FSCO Private Auto

  1. Types of processes for approval and authorization of rates and risk classification:
    • prior approval: can be subject to simplified guidelines if satisfies Superintendent criteria; else subject to major filing requirement
    • file and use: can be subject to major filing requirement for initial application or Superintendent criteria; else subject to the minor requirements in all other cases
  2. Required Rates and Risk Classification System Elements
    • optional AB for the five packaged coverages:
    •    increased income replacement benefit to $600/$800/$1,000 per wk
    •    increased death and funeral benefit
    •    increased medical, rehabilitation, and attendant care benefit
    •    increased caregiver and dependent care benefit
    •    indexation benefit
    • $300 deductible for COMP, all perils, specified perils, DC-PD
    • $500 deductible for collision or upset coverage
    • retiree’s discount (only PPA) = % of AB rate (no income / professional occupation, not employed for 26 / last 52 weeks) and 65+ years old (or receiving CPP or QPP pension)
  3. Approaches to ratemaking:
    • pure premium
    • loss ratio
  4. Conditions to rely on external data
    • source of the data must be identified
    • applicability of the data must be explained
  5. Requirements for Losses
    • if considered together with ALAE, should be noted in loss section
    • type of loss data (accident year, policy year) should be described
    • if use another basis than accident year or policy year, must justify
    • experience period and respective valuation dates should also be noted
    • direct loss should not be reduced by RSP cession, and should not include residual market
    • data must be developed to an ultimate level using appropriate loss development procedure
    • loss trend approach should be disclosed; use insurers data for each category and coverage
  6. Requirements for Premium
    • when using loss ratio approach, adjust earned premium to present rates
    • premium trend for coverages with inflation-sensitive exposure, changing mix of exposure
    • variable expense trend for expenses that vary with exposure rather than premium volume
    • any other adjustment to premium data should be disclosed, documented and supported
  7. Group Membership
    • group of employees, or retired employees, or the same employer
    • group of members of a credit union satisfying the conditions
    • 24+ months old trade union, professional / occupational / alumni association, or not-for-profit entity, except those formed solely for purchasing or providing goods and services
  8. Discounts for groups:
    • can be based on lower loss costs due to:
    •    risk management program
    •    favourable loss experience
    •    identifiable characteristics resulting in lower exposure
    • under regulation 664, insurers are prohibited from using existence of medical, surgical, dental, hospitalization, income continuation benefit or sick leave plans in risk classification
  9. Justification for non-group discounts:
    • lower expense due to lower acquisition costs
    • lower administrative costs
    • lower loss costs
  10. 4 sections to be included for all rate changes
    • algorithm
    • base rates
    • differentials
    • discounts and surcharges
  11. Other sections:
    • calculation of final rates
    • calculation of rate level change
    • dislocation and capping premium increases (rate capping)
  12. Circumstances under which positive capping is permitted to minimize rate dislocation
    • mergers and acquisitions: develop a plan to phase out positive capping within 2 years
    • extensive risk classification system changes: e.g. more than 20% customers with more than 20% change); period is 2 years of less
    • no new positive capping will be approved until previous capping has been exhausted
  13. Requirements for capping:
    • provide the uncapped overall proposed rate level change along with capped
    • track all policies where positive capping has been applied and the reason
    • track all policies where capping hasn’t been applied where premium increase exceeds cap
    • capped overall rate level change will be published for quarterly approvals
  14. Capping will not be permitted under those circumstances:
    • base rate change only
    • broker portfolio transfers or acquisitions
    • premium decreases (negative capping)
  15. Requirements for ROE
    • select target ROE and disclose payout pattern on losses and expenses
    • if proposed rate are different from those indicated by target ROE, disclose estimate of expected ROE and expected UW margin underlying the proposed rates
  16. Certificate of the actuary is needed for
    • filing that results in a rate level change
    • filings for a category of automobile insurance previously not written by insurer
  17. Certificate of the actuary must certify that
    • data is reliable and sufficient for the determination of the indicated rate change
    • the indicated rate changes have been calculated in accordance with AAP
  18. Investment income results from
    • investment of policyholder supplied funds
    • investment of shareholder supplied funds
    • includes realized capital gain
    • net of investment expenses
Card Set
FSCO Private Auto