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Mr. Donnie Wing. CASenior Vice PresidentInsurance, Marketing and UndenvritingInsmance Corporation of British ColumbiaPO Box 2606349 West Georgia StreetVancouver. B.C. V7B 3W8

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December 19. 2006

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LETTER No. L-82-06

:,>IXfH FLCOR. 9l)fJHOWE :'>TREET, BOX ".<liV.-\.'-'COUYER, Be. ('AN.-iliA \'62 ",,-,

TELEPHONE \6fA\ 6i"fi'J-~7(J()Be TOLL FREE . 1.~i1')-6o"'I-'~5

FAC:,>n-..lILE \604'> 660·11 Ii:

Log No. 16395.16780.16564

Re: Yom Lettcr of Octobcr II, 2006 and the Follow-Up Filing to theCommission's Decision of July 13,2006 (""OctobcrFiling") and.

Your Letter of Novcmber 10, 2006 and the Confidential Filing of theOptional and Total Corporation Capital Management Plans ("November Filing")

This letter responds to the above filings made by the Insurance Corporation of British Columbia ('ICOC" or the"Corporation") pursuant to Order No. G-86-06 and the Decision of July 13, 2006 issued concwTently with theOrder ('"the Decision").

By lettcr datcd Septcmber 20, 2006. ICBC advised thc Commission that it intends to file an application dealingwith both the revenue requiremcnt and ratc design issues in the carly spring of 2007. Ce11aindirections in thisletter. anticipate thesc futme filings.

The Commission notes that it received a letter from thc BC Old Agc Pensioncrs Organization et ai, ("BCOAPO'')dated October 25, 2006, which inquires if there will be any process whereby Intervcnors in the 2006 RevenueRequirements Proceeding ,,,ill have the opportunity to comment on the filing made under cover of yom letter ofOctober I L 2006. No such process will be established at this time. It is expected that Inten'enors will have theopportunity to address an) outstanding issues during the course of the future proceedings anticipated to take placein 2007.

. .. 12

A-20

Chanter 1 - IT Canital Spending Filing Framework

In the Decision the following direction was made:

2 LETTER No. L-82-06

"Thc Commission Pancl finds ICBC's capital spending of $30 million with approximately halfallocatcd forlT spending is significant and may have a material impact on rates especially formulti-year capital projects. Thc Commission Panel rcquests ICBC to provide detail on projcctsof $500,000 or greater along with an arumal capital expendittu'e plan for rcview and commcntby the Commission prior to these projects being undertaken:' (Decision. p, 42)

In brief. ICBC recommends a two stage filing process that would encompass individual project filings supportcdby an annual IT capital plan. The Commission is gcnerally supportivc of thc methodology proposed althoughthcre are concems in some areas.

It is not clear in the filcd matcrial what the future planning time horizon of the annual IT capital plan might bc.An IT capital plan that goes out only one year ,vOtud be clearly insufficient. bOtl1for regulatory and businesspurposcs. The Commission assumes the IT capital plan would look out several years at a minimum (perhaps 3-5ycars) and would bc in the natmc of an annual rolling forecast.

In respcct of thc suggested individual project review, the Commission is not persuaded that a ..trigger" of 0.1percen t of the prcvious year's \vritten premium. will be sufficient to bring wi u1in Commission scrutiny. significantprojccts. (The Commission had proposed a rcporting trigger of $500,000.) Thc Commission understands that theproposed criteria for rcview (as listed on page 1-4 of the October Filing) are conditional uP9n two thresholds thatare to be met. That is, in order for a project to cross U1eproposed thrcshold. it would havc to mect both thc TotalPr~jcct Dollar Threshold and ule Risk Threshold.

The Commission still belicves that a ..trigger" amount of $500.000 is reasonable but in a futmc proceeding will bcopen to arguments Ulat would place thc trigger at a higher levcl. In any cvent. in thc contcxt of a comprehensivcfiling, it should be rcadily apparent which projccts would require nanutive support along U1Clines of what is sctout in Scction B.3 of U1efiled material. Erring on the side of complete explanations by lCBC ,vill avoid time-consuming and complex lnfonnation Requests.

