6/25/2010 Enhanced and Expanded Claims Initiatives • Improved Analytics – New claims reporting and analysis function – New high-level reports – Additional detail in reports 26 Loss Cost Update Basic Loss Cost $700 $650 ‐ 5.2 ppt $600 $550 $500 $450 $400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Accident Year Actual (2007 Application) Current Application PY 2007 Projection (2007 Application) PY 2007 Projection (Current Application) 27 14
6/25/2010 Enhanced and Expanded Claims Initiatives • Actuarial recognition of impact – Lower claims cost estimates – Open claims from earlier years also affected – Drives lower BI severity trend 28 Claims Costs – by Coverage • Bodily Injury (BI) • Property Damage (PD) • Medical/ Rehabilitation (MR) • Weekly Benefits (WB) W kl B fit (WB) 29 15
6/25/2010 Loss Cost Update Bodily Injury Basic Frequency 2.50% 2 00% 2.00% 1.50% 1.00% 0.50% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 30 Loss Cost Update Bodily Injury Basic Severity $35 000 $30 000 $25 000 $20 000 $15 000 $10 000 $5 000 $5 000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) Modelled (Current Application) 31 16
6/25/2010 Loss Cost Update Property Damage Basic Frequency 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 32 Loss Cost Update Property Damage Basic Severity $2 000 $1 800 $1 600 $1 600 $1 400 $1 200 $1 000 $800 $600 $400 $200 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 33 17
6/25/2010 Loss Cost Update Medical/Rehabilitation Frequency 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0 50% 0.50% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 34 Loss Cost Update Medical/Rehabilitation Severity $1 800 $1 600 $1 400 $1 200 $1 000 $800 $600 $400 $200 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 35 18
6/25/2010 Accident Benefits Severity Change • IBC MOI # 3 – [ W] hy the indicated rate level change for Third Party Liability is -0.4% while the rate level change P t Li bilit i 0 4% hil th t l l h for Part 7's is -18.8% • Significant change in AB severities – Observed claims emergence noticeably lower than expected amounts – Accident Benefits payments have a longer tail , Accident Benefits payments have a longer “tail” and therefore more uncertainty than other coverages – Serious injuries have been declining relative to minor injuries 36 Loss Cost Update Weekly Benefits Frequency 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 37 19
6/25/2010 Loss Cost Update Weekly Benefits Severity $6 000 $5 000 $4 000 $3 000 $2 000 $1 000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Accident Year Actual (2007 Application) PY 2007 Projection (2007 Application) Modelled (2007 Application) Actual (Current Application) PY 2010 Projection (Current Application) Modelled (Current Application) 38 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Ch Change in Operating Expenses i O ti E + 1 5 + 1.5 ppt t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 39 20
6/25/2010 Value of Personal/ Commercial Segmentation • All explanatory variables are significant at the 95% level, with two exceptions: , p – GDP growth in the Personal BI frequency and Personal MR frequency models – The GDP growth variable is included due to its logical connection as an important explanatory factor for the observed effects of the economic recession • Value of Personal/ Commercial separation and • Value of Personal/ Commercial separation and back-testing will be illustrated using BI frequency model – Selected frequencies would be higher if the latest years were excluded. 40 Loss Trending BI Basic Frequency ‐ Personal and Commercial 2.80% 2.60% 2.40% 2.20% 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Accident Year Commercial Actual Personal Actual Commercial Modeled (Current Application) Personal Modeled (Current Application) Commercial Trend line prior to recession Personal Trend line prior to recession Commercial PY 2010 Projection Personal PY 2010 Projection 41 21
6/25/2010 Trend Analysis • Models are based on methods which are inherently unbiased • Models and assumptions have been tested, and diagnostic information has been provided (see Chapter 3, Exhibit D.0) • Residual plots for each model in Exhibit D 0 • Residual plots for each model in Exhibit D.0 also demonstrate the lack of bias 42 Loss Cost Update and Trend Basic Loss Cost $700 $650 ‐ 5.2 ppt $600 $550 $500 $450 $450 $400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Accident Year Actual (2007 Application) Current Application PY 2007 Projection (2007 Application) PY 2007 Projection (Current Application) 43 22
6/25/2010 Loss Cost Update and Trend Basic Loss Cost $700 $650 +2.5 ppt pp ‐ 5.2 ppt -0.8 ppt PY 2010 +1.7ppt $600 $550 $500 $450 $400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Accident Year Actual (2007 Application) Current Application PY 2007 Projection (2007 Application) PY 2007 Projection (Current Application) 44 Trend Model Walkthrough • Exhibit D.0 • ICBC 2010 Revenue Requirements Application Exhibit D.0.pdf 45 23
6/25/2010 Loss Cost Update and Trend Basic Loss Cost $700 $650 +2.5 ppt pp ‐ 5.2 ppt -0.8 ppt PY 2010 +1.7ppt $600 $550 $500 $450 $400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Accident Year Actual (2007 Application) Current Application PY 2007 Projection (2007 Application) PY 2007 Projection (Current Application) 46 Intersection Safety Camera Savings • Crashes per site is measured (existing 101 and new 80) 101 and new 80) • Cost per crash forecast is actuarially determined from claims data (increasing at 3.3% per annum) • Frequency reduction estimates based on • Frequency reduction estimates based on previous studies – intervention at new site has larger impact which tapers off with time BCUC MOI # 3 47 24
6/25/2010 Harmonized Sales Tax • Repair and Loss of Use – Under the net-of-GST/ HST method for making Under the net of GST/ HST method for making indemnification payments, HST registrants will be required to pay 12% of their car repair to the extent they can claim the amount paid as input tax credit. This is up from 5% under GST. An average of 13% of ICBC customers are registrants. • Care and Vocational Training – It is expected that some services provided under this category are taxable, but not all. Those that are taxable will increase from 5% GST to 12% HST. BCUC MOI # 4 48 Harmonized Sales Tax • Passenger Vehicle Rental Tax – Will be repealed effective July 1, 2010. Will be repealed effective July 1, 2010. • Legal Fees – ICBC currently pays 7% PST on legal fees, and will save 7% when HST comes into effect because this is an administrative expense and therefore eligible for a rebate. • Legal Disbursements l i b – Where ICBC is currently charged 7% PST on certain charges for legal disbursements, a 7% savings is expected because this is an administrative expense and therefore eligible for a rebate. 49 25
6/25/2010 Harmonized Sales Tax • Third Party Disbursements – It is expected that a portion of these costs will rise given It is expected that a portion of these costs will rise given that any component that is services would be taxed at 12% under HST, as compared to 5% under GST. • Total Loss for Registrants – ICBC currently pays 7% cash, plus a 5% allowance depending on the registrant’s ability to claim an input tax credit. Under HST this will change to a single 12% cash amount depending on the registrant’s ability to claim an input tax credit. Where the registrant can claim an input tax credit, this will result in a savings to ICBC of 7% . 50 Harmonized Sales Tax • Total Loss for non-registrants – ICBC currently pays a tax allowance of 7% cash, plus a 5% GST voