7 Claim level reser e strategy
Claim level reser ing is the activity undertaken to identify the probable ultimate cost to re olve each
claim and ultimately informs leadership as to the organization s total exposure
Our file review identified a consistent lack of discipline around the setting of reser es.
While our review was limited to a discrete set of files, our tea obser ed a pattern of over-reserving on
a onsistent basis. Our concern is that practice does not support a cost conscious culture a adjusters
are not challenged as long as they don't exceed the reserved amount.
As ICBC strives to be a cost conscious insurer with an efficient clai s operation, it is strongly
recommended that ICBC further evaluate the findin s of our limited sampl review and conduct a more
•comprehensive review of its reserving practices involving a larger set of files.
4,3 Claim operations

EY conducted a detailed review of ICBC's bodily injury claim management function. This included an
analysis of the current operating model, policies; philosophy, and clai handling practices and
procedures as they relate to the management and mitigation of bodily injury claims.
4,3.1 Claims mana ement delivery model
ICBC currently does not utilize a for al claim Quality Assurance program. This presents a significant
risk to the organization as there is c rrently no objective measurement of leading practice compli nce
and lost financial,opportunity as a result of failing to meet leading practice (leakage).
ICBC recently introduced a specialized claims management model ithin the Claims or anization. In
this model claims are triaged and assigned to dedicated units based on defined characteristics (e.g.,
unrepresente claimants, represented clai ant , litigated claims, and catastrophic claims). W ile
having some advantages, in our experience the specialized model can also contribute to increased
claim severity. In the current claim management process there are multiple hand offs , including but
not limited to the transfer of a file from one adjuster to another upon notice of legal representation. In
our experience, ultiple hand offs can lead to reduced adjuster ownership, increased litigation,
worsening severity, and reduced customer satisfaction, his inherent risk associated with the
s ecialized segmentation model further reinforces the need for ICBC to develop a rigorous claim
Quality Assurance program.
Current adjuster caseload average is lower than industry averages. The industry average caseload for a
Bl adjuster is 150-160 claims, hile ICBC currently carries an a erage caseload of 133, A reduced
caseload should result in more effective claim management, howe er, that was not evident base on
opr file review. •

While a number of claims management leading practices have been introduce , our team did not see
clear evidence within our file review that there has been a change in claim handling ideology or broad
based adoption of leading practices. Further change management and training in this area is
reco mended, which couid be supported by technology solutions - such as NICE capabilities within the
claim operation, to provide for coaching and mentoring adjusters in order to build their confidence In
carrying out their responsibilities.
4.3.2 Claims culture
EY obser ed that ICBC adjusters are generally offerin fair initial offers for settlement (a fair offer is
the appropriate and timely payment of proceeds by an insurance company to the insure to settle an
insurance claim within the guidelines stipulated in the insurance olicy, the evaluation Of each
Insurance claim Is often subjective and many factors are considered: i.e. the circumstance of the
impact, the injuries sustained, the treat ent incurred or required for the injured parties, lost wages
inc rre by the customers as well as their ability to return to work; etc.). However, as sOdn as a lawyer
is introduced to the claim, the offer is consistently increased with no other changes to the case or
allegations. Continuation of this trend will continue to drive legal representation rates.
Bl Legal Representation Rates
Overall Representation
Rate
-© Minor STI
Representation Rates
Since 2006 legal representation rates across all Bl claims have continued to increase. Claims classified
as minor soft tissue injuries (STI) have experienced a higher percentage of increase in legal
representation when compared to the overall bodily injury inventory.
The total number of Bl claims resolved by trial represent less than 1% of all Bl settlements. Currently
1% of all claims result in trial while ICBC has a documented success rate of 65% for 2013 and 69 to
ate In 2014. ICBC defines a success as an award which is less than the claimant s emand. We would
reco mend that ICBC document the final award against the initial offer in order to better understand
the impact of legal representation and trials on total claims costs.
The types of cases ICBC elects to try fluctuate slightly year over year. This year, ICBC has advised that
they are trying larger cases - higher average demands, offers, and awards; Per ICBC, if they paid
amounts plaintiff s counsel are currently demanding, the payment amounts would be approximately
66 .higher than the trial/award amounts they are routinely seeing. As noted above, these figures are
an i provement over prior yea where the average iCBC offer was 57%, and the plaintiff's demand was
130% of the amount awarded at trial (per ICBC). Thus far in 2014, ICBC's avera e offers are trending
at 65% on average, and the plaintiff's demands re trending at 166%.
Confidential - All Rights Reser e - EY 23

The volume of cases that go to trial aries year over year and are affected b several factors such as
court availability, counsel calendars, and the maturity of claims. A full litigation review would be
required to deter ine trends, but ICBC s win ratio continues to trend positively. Legal costs/expenses
are very rarely a arded to ICBC, even hen receiving an award in their favor. ICBC continues its
efforts to grow its inside/staff counsel and EY endorses their plans to continue this ap roach.
The plaintiff lawyer s role as advocate for their clients often conflicts with the interests of ICBC's
collective policyholders and C rate payer . ICBC has a dualistic role - it must balance programs and
initiatives that contain claims costs,'while continuing to provide consistent delivery of acceptable levels
of co erage and ser ice for claimants who have suffered a loss. Most plaintiff attorney fees are
contingency fees and are based upon the net settlement obtained on behalf of their customer, the ICBC
policyhol er. While fees may vary, general industry plaintiff attorney fees are approximately 33.3% of
any settlement amount. This fee is paid by the customer and Is deducted from the final settlement
amount. So, while the total award is increased by legal representation, the customer doesn t
necessarily benefit.
To become a low cost insurer and efficient operator, ICBC must 'break the cycle of
increasing cliams costs.
ICBC
Improvs systems, rocesses
;¦ ICBC j and contfoistoonsuro clai s
* Co monlcpllon:$trat*gy:to ate paid bated bn fuels, not
( Inform {ohttrmer {fercttflf tt j bymereptesencft of /awyars
L J *• Consider trying m ore
precedent seltfog cases
fnvoivtfig efafmswidt ihfnfmaf
auto physical d mages
¦ The perceived belief thaV. • "
* • foRtott oul te of direct control < g* tort) drive laim severity;
* a genera)aversion to contesfiand
* pcrcctvedlackofcoatcontoinmentculture
4.3.3 Net impact of causes leakages
e applied 16.5% leakage across all claims reviewed falling in the range of $1,000 - $250,000 in total
incurre . In order to define the total opportunity EY looked at the total paid for all closed claims (IK -
50K) across accident years 2009,2010, and 2011 as the more recent accident years were not fully
developed.
M&immm mmmmm
¦ Iota (paid (undlLSSOK) : . '$5i5Ti0od]gqp;:;
The avera e annual severity for claims rangin $100,000 to $250,000 and during the years 2009-
2011 is $618.6M. EY identified 16,5 leakage across the sample reviewed, which ould equate to
$102M in total opportunity cost,

Leading practice organizations operate between 5% - 8% leakage, thus ICBC would have to reduce their
leakage by 8.5% to be considered leadin practice, A reduction of 8i5% equals savings of $52.3M. With
the recommendations we've ade, we ould expect that if implemente , ICBC should be able to
experience at minimum a 5% reduction in leakage hich equals annual savings of $31M. In conclusion,
the range of available savings would be $30M $50M on an annual basis, it will take some ti e to
begin to e perience these savings as the greatest impact would occur on new.claims arising in
2014/2015. These are conservative estimates, noting that the 2013/2014 showed a $73M increase in
bodily injury costs. The propose actions that are ithin ICBC s control can bring about an offset to
escalating claims costs of 5% - 8%.
4.3.4 Procurement
ICBC is a major purchaser of goods and services with some of the largest categories being external
legal services, auto repairs including glass, medical and health services (physiotherapy, chiropractic
services, etc. , and towing. (See Appen ix C for ICBC Spend Summary), Our review of ICBC s .
procurement processes has determined the following:
A competitive procurement (commonly known as strategic sourcing) approach has recently been •
Implemented for only one of ICBC s ten major supplier grou s - car rental companies, where a
preferred supplier list was established. This approach delivered a 20% savings over the prior year's
total expense payments.
There are many different procurement strategies open to ICBC to consider that could aterially .
drive down total costs while at the same time minimize the negative economic impact on rural
suppliers. e recogniz that ICBC has co e under significant pressure from industry stakeholders
that hav made it challenging'to introduce new competitive procure ent approaches aimed at
reducing overall cost. However, in balancing those interests against those of the policy holders and
tax payers we believe strongly that more can be done, Some procurement options to consider ¦
would include:
Establishing pricing standards for key services that suppliers could elect to subscribe to
Negotiating prepay arrangements with healthcare providers (to enable customers to access
services without having to pay upfront as well as generating volume discounts)
, Implementing additional competitive procurement for external legal counsel to further re uce
the number of law firms (currently ICBC uses 80) to a smaller number, negotiating volume
discounts, and making b tter use of paralegal services.
EY would suggest limiting strategic procurement activities to Lo er Mainland and any other urban
centres where the e is more competition and the bulk of costs are incurred;
By establishing rates, ICBC has removed natural competitiveness e isting between suppliers. This lack
of competitive procurement processes has resulted in a culture of supplier entitlement. ICBC customers
anticipate that due diligence is performed by ICBC regarding supplier selection and compensation. This
opportunity area was also referenced in the.2012 Crown Report, along with th recommendations that
ICBC should ore dearly demonstrate value for oney in procurement, using competitive processes
whenever possible.
ICBC and EY observations regarding this approach remains that in all Claims supplier categories, ICBC
is dealing with a lot of suppliers and manual process for erformance monito ing. This presents
challenges in riving efficiencies and effective performance anage ent of these suppliers, icbc
Confidential - ll Rights Reserved - EY 25

recognizes the significant impact competitive procurement processes may have on the Claims supplier
community. Ideally, t is wo ld result in introducing reater competition amongst Clai s su pliers and
would benefit ICBC customers. This could also lea to an eventual differentiation between suppliers
based upon the maximized value bein delivered to its custome s.
Such strategies will help contain ICBC costs without sacrificing quality of materials and Workmanship
that the customer deserves. In summary, there are ways to buy smarter and drive greater value for
customers and the Shareholders ile still allowing for healthy competition and the use of a variety of
providers.
Glass Repair
As a subset of general procurement, glass repair.Is worth some additional mention. Auto glass
windscreens are damaged through many different circumstances such as an auto accident or flying
rock, The current polic within ICBC is to replace ail damaged auto glass as opposed to repairing it
Where practical and safe to do so. Glass repair was in place through 2001 prior to it bein discontinued.
During the timeframe of 1996 and 2001, the a erage percentage of windscreens repaired as 25%.
Based upon leading practice insurers re air vs replace averages, 25 - 30% are repairable type of
damages while 70 75% require replacing.
Glass replacement average costs are $400 - $550 per windshield (and can cost as ust as $1,500 to
replace the indscreens of newer vehicles with specialized glass), whereas repairs range from $30 -
$55 per repair. Note that glass replacement cap take longer than glass repair, which is Why leading
carriers employ both options depending on the nature of glass damage involved.
If a repair percentage of 25% - 30% is applied to ICBC's total glass replacement costs for 2013 of
$46.5M there would be an implied sa ings of $7.5M to $9.4M, calculated as per the following table:
. • 30% ] 80%
These estimated savings could be realized by ICBC by re.~instituting glass repair policies. Note these
glass savings would be incremental to the $35M - $70M estimated overall savings for procure ent
programs. While the industr may resist this change in approach, the net result would be a benefit to
the custo er, as well as to ICBC, and recognizing that any safety perfor ance concerns would require
consideration when determining whether the windshield is repaired or repl ced. 3 4
3 ICBC estimate
4 Esti ated repair cost based upon 48,000 ehicles multiplie by an average '$45-per-repair for a total of $2.2m
Confidential - ll Rights Reser ed - EY 26

Recommendations .
Procurement strategies focused on glass, body shops and towing providers in he Lower Mainlan
(total spend estimated at $5'75 ) an any other urban centres with robust competition should be
developed and imple ented. The rationale,for focusing on the urban centres is that this is here the
ajority of the spend occurs, there are many more suppliers, including the large players, there Is a
higher incidence of fraud which could be better managed by channelling work to a smaller number of
layers, and it would minimize any negati e economic impact on small independent suppliers in the
more re ote communities. Such strategies will help to contain ICBC costs without sacrificing quality,
and will ensure that facilities are able to continue operations in smaller markets.
Competitive procurement focused on auto repair, glass replacement, and towing has the potential to
deliver annual savings of,up to $35M - $70M. This is a conservative estimate that is based on our ¦
experience with other claims operations across Canada, the UK, and the US. A full cos benefit analysis
should be un ertaken by ICBC to narrow the definition of this opportunity.
Procurement estimated savings
Vendor type 2013 spend :1 Estimated savings nange

iutorpigiiii ilililiiSi itilltt i,V /' 505v0. ,, _ ; ¦* _ **< / „
'
Glass replaceme ' :; , : ¦ $ 8.4 • ¦ ;. 1. --
¦
frowi gll ll iv $22;b'?r ;
4.4 Forecasting
EY has conducted a review of ICBC s forecasting processes as it relates to financial performance and
insurance claims management.
Approach: .
Our focus was on assessing ICBC's forecasting approach in terms of it delivering on the primary
forecasting objectives of:
Set e pectations regarding future performance;
Inform management of underlying ris s within business model; and
Allow for appropriate management decisions.'
Our review was based on information contained in the quarterly forecasts (Government Outlooks) and
the Service Plan's Summary Financial Outlooks. Further analysis was complete by reviewing a
spreadsheet planning model. Feedback was solicited from ICBC regar ing specific question ,
Confidential •* All Rights Reser ed - EY 27

Observations regar ing ICBC's forecasting process and results:
Robust forecasting process; all significant financial items are handled reasonably and
in ependently. Financial projections are based on best estimate assumptions.
Inherently variable actual-to-forecast comparisons are due to the fluctuations in claims experience
and investment performance.
In estment allocation to equity Investments is still relatively higher than Canadian federally
regulated pri ate property and casualty insurers. Equity investments offer greater ihcome potential
but introduce increased income .volatility, carrying a higher cost of capital. They are generally used
to atch longer duration policies (e.g. life insurance) with less cash flow certainty.
Mo ements in Invested assets and claim liabiiities are partially linked through the claim liability
discount rale (options to change the discount rate are discussed in Recommendation 3), which is
determine using total returns on investe assets. This can result in a temporary accounting
mis atch between net income and shareholder equity. Unrealized ains or losses on fixed income
assets due to market-related move ents are recorded through Other Comprehensive Income
(OC1)5 and impact shareholder equit . The changes are .only recognized ip net income when the
asset is either sold or recognized as impaired. However, any resulting changes to the di count rate
impact het income. This mismatch could result in a distortion of net income an insurance rates by
period, where gains or losses in one year are offset in subsequent years. See Appen ix A for more
details. •
The required premium for the current year is determined as expected costs less expected revenues.
The most significant component of expected costs is the expected loss payments, which is determined
in part by the claims liability discount rate. The most significant component of expected revenues Is
in estment income on policyhol er supplied funds, which is determined u ing projected returns on
newly in ested assets.
Recent changes to investment policy:

Recent changes to investment policy have resulted in a shift of the targeted holding from common
shares to.alternative in estments, consisting of increased targets for real estate and invest ents in
high yielding bonds. Any unrealized gains on the sale of equities would have been realized with an
offsetting reduction in OCI. In addition, there was a $2QM loss of income resulting fro a reduction of
the discount rate of 11 basis points. Going forward, both expected inco e and underlying volatility
shoul be reduced. .
5 Total Comprehensive Income Is the sum of two components: Net Income and Other Co prehensive Inco e (OCI). Ne income Is
considered to be regular income, based on an entity s core services, OCI is considered to be variable inco e, and is outside of ah
entity's normal business activities. Changes in s are older equity include both net income and OCI. ICBC has designated their
invested assets such that in estment income is divided bet een net income and OCI. The net income part includes regular
income such as accrual of interest on bon s (l.e. coupon payments and dividend payments on equities, hile OCI includes any
unrealized gains or losses based on external market mo e ents (e.g. chan e in art external index such as the TS or c ange In
Treasury yield curves). These amounts will eventually be included in income once the gains or losses become realized (i.e. on sale
of asset or recognition of Impair ent).

Recent Legal Decision
In 2014, the BC Supreme Court' approved a new law which lowered the statutory discount rate used in
calculating the present value of future damages. The changes re uced, the discount r te for future
wage losses from 2.5% to 1.5% and re uced the discount rate for future damages from 3.5% to 2.0 .
T e eductions affect both future claims an existing claims which have yet to be settled. The financial
im act was a one-time, charge booked in 2014 for $293M with ongoing impacts expected to be $60M in
2015 and $63M in 2016.
ecommendations to increase transparency and reduce net income volatility:
1. Consider presenting an integrated sensitivity scenario combining reasonably adverse .clai s

experience .and investment income results. This would be presented as an alternative scenario to
compare against the expected outlook, and would indicate a realistic range of variance that might
be expected.
2. Explore the impact of further reducing common shares as a percentage of total investe assets
backing liabilities. Shares could be sold and replaced with fi ed income bonds, if ICBC wishes to
maintain the total level of common shares, the corporation could consider only including a portion
of those in the discount rate calculation.
3. Examine opportunities to minimize the impact of any temporary income mismatches bet een net
•income and OCl. Determining returns on fixed income assets using a book value (purchase) yield
would eliminate changes in the discount rate resulting from movements in interest rates.
For a complete list of recommendations please see Appen ix.

V. Claims cost review - Areas requiring
government involvement
In addition to tti.e areas for improvement that ICBC has direct control over, as outlined'above, there are
a n mber of other philosophical or policy choices that the government could engage in that are
necessary in order to ensure longer term rate stability. While ICBC has direct control over
app oximately 40% of the rate increases, overnment involvement would be required to influence the
balance. Of the levers within government control, we believe that product reform would be the most
impactful.
5.1 Product/reform
Soft tissue injury claims caps
As noted previously, ICBC has experienced increases in claims costs over the past five years, pri arily
as a result of a frequency rate which is no longer declining and a continued increase in severity. The
cost increases are generally attributable to mild or minor soft-tissue bodily injury claims, which can
include significant non-economic" damages6.
Bodily Injury Claims Cost Drivers and Trends
> Bodily Injury ClBlms

Costs ($)
r = rx-~:::r
ICBC s analysis has identified the following reasons for the changes (from declining to flat) in the
frequency trend:
Distracted riving as a result of the mass adoption of smartphones:
> Fewer new vehicles with enhanced safety features: and
Vehicles per household are no longer Increasing. •
The proliferation of smartphones and other electronic devices has led to an increase in distracted
driver related claims. Newer vehicles are safer vehicles, and reduction in new vehicle sales da pens
the impact of technology i provements. A re uced nu ber of vehicles per household results in higher
usage per vehicle, and therefore more claims per vehicle.
6 Also known as non-pecuniary' or general damages, (e.g.: pain and suffering).
Confidential - All Rights Reserved - BY 30

ICBC s analysis concluded that t e increases in severity are primarily d e to the increased rate of
clai s with external legal representation. As discussed earlier, analysis indicates that these claims tend
to be settled for Increased amounts.
Brit sh Colu bia's automdbile Insurance is tort based with no limits on amounts payable for soft tissue
injuries. In contrast, several o her Cana ian pro inces have introduced limits an restrictions on tort
benefits for non-catastrophic soft-tissue (minor) injuries. Changes have included the introduction of
stringent definitions for soft-tissue injuries and monetary limit on the compensation available71
New Brunswick: $2,500 cap per person on non-economic damages for claimants ith minor injuries
effective July 1,2003. ; •
Nova Scotia: $2,500 cap on non-economic da ages effective November 1,2003.
PEI: similar to New Bruns ick, but effective April 1,2004.
Alberta: $4,000 cap per person on non-economic damages effective October 1,2004.
These limits o not apply for more serious injuries, where an injured party would still retain full legal
rights.
The impact of these reforms on the average actual claim cost for a private passenger automobile is
demonstrated in the graphs below7 8.
IV.1 Percentage impact on Average Claims Costs, by Province
The overall decrease In th se provinc s' soft-tissue injury laims costs is in the range f 30% and 60% of
the re-ref rm average cost.
7 these limits will be updated and changed fro time to ti e, and are Indexe annually to Infla ion.
8 General Insurance Statistical Agency, 2013 reports AUT00002-AB and AUT00003-ATL
Confidential - Rights ReservedEY 31

Impact of caps on minor injury claims
The purpose of this section is to rovide a sense of the potential magnitude of the impact of placing a
limit on general damage claim payments (generally due to pain and suffering) caused.by a non-
catastrophic soft tissue injury.
ICBC performed an internal analysis in 2011 based on. claims closed in 2010. EY reviewed that report.
To estimate the impact of a cap on minor injuries, ICBC assumed a cap on general damages related to
.soft tissue injury claims an that all soft tissue injuries fit the efinition of a minor injury. This approach
could be viewed as the "high" end of the range of the estimated impact.
Then ICBC assumed that claims above a'certain threshold ($30K) would not meet the definition of a
minor injury. Further, ICBC assumed that if implemented, the cap a ount ould tend to act as a floor
for minor injuries. Hence claims below the cap a ount ould gravitate to ards the cap amount.
Applying these adjustments may be viewed as a "low" end of the range of the estimated impact.
The potential savings based on ICBC s internal analysis on claims closed in 2010, as a % of bodily injury
costs were:
WMt
$27 1700,006 10.3% $175,1661)66 '
$269,i607o6'6 i 1 5v8% -7'
$ 164 9 0G 666 7- "2.0%'"' $$4yo66,66o ]
Conclusion
The potential impact of placing a cap on minor injuries is likely to be material. EY noted that the actual
Impact, post reform, in other Canadian provinces has been different from, and often exceeded, the
initial pre-reform estimates, in 013, ICBC incurred losses of approximately $1.7 billion due to bodily
injury claims for basic insurance. A savings rate of 10% would translate into $170M in annual savings.
Implementing product change/reform
The benefits of product change have been demonstrated: ho ever, implementing roduct chan e is a
comple and challenging rocess. The follo ing areas, among others, must be considered an
thoroughly understood hen exploring possible product changes:
Purpose and scope
<! Stakeholders
*• The current insurance product and dynamics be ween stakeholders
A full revie of the legal and regulatory environment associated with automobilejnsurance claims
to ensure that uninte ed consequences do not arise as a result of the intro uction of automobile
insurance reform. Any reforms to the automobile insurance product and associated la s and
regulations should be reviewed to ensure there are no unintended consequences with resp ct to
compensation of wrongful death due to auto obile insurance accidents

Examples of some of the issues that other jurisdictions have worked through in reforming t eir
insurance products include the following:
if a cap on minor injuries is to be introduced then ah explicit and clear definition of a minor
injury has to be developed
' instead of the current tort based system in British Columbia a mi ed system may also be
considered here most injuries are compensate without regard to fault i.e., on a no-fault"
basis, but injuries e ceeding a certain threshold when the injured party is not at fault, are
compensated under a tort based system. In such a system the desired level of threshold
would have to be' developed and defined. The threshold maybe descriptive by definin the types
of injuries which qualify, or monetary when the economic portion of the loss exceeds a dollar
amount, or a combination of the two
Under no-fault syste ns, loss of income, medical/rehabilltation, attendant care and other first
party accident benefits have to be defined and structured to properly compensate fo injuries
sustained
Controls must be developed to ensure that first party accident benefits are delivered efficiently,
while not compromising the accident victi 's care. An appeal process may have to be put In place
to deal with disputes between the accident victim and the insurer
The classes of insurance that would be impacted (e.g. private passenger, motorcycles, recreational
vehicles, and commercial vehicles)
•- The definition of fa ily/dependents
The potential impact on policyholders and other stakeholders. This would be done through actuarial
analysis of historical experience
The experience from other provinces
Territorial and regional considerations
The potential impact on ICBC operations including claims administration, information technology,
customer service and communication, training etc.
>¦ The legal/regulatory changes required to implement and the legality of such changes
The potential impact of change on rates and new rates filed

5.2 Driver-based risk rating
Unlike the standard practices of other Canadian provinces, in BC:
If an indivi ual with a history of at-fault claims obtains insurance on a new vehicle then their history
of claims is not considered in deriving the premium for that vehicle.
in addition, certain unsafe dri ing infractions such as distracted driving or convictions do not
currently .impact a driver's premium rate.
Essentially, the rating is based on the vehicle and not on the driver s track record or behaviour. The
impact of the current rating model is that safe and responsible drivers are subsidizing poor and risky
•drivers. There is an issue of equity to be considered here. Further, this model does not incent safe and
responsible driving and hence may ultimately drive up the occurrence of accidents (frequency) and
therefore clai s costs.
The current rating structure includes several factors when setting rates for an insured. These factors
include a clai s rate scale (bonus-malus), rate class, territory, other discounts and surcharges.
The higher of two premiums are charged;
Driver Risk Premium or DRP affected by serious convictions over a 3 year period
>• Driver Penalty Point or DPP - affecte by an accumulation of penalty points in excess of three (3)
Currently, distracted driving is not captured within DRP and only captured in DPP after three (3) points.
Moving to a driver based rating system would both incentivize safe and res onsible driving and replace
ICBC' current two rating syste with one. The following are key issues, among others, that must be
Considere when reviewing possible changes to the current rating,system:
The potential impact on policyholders and other stakeholders through actuarial analysis of the
proposed rating model ersus the historical rat ng model
Public policy issues to be considered (e.g. gender or age rating ay not be appropriate)
Potential impact on ICBC operations including policy a ministration, information technology,

custo er service and communication, and training ¦ .
o manage significant premium dislocation, such as capping of significant changes in premiums for
certain individuals or migrating to the new premium level over a period of time

