Chapter 10 Automobile Insurance Ratemaking Narrative/Model Questions

Major Classes: 

a) Private passenger (pleasure and business use)

b) Commercial vehicles (trucks and delivery autos)

c) Public automobiles (buses and Taxicabs) 

d) Recreational vehicles (motorcycles, snowmobiles, ATVs) 

e) Garage Risks( road hazard and dealership risks 

f) Non-owned automobiles

CLEAR:  

- Canadian Loss Experience Automobile Rating(CLEAR) system

- Insurers use it to set rates for private passenger automobiles.

- Under CLEAR, the premium for the physical damage insurance is based on the likelihood of vehicles being involved in claims

o And what it will typically cost to settle each claim.

- Under the CLEAR system, rate groups are now calculated using data recorded by the Vehicle Information Center of Canada(VICC)

o On the cost of claims relative to such factors as wheelbase,

o Body style,

o Weight-to-horsepower ratio,

o Price, and

o The theft record of individual models

a) Components of a Rate  

a) Pure Premium – The amount required to pay only the anticipated losses  

b) Expense Loading

o This is added to the pure premium and includes the following:

o Acquisition costs – commission and cost of the insurer’s sales structure

o Processing and servicing costs – administration

o Taxes – federal, provincial, and municipal

o Contingencies – catastrophes, extra losses, and reinsurance costs

o Profit

a) Components of Loss Costs

o Paid losses

o Outstanding losses

o Incurred but not reported losses (IBNR)

- All private automobile insurers who write business in Canada must record and file automobile experience data.

- This is a requirement of the Automobile Statistical Plans prescribed by the Superintendents of Insurance.

- Information is used to provide industry-wide statistics.

- These statistics are used for analysis.

- This work is undertaken by the Insurance Bureau of Canada (IBC.)

- The cost is shared among the insurers,

- Except in provinces where basic automobile insurance is provided by the government.

- IBC (Insurance Bureau of Canada) compiles theinformation.

- The cost is at the insurer’s cost.

- In Quebec, the Groupment des assureurs performs this function.

- The results of the analysis are published annually in the Green Book.

- In Quebec, the results are published in the Grey Book.

- Exhibits show a 5 year history of the following:

o Private passenger automobiles

o Farmers’ private passenger automobiles

o Commercial automobiles

o Snow vehicles

o Motorcycles

o Inter-urban trucks

o Public classes

o Garages

o Some miscellaneous classes 

- Data is exhibited per policy year and accident year.

- Policy year

o All policies with policy-effective dates within the year are grouped together.

o All claims arising from these policies are taken into account, regardless of when they occur.

o Claims that are reported late are included so that premiums are matched with losses.

o Information gives the actuary a starting point from which to project future loss costs and to develop premiums.

- Accident Year

• o All losses in a given year, regardless of the
• policy years to which they are attributable, are grouped together.

o Loss costs demonstrated are the most recent indicators of what the future loss costs may be.

o Ex: if a policy is sold with an effective date of December 1, 2010 and a claim occurs in January 2011, the claim is reported as a 2011 claim for actuary purposes.

- Both policy year and an accident year must be distinguished from calendar year.

Rating Vehicles

- In Manitoba premiums for automobiles are determined by 5 rating factors:

o Territory

o Use

o Vehicle

o Driving Record

o Commuter 


Territory 

- Manitoba is divided into 4 territories

- Statistically, the chances of being involved in an accident are different, depending on where the insured (Katie) lives

- Generally, the highest rates are in the Winnipeg territory, where more traffic leads to greater chance of accidents

- Katie lives in Selkirk (Territory 2) which will affect her premium

- Use

- Insurance rates differ depending on what the vehicle is used for

- Katie will be using her vehicle for all purpose passenger vehicle as she will be using it most days to drive to school and work which may exposes her to a higher chance of being involved in a motor vehicle accident 

The Vehicle

- The make

o Model

o And year of the insured vehicle (Katie’s) all affect the insurance rate

- Some vehicles withstand collisions better than others

- Vehicle characteristics, such as engine size,

o Passenger protection features such as air bags,

o And repair costs all affect the price of insurance

- Susceptibility to theft is another important factor

- Cars and Vans: MPI uses the Canadian Loss Experience Automobile Rating(CLEAR) system,

o Developed by the Vehicle Information Center of Canada (VICC) to group cars and vans

- The VICC collects information about vehicles involved in losses and the cost of claims from these losses

- Cars and vans with similar claim costs and claim risks go into the same rating groups

- The higher the rating group, the higher the premium

- The premium will also depend on how high Katie’s 2005 2 door Toyota Corolla hatchback is rated by CLEAR and VICC

Driving Record

- The best Autopac rates are for drivers who have maintained a safe drive record for a number of years

- Katie has 2 speeding infractions on her driving record which will affect her  premium 

Commuter 

- People who live in Territory 2(Selkirk) and drive into Territory 1(Winnipeg) to go to or from,

o Or part way to or form,

o Work or school pay premiums that reflect the higher risk

- These vehicles are insured at the “commuter” rate which is higher than the Territory 2 rate

- Katie is commuting from Selkirk (Territory 2) to Winnipeg (Territory 1) which will be a factor that affects her premium.