The Commission agrees that any reporting required of lCse should not unduly delay any project. Once a matureIT capital planning process is in place, it may be sufficicnt for Commission plU-poses to revie,,,' the annual filingand dispensc with individual project revicw except in exceptional circumstances.

The Commission is of the view that the revicw proccss for IT Capital Expcnditurcs should be re-cxamincd in thccontext of thc 200i Revcnuc Requirement application. ICBC notcs (October Filing. p. 1-7) that the Corporationwill be in u position to providc an update on its IT capital planning framework at that time. In the interim, ICBCis directed to rcport on fT capital spcnding on an ad hoc basis. at a $500.nOn threshold. with no cxclusion for risk.and as othcrwise outlincd in its filcd mateliaL

Chapter 2 -- ICBC's Road Safet\' Action Plan

In the Dccision the following direction was made:

3 LETTER No. L-82-06

"In futurc filings the Commission will expect to see the use of clear funding tests such as zero-based budgeting typc methodolog)' employcd for establishing the budget for RSLM programs.Furthcr, all projccts should be targctcd to produce measurable claims cost reduction outcomcs.and pcriodic or post-project evaluation should bc canicd out in a manncr appropriatc to thcprogram:'

..... The Commission Panel has determined that if a program does not havc mcasurablc outcomctargcts, or is not bcing managed by ICBC to ensure its cffectivcness in terms of claims costsavings outcomes, it should not be in RSLM" (Dccision. p. 56).

"Thc Commission dirccts ICBC to file a comprchensive Road Safety action plan, includingprogram objectives. within 90 days of this Decision and to file progress rcp0l1s on theimplcmcntation of the plan on a quartcrly basis thercafter. The filing is to show how theseprograms will bc planned and monitored effcctivcly by ICBC in order to achieve the expcctedrcsults" (Dccision, p, (9).

The filed material did not mcct the expectations oflhe Commission and in its vicw, did not satisfy thc direction inthc Decision nor address earlier concerns cxpresscd in the January 19, 2005 Decision.

The Commission notes that there are significant costs for Road Safe!.)' programs (in the ordcr of $46.6 million for2005 and $47.3 million in 20(6).

The Commission was secking specific asscssmcnt data on Road Safe!.)' programs and projccts before programimplementation. interim evaluations as to progress and likelihood of mecting targets, ,111dafter the fact analy sis,The Commission was expecting to see detailed assessment methodology supported by empiricul data whereverpossible.

The Commission has similar assessment issues \vith respect to expenditures by IC BC in the area of enhanced lawcnforcement. Just as in thc evaluation of road safety projccts/programs. ICBC should present dctailed asscssmentmethodology supported by cmpirical data whercvcr possible.

TIle Commission is cognizant of the fact that Special Direction IC2 rcquires thc Commission to include costs forroad safc!.)· and enhanced law enforccment in rates for Basic Insurance. However. the Commission must also besutisfied that tllat Basic Insurance is being made available in a manner that it considers are in all rcspectsadequatc, efficicnt. just and reasonable.

In terms of next steps. tlle Commission \vill add the issues associated with the Road Safcty Action Plan to theissucs list for thc 2007 Rcvenuc Rcquirements procceding and will look in dCptll at the rationale and asscssmentmethodology employed by ICBC to justify cxpcnditures in this area. Thc Commission expccts that thc ICBCfiling for road safety and cnhanccd law enforcemcnt will be morc detailed along the lines suggested above andwill detail the dircct bencfits that will aCCnlC to Basic Insurance policy holders.

j-,.

4 LETTER No. L-82-06

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Chanter 3 -- Proposal for Revisinl! the Owner's Cel1ificate to Disclose Non-Insurance Services Costs

In the Decision the following direction was made:

''The Commission Panel has determined that grcater transparency in the detailed cost componentsof THE TOTAL AMOUNT OWED (as that term is cmployed on the "Owner's CCI1ificate ofInsurancc and Vehicle Liccnce") will serve the public intercst and provide the policyholder with agreatcr appreciation of thc non-insurance serviccs provided through thc Crown corporation, andthe associatcd costs. This will providc a greater understanding of the true cost of Basic Insurancc.

Thc Commission Panel directs that ICBC report back to the Commission within a period of90days from the date of this decision, with a suggested rcviscd format for the Owncr's Ccrtificatcthat w'ould sct out all of the non-insurancc costs no\v includcd in thc Basic Insurancc prcmiumincluding. without limitation. such items as:

• The contribution madc to government programs under any memoranda:• Road Safety and Loss Management programs:• Enhanced law enforcemcnt conttibutions:• Premium Tax amounts:'

(Decision, p. 75)

In tcstimony during thc 2006 Rcvenue Rcquircmcnt procccding, officials of ICBC werc vcry clcar that thccxisting billing systcms at ICBC werc capable of providing a detailcd line by linc statemcnt of the sub-categoriesof chargcs that makc up thc "Total Amount Owcd" by cach policyholder (Vol. 6, pp. 1245, 1246). The dircctionto ICBC to suggest thc fOlmat for presenting such data anticipated showing a dollar amount for each of thevarious costs that werc included in Total Amount Owed.

Instead, ICBC in its filed matclial has suggested presenting this infOtmation expressed as a percentage per dollarof premium. No rcason was advanced for not presenting the exact dollar amounts that arc payable by eachpolicyholder othcr than to say that it \vould bc cost effcctivc and charges. expressed as a percentage, would bc thesamc for all policyholders and hence could be printed on the standard forms uscd. No billing entry would have tobe gcncratcd. No estimatc is given of thc assumed higher costs that would be incuned if thc cxact dollar amountswcre prescntcd in the invoicc along the lines tlIat werc anticipated during thc procecding.

ICBC is dircctcd to design and implement a rcviscd fOlmat for the Owner's Certificate showing the spccificpolicy dollar amounts for each "non-insurance" item included in THE TOTAL AMOUNT OWED as wasanticipatcd in the July 13. 2006 Decision. The Commission agrees that the costs of road safety and cnhanccd lawcnforcement may bc combincd but thc nvo subjects or heads of cost causality must bc shown in the identiiYingdcscriptor. Also. the Commission agrees that --drh'er and vehicle licensing, vehicle registration, and oillcrserviccs" may bc used to include paymcnts made to government under memoranda. Premium tax is to be shownas a separate dollar amount. ICBC is to inform the Commission of the expected implementation date,

A morc fundamental policy issue is raiscd by this changc to morc detailed billing: Should individual policyholder"non-insurancc" costs be based on the variable and drivcr-specific cost of the "base amounC for Basic Insuranceor in the altcrnative. be flat-ratcd for all vehicle types and dJivcrs',l ICBC is directcd to consider this issue and to

".t, submit its views as part of the next Revenue Requiremcnt/Rate Design proceedings.,~:~.;:.

I'"

() LETTER No. L-82-06

Thc material was filcd on a confidcntial basis bccausc it discusses matters relatcd to ICBC's Optional busincsslinc.

Thc Commission accepts the November 10 confidential filing of the Capital Managcment Plan for the TotalCorporation and the Optional Business, and looks forward to receiving and reviewing planncd initiatives to closeany gaps bet\vcen calculated and managcment targets for MeT for thc Total Corporation, Optional and Basicbusincss componcnts ofICBC. In its October 1I filing (page 4-4, paragraph 14), ICBC states ..... it is notpractical to detcrmine Basic insurance MCT or Optional insurance MCT on a quarterly basis as using interim orcstimated infOlmation would not provide 'useful or reliable data'''. The Commission wishcs to have a bettcrunderstanding of why ICBC feels that quat1erly MCT estimates would not be "useful or reliable" as amanagement tool to assist in timely assessment of changcs in rate indications and planning initiatives to ensurecompliance with MCT regulatory rcquirements and management targets.

Yours tml)'.

Original signed by

Robclt J. PcllattDC/cms

cc: Ms. Leigha WOlthThe British Columbia Public Intcrest Advocacy Centre

Registered Intcrvcnors ICBC 200GRR

ICBC Cor Opth)l1al & Total Corp Capital Mgmnt Plan:;