5.3 Capital
EY has conducted a review of the appropriateness of the Minimum Capital Test (MCT) levels and ICBC s
underlying assumpt ons driving MCT.
Definitions:
Required premium: The value of ail expected losses, expenses, offsetting re enue and investment
inco e. The amount is determined in accordance with generally accepted actuarial principles. The
significant actuarial assumptions underlying this calculation are the frequency and severity of
Bo ily Injury claims.
Lost cost forecast variance: Lost Cost represents the average claims cost per vehicle for a
particular coverage. The Lost Cost Forecast Variance (LC V) is equal to the difference between the
lost cost provision reflected in the e isting rates and the lost costs that have e erged since the
setting of.the existing rates. This amount is measured for the current policy year.9
Basic Insurance Capital Management Plan:
ICBC has adopted a Basic Insurance Capital anagement Plan (C P) which Includes capital thresholds
and a rate smoothing fra ework. The thresholds are expressed in terms of the inimum Capital Test
( CT) ratio as defined by the federal regulator, the Office of the Superintendent of insurance (QSFI),
which is a requirement.for all federally regulated property and casualty insurance companies in
Canada. The CMP was approved by the BC Utilities Commission (BCUC) in ay 2014 as part of the
2013 rate application approval.
ICBC separately measures the capital on Optional insurance. Amounts in excess of a defined target are
aid to government as required by legislation. On occasion, these amounts have been transferred'to
basic insurance to support that line of business.
The ICBC capital target requirements are as follows10:
>¦ Statutory minimum: Set equal to 100% of the MCT. This amount is set by the BC Government
Order Special Direction IC2 (IC2). At a minimum, rates must be set to meet this target, in the
event that Ba ic Capital is expected to fall below this level, ICBC is required to develop an
appropriate plan to ad ress the shortfall, and must report this plan directly to the Treasury Boar .
argin for a verse events: An additional 30 provision over the statutory inimum which Is the
basis for on oing anagement. This amount is intended to provide a buffer for fluctuations in
• capital.arising from variances in the underlying.business.
>¦ argin for stable and predictable rates: Ah additional 15% margin which allows for smoothing of
losses as directed in the rate smoothing requirements of IC2,
Ca ital management target (CMT); Equal to 145% MCT, determined as the sum of the hree
co ponents identified above (Statutory Minimum + Margin for Adverse Events + Margin for Stable
an Predictable ates).
9 For the 2013 application, the LCFV was the difference bet een the 2012 cost assumed In the 2012 application and the 2012
cost assumed in the 2013 application.
10 Terminology is based on terms adopted by the Commission in the 2013 rate decision released on May 14,2014.
Confidential - All Rights Reserved GY • 35

*¦ Well-in-excess target: Additional 15% in excess of the CMT target, or 160%, In the event that
capital reaches this level, ICBC is obli ated to provide a one-tim Gustomer Renewal Credit (CRC) to
bring capital back down to the CMT level. •
The Margin for Adverse Events as determined through stress testing of the basic insurance financial
plan. A verse scenarios were considered based on current risks to the organization, plausibility and
expected financial impact. Scenarios were set at the 90th percentile, implying that this margin is
projecte to be sufficient such that a 1 in lO adverse event w ll not result in capital falling below the
statutory minimum level. The most adverse scenario was an asset decline, follo e by adverse lost
. cost an dverse unpai claims.
The additional margin for stable and predictable rates of 15% is intended to allow ICBC to absorb and
smooth out up to two years worth of adverse variances while still maintaining an MCT ratio of at least
130 . he level of the margin was determined base upon historical experience. ICBC ha originally
requested a 20 margin In the 2013 rate application.
The OSFI capital targets are similar in structure to the CMP:
Statutory minimu : 100% of CT, identical to the level established in the C P.
f Supervisory target: 1 0% of MCT. This is defined s the target necessary to cover the defined
contingency risks in the MCT calculation* as well as allow for additional risks not explicitly captured
in the required capital calculation such as operational risk and new business risk. •
Internal target: A target level, determined based on the ris s of the organization, necessary to
cover all risks, including un nown risks such as newbusiness. This Is generally set such that a one
standard deviation event ill result in capital falling no lo er than the Supervisory Target.
The primary focus of OSFI s regulatory approach Is to ensure the safety and protection of policy
holders and the continued solvency of the regulated entity. It is based on the characteristics of private
insurers and considers risks co mon to the industry.. Appropriately determining the level of capital
required for ICBC would require an assessment of its risk profile, as ell as the ris appetite of the
shareholder,
Rate smoothing framework:
ICBC includes a rate smoothing framework that regulates the annual change in Basic Insurance, rates.
he requirements within the framework pertain to (i) the treatment of the LCFV in the current year s
application and (ii) prescribed limits ith respect to the allowable rate change. •
LCFV exclusion: For rate applications in 2014 and later, ICBC may exclude some or all of the LCFV
from the current year s rate change in accordance with the C P, For 2013, ICBC as required to
exclude all the LCFV from the rate change. Any amounts so excluded are carried over to the next
year's requi emen s.
*• Rate change li its: The percentage a ount of the total rate change must be within +/-1.5
percentage points of the previous year's rate change, and must not be negative.
To the extent that a current year's application does not include n LCFV exclusion (i.e„ the full LCFV is
included in the rate) a d the MCT ratio is belo the C T level, ICBC is able to include a Capital Build
provision in order to move the capital position to ards the C P target. Any such inclusion is subject to
the rate change limitation mentioned above,
Confidential - ll Rig ts Reserve - EY 36

Observations and recommendation:
The cost of capital is influenced both by the level of capital investment and the elapsed time to reco er
the investment. At Dece ber 31,2013, ICBC was holding approximately 20% f its assets in com on
shares. The comparable figure for all federally regulated P&C companies Is 11%11 12 13'. The capital charge
for com on shares is significantly higher than for long term fixed debt. Therefore, reducing the level of
com pn share in estments and replacing these with fixed income investments would help to improve
the cost of capital. • •
In 2013, ICBC determined that the total actuarially required premium increase was 11.5%. Of that,
6.5% or $150m'was the result of LCFV losses and thus removed, resulting in a net rate change request
of 4.9%. The BCUC substantially accepte the proposal as filed ith only minor adjustments required,
eventually approving a 5.2% rate change. The requirements of the rate smoothing formula imply that
the 2014 rate change must be between 3.7% an 6.7 .
The overall objective of these requirements is to promote consistency and stability in. the annual Basic
Insurance rate changes. Losses which are relate to experience variance are partially or fully excluded
in the current year and smoothed in over time. Once the losses have been smoothed in, ICBC can
rebuild capital through the Capital Build pro ision.
EY notes that other provincial government wlth public auto insurers and similar risks have adopted
alternative approaches in order to achie e the same objectives:
Manitoba has established a Basic Insurance capital target of $172 , which as determined from
stress testing esults using 1 in 40 scenarios. The target represents just over 20%iz of net written
premium for Basic Insurance in 2013. At Feb 28,' 2014, the actual level,being held as $100M. A
1.0% rebuilding fee was added to the 2014 Basic Insurance Rates to offset the shortfall.
Saskatchewan has established a capital target of 100% MCT, with an annual surcharge or credit
designed to move capital from its cu rent position (based on a 12 mpnth rolling average) towards
the target by 20% of the difference. At Dec 31,2013, the 12 month rolling average was 64 , and
the surcharge in the 2014 rates as 3.7%. Previously, Saskatchewan used a range of 75% -150
CT, with surcharges and credits only if the CT ratio fell outside the range.
By comparison, ICBC s Basic Insurance.cgpital level appears to be materially in excess of these other
two provinces. The Basic Insurance capital ratio for year-end 2013 was 149%, with available capital =
$1.7 billion or 68% of annual premium and required capital = $1.15 billion. As such, EY would •
recommend reviewing the Capital Targets In consideration of:
*¦ Underlying ris s to ICBC s Basic insurance financial plan, such as increasing claims costs and
investment income volatility:
ICBC's status as a Crown Corporation with a cess to government support;
»¦ ICBC's mandate as the sole provider of basic auto insurance within the province;
impact of required capital level on rating plan;
ICBC's lack of risks outside of British olumbia; an
>¦ OSFI proposed rule changes to the MCT calculation13.
11 Combined rate for common and preferred shares. OSFI website, Financial Data for P&C companies
12 Manitoba Public Insurance ( PI) 2013/14 annual report, pg. 32, Rate Stabilization Reserve .
13 For example, OSFI is considerin several changes to the capital formula, including a doublin of the capital factor on common
shares fro 15% to 30% effective January 1,2015. Based oaths 2013 year end position, this component contributed over 25%
of the basic require ent ($322m/$i,i49m) and would therefore ha e a mater al impact on ICBC's solvency ratio.
Confidential - All Rights Reserved - EY . 37

VI. Summary
Providing long term rate stability is going to require ICBC working hard at all the elements within its
control, as well as government considering Its options in terms, of pro uct reform, ris rating models
and approach o capital management etc.
'.$M
30
Pfociifetnenf 'ffi
MHcsc control '65
Product reform potentia ••• v .- : 136 i 170
: r v' mr
ba cii surahce pfeiihium 2014 2i7o .
ihngs ¦* 8.8% 1
% savings iCBC Gontroi 2.4% 4.4% 3-4%
y s yji gi'gb 't control 1?:' 5.0%i 6.3%!•' 5.4 f
1, Product Reform potential includes a reduction in costs due to anticipated lower representation
rates. Changes are assumed to be within government control.
2. Pre ium estimate based on 2013 Basic Insurance, premium of $2,600 plus 5.2% rate increase in
2014.
Confidential - All Rights Reserved - EY

VII. 2012 Crown Report
Jn August 2012, .the government released the 2012 ICBC Crown Report Worklng-with a Deputy
Minis ers Com ittee, the'IAAS evaluated ICBC s governance, operating costs, co pensation, claims
mana ement, forecasting, investments, and information technology. The 2012 ICBC Crown Report
included 24 recommendations focused on better ali ning ICBC to its public sector manda e.
EY has reviewed ICBC's progress in regard to 2012 ICBC Cro n Report recommendations that are
relevant to this Claims Re iew. As previously referenced in this report, opportunities remain for ICBC to
pursue a ditional Procurement processes and cost effective, custo er ser ice oriented agreements.'
EY endorses the commitinent updates ICBC provided in their June 17th ICBC RESPONSE TO THE
GOVERN ENT REVIEW REPORT OF ICBC. ICBC has imple ented changes and taken appro riate steps
to close the gaps (19 of the 24)identified in the crown report. EY’s comments on the recom endations
relating to the Claims organization that are still.a work n pro ress are presented below:
Table: ICBC Progress on relevant ICBC Crown Report Recommendations
Recomm ndation j .EY comment

ICBC's fjpu f aW ' V\iiii.lfe;)€BC.has.taken;steps 1
im lenteptan p epajj ' .as p e irdusiy noted in this report there feitiath ultiple oppbrWmiti 'fpf; .. . J
f§trate y 'td;m6f : :.: : ;: .. • -irh roVe enti Please reference Claims Opera idnar Review recorh'mehda ibhs for
effecti ely anage bodily • specific details regarding claims strategies designed to reduce average Bl claims }
uinjuf faiios • severi ies : ... .' •
ICBC should revie the Continue t e growth of imhouse counsel ancl the inimization'of outside counsel
'' .externaji
utliizationbf,internal an
lega] fespufces firms. I BC has significantly reduced the number of external counsel pro iders
fro 150 to,85 ith positi e results. EY believes there are ad itional savings to
to diax;imize cost ; (l . be g ined front further reducing reliance bn e ternal counsel, aggre$siyely
. effect iyeness ;' :1 negotiatirig. feesian T elhcreasemuseipTparalegals,.,;.
, * i t* f ecom endation imple ented per ICBC 17 June response, . |
£ l .-: v ,}t fij m -,
ICBC'shopJ cdhtl mie: to . t ICBC has I plemented a revised corporate, Acquisition policy and procedtires
dev.el.op and enhance e .',)ncpr Q atlngr.ecom endations:frorri.;the.Gpvernment Review. .1
Rerfpr anceindlcatprs to •¦ICBC-fhas; reducedthe iifiber-of approve , law firms to etghtyrfive and there .
ensifi-e'itfcan
'apprpbri|tel.y t t .
monjtqrits • Yemafn|. ogi!'d dpo'n bhtihU.ing tq reduce the nu ber of.appro ed layyTl'nms %
. (j fedemTnagti -ifi'tlil lo er mainlah ).;:Cdhcurrent(y, ICBC is strivingifdvgrow their}
' procure ent. pVpdgss and ': int'efpaj af edUhse res.ources in or er to better manage legal' expenses and
•figgijhue to deyeiop dddifibnal. internal legal talent.
.•P tdri'to 20ll', ICBC id not hav any. c dntracts'rn place with structu ed settle ent
. ok er :Gurr ntly; ICBC as a con actuai relationship and a-go ernahce 4
¦ strdGt U e wj h;3 d si.gnated:brokers who havebeep etted a selecfed fpr use by;|
)C|C throug their new .proc rement process. The best financial oufcprhe for the ' j
.e'ustptn r;js, achieve : as alt 3 vendors have an o ortunity to provide a . |
coH petitl e bid for consideration. he benefit of his program is to the cu to er
and t eir counsel how can ave confidence t at they have achieve the best
possible str cture , settlement amdtirit. ICBC p;enefits via the improved custo er I
•service an lhat fact t at they have obtalri.e be Best value for the custo er. .
Gla s is an a ea tha has no benefited from a'-procurerhent process and glass
re dir is not currently a su ptirted’apprpacb': ICBC has in icated that t is is an
opportunity! area for more strate ic proqurenriepty-alon , with auto repair, towin ,
arid health services, . , . . I#
Confidential - All Rights Reser ed - HY 40

Appendix A: Forecasting review
Sensitivities
The following sensitivities are quoted from ICBC s 2013 Annual Report:
Se risitlwit Loss tosharehofder equity
ppfeesl* ,i 1
The follo ing sensiti ity test supported the annual rate filing:
The accounting mismatch can be illustrated by assuming a 0.25% decline in interest rates. Using
information from the 2013 rate filing, EY has estimated, that the corresponding chan e to the claims
iscount rate will be 0.16%. Details are sho n belo .
The expected net impact would be a gain to shareholder equity of $31M:

An OCI gain on fixed inco e assets of $60M ($238M x 0.25%/1.00%)
An income loss resulting from changes in the discount rate of $29M ($179M x 0.16%/1.0Q%)
The olatility with respect to equity investments can be illustrated by assu ing a 1.00% decline in
projected yield15. The impact would be a 0.23% decline in the discount rate resulting in a $41M loss to
income ($179M x 0.23 /1.00%), By comparison, a 1% drop in equity prices would result in a $33M loss
to OCI ($328M X 1.00 /10.0Q%).
Claim costs are estimated by projecting historical experience* with adjustments based on judgment.
For example, the frequency of bodily injury claims is assumed to decline moderately over time at a rate
equal to 50 of histo ical, experience. Assuming no decline would result in a $35M impact to income
(1.5%* $2.329B)
w Rate indication impact determined from a base premium of $2,329b

15 Base assumption for 2013 assumes a mo erate decline in frequency, equal to 50% of pre-2008 ex erience.
16 Yields on equity in estments are assumed to be long-ter , determined as the sum of a risk-free rate plus a arket equity risk
premium..

i
Estimate of impact on discount rate of a drop in yield curve Of 0 25%. Based on 2013 rate filing:
Mohey ar et Sm 1.02 % \iF 6.01% 1 1.02 0 01!

Canadian.hpnds ' : r j 62.40% l ' Y?7% j 1.23% ¦'• Y 1.72 . .. .07 '
;ivlqftgage yields y s pv,. •• -0.40%’'
Common shares . i Y 23.50% 'jY: 9.50% g 2. 3% | .,.9:50%

¦Reai est®te -i\ " l 4.10 7.51% -t 0.31%. %" 7.5$
L stiiii eitment {ees Y" 6.09% Ji ' :i ' . rj; Q.;.C>?% . j
gVIeld on basic equity 4.09% 3.93
8ftvagi<mwi
ijJ. i P. •.. •* -
KggsmiiiwM rmi
’ 6,01%.;
Money market*® 1.30% ' i r i *X02
Canad i
lY:r ’ 62. 6%' 1Y ® 1.23 l2 'Yi?97 ; 1.23% li
sMortglge' Wf ’ M 8.86fe i 4.52% 6;4 ' :'i
YCbEwhon shards . 23.50 ' 1 ' .9.5Q.%. j 2.23 i ;®. 8.50% ,,
i’Reali&state 4.10 L .51% r o.3i% ’ *' 7:51% 0.31%
. j ' Y i
Less: ¦ Invest ent fees , 6.09 i
lyield on Basic Equity , 4.09% ’' 3.86% ’
2013 Rate filing, exhibit A.0.1 ('OO'Os):
fReqQlSrimiDm
Projected premiutffat current faYe level '" ¦ ™ :$2:,328i'88 ; i
-$266,697
Co fidential - All Rights Reser ed - EY 42

Appendix B
The following recommendations related to areas under the irect control of ICBC and do not require
any government intervention.
Impact
Confidential - All Rights eserved - EY

43
pl§ij ;s; :?5 r r Broadin competitive procurement activities to tnclude idwer : •incfrased,customer :
• i
i ofiferdtionsi: • ¦ mainland auto repair and towing. In addition, consider change in ; satisfac ion and
policy.relat.ed fo windsh!e|d replacement to allow for i pair when reduction in claim
anhVAn iar ' ' ' "f
!. aRpVppriate; expense costs
wi
• i Continue eurnent efforts td grp its inside/staff cpunso -an EV ; •
! endorses their plans to continue this approach.
fciairris In or er to better understand the impact on clai ants and overall Increased visibility into
i Management . costs, we recommend that ICBC tracks the.original offer vs the e aluations and 3
.. ulti ate Rayout. it w uld also be very helpful to better understand , negotiations relative to |
what percentage of payout, on. average goes to the claimant vs the man s that are made *
lawyers. , '
¦
l Clai s Take a stronger stanc on borderline and suspicious clbijns Via I Potential Lea age !V -
. Management 1 targeted litigation, as needed. Consider enhance litigation - I, Reduction 184r 2'% , i
\ strategy pi otocols on clai s with inor vehicular amaigei, :
IForecasting ii Presejitalternative scenario using oderately adve se TBD

1 assumptions in order to illustrate range of results. i
Explore opportuni ies fo further reducing common shares as a
percentage of total invested.assets.backing liabili ies.
Explore opportunities to minimize temporary income mismatch s
between et inco e and OCI.

The following recommendations relate to progress on relevant ICBC Crown .Report recommendations
Recommendation EY co ment

The following recommendations related to areas which require Government involvement:
"product Product eform could be used to introduce specific limits on non- ]

Reform | economic damages for claimants with minor injuries, or to
| introduce de uctibles or thresholds to npn-eco|ipmid damage \
" t 1- '.;; r 'f awar s. Ot er provinces currently have e e oQmpre .pf' hese' . f
easures in place.
fife Benefit of product reform can be demonstrated; however,
implementing he.required changes is a complex and challen ing
process. Consideration would need to be given to, among ot ers,
the interests of all concerned sta eholders, the legal an
regulatory environment of automobile insurance within the
province, an the experience of o her JufiSdietions where such
.i®for ns. a'fe pJi |:b ded > .:i;„. .»y
v KSv .',, l ' - cr
¦ DrivenbaSed" A driver based risk rating would ink a drivePs record to their''' TBD
I.Ris R ting. insura ee pre iu . The current system is vehicle based ith
% surcharges for dfi e bet aviour.
f Mo in to a dri er based rating sys em ould both i centivlze safe
and responsible driving and replace ICBC s current two rating
systems ith one, Issues to be considered Include the I pact on all
s ,. stakehol ers; public policy li i ations (such as unin end d age or
gend r rating)', and the ability of ICBC to manage such a change.
,• Ot er provinces: th'public auto insurers appear tovhol lower i TBD 1 >

Management f levels of capital. While such comparisons are not absolute; it ould
: plan " 1 | suggest that a review of the curren Capital Management Plan 1
.j should be underta en.
r - «f uvY#1 1
1 i,5. ( We would re o mend that ICBC review their current capital policy
j and frame ork. Suc a review would include consideration of,
,* among others, ICBC's objectives of aintaining rate stability,
),s- - ICBC's status as a Crown Corporation and ICBC's status as the sole
s,n/?A >f f t provi er of Basic Auto insurance ithin the pro ince
1. An Impact of To be Determined (TBD) In icates that uantifying the impact of the

recom endation annot be determined with the curren available information.
Confidential - A Rights Reser ed EY 46

Appendix C - ICBC procurement spend
Major Claims Supplier Spend Groups
Red no procurement process

Blue partial procurement process
Green procurement process
1
2011 2012 •2013'
s ¦ J Supplier Supplier . Supplier Supplier Supplier Supplier
t ' .Business Type Count Spend Count , Spend Count ' Spend
MD Collision Repair Shops 677 $485,215,030 •658 $491,368,156 639 $504,754,518
MD EXPRESS REPAIR SHOP 443 $454,498,242 463 $467,040,269 469 $484,928,528
MD INDEPENDENT BODY SHOPS 218 $26,666,358 176 $20,908,471 154 $16,642,050
MD ACCREDITED SHOP 16 $4,050,430 19 $3,419,416 16. . $3,183,941
MD Glass Sho s 236 $44,383,259 239 $47,53 ,713 235 . $48,475,347
MD EXPRESS GLASS SHOP 182 $41,684,845 189 $45,377, 92 1 2 $46,506,248
MD GLASS REPAIR SHOPS 54 $2,698,414 50 $2,161,721 43 $1,969,099
D Commercial Repair Shops 95 $20,137,949 87 $22,7.69,568 84 $24,814, 06
MD HEAVY EQUIPMENT- 35 $9,141,841 31 $10,533,140 31 $11,114,883
I DEPENDENT
MD HEAVY EQUIPMENT- 41 $8,964,667 38 $9,762,865 35 $10,702,742
DEALE
MD HEAVY EQUIPMENT- . 19 $2,031,440 18 $2,473,563 18 $2,997,281
SPECIALTY
D Towing Co panies 200 $21,085,642 199 $20,560,323 203 • .$21,890,537
D Rental Companies 56 $16,001,519 50 $16,370,049 47. $17,106,34
Bl Lawyers 116 $127,421,092 110 $123,502,550 ' 112 $128,967,134
Bl Physiotherapists 1,322 ' $14,242,427 1,365 $15,819,053 1,457 $17,809,246
Bl Chiropractors . 963 $5,920,31 958 . $6,975,630 955 $7,55 ,851
Bl Lum -Su Pro ram Chiros 442 $5,035,359 477 $6,142,296 504 $6,664,035
Bl SP Chiros 521 $884, 60 81 $833,334 451 $895,816
Bl Private Investigators 68 $5,237,0 3 6 $5,758,827 47 $6,136,930
Bl Independent Adjusters' 62 ' $5,216,815 53 $5,170,913 41 5,240,98

t
• :
!
I

ICBC Claims Management Review

Uploaded by

Document Information

Copyright

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

ICBC Claims Management Review

Uploaded by

Copyright:

i

II. Scope and approach 12

III. Understanding the drivers of rates .......14

IV. Claims cost review - Areas within ICBC Control : 15

V. Claims cost review - Areas requiring government involvement 30

VI. Summary .............38

VII. 2012 Crown Report 40

Confidential - All Rights eserved - EY

Appendix B -Recommendations summary..... ......43

Appendix C - ICBC procurement spend 47

** Appendix B is not entirely removed, only any recommendations

Confidential - All Rights eser ed - EY

jirep OTfe losses/based

'[J . J:,, ¦' l iriifriLir Ca ital:Test, . T. ':.' ' • :•¦¦ ¦ • ; ¦

Confidential - All Rights Reserved - EY 1

Confidential - All Rights Reserved - EY

Insurance rate levers

Confidential - All Rights Reserved - EY 3

Confidential - All R ghts Reserved - EY 4

Commissions, salaries Interest and dividends Mggld assets (cash or

Confidential - All Rights Reserved - EY S

I. Claims costs findings and recommend tions - Areas within ICBC

1. Employee Engagement and Customer Satisfaction

2. Claims management process

Confidential - All Rights Reserved - EY 6

» Consider tryi g more

3. Claim level reserve strategy

Confidential - All Rights Reserved - EY 7

ICBC currently doesn't have a for al Quality Assurance (QA) program

Confidential - A Rights Reserved - EY 8

II. Claims costs findings.and recommendations - Areas that would

Confidential - All Rights eserved - EY • 9

2. Transition to driver-base risk rating

Confidential - All Rights Reser ed - EY 10

Major savings opportunities2

Sav ngs Opportunities

Confidential - All Rights eserve?) - EY 11

1. Assessment of claims operations

Accident Year 2014 5 claims

Closing Year 2014 40 claims

Confidential - All Rights Reserved - EY 12

Confidential - All Rights Reserved - EY 13

Insurance rate value drivers an influencers

Confidential - All Rights Reserved - EY 14

Confidential - All Rights Reserved - EV 15

Confidential - All Rights Reserved -'EY 16

Ultimate Bl Incurred Severity

Confidential - All Rights Reserved -EY 17

The review consisted of:

4.2.1 Claim diagnostic file review

What is claim leakage?

How as ICBC's leaka e determined?

Confidential - All Rights Reserved - EY IP

4. .2 Claims leakage analysis

.2.3 Bodily injury claim value chain .

Confidential - All Rights eserved - EY 19

Notice and assignment root causes

Initial investigation root causes

A failure to establish a medical profije concerning prior injuries/accidents, medical treatment,

4.2.4 Claim mitigation

Confidential - All Rights Reserved - EY HO

4.2.5 Claim strategy

4.2.6 Claim resolution

Settlement preparation and documentation consistently lacked:

Specific, fact-base valuation range.

Consistent negotiation plan documentation

Consistent application of ineffective negotiation practices, such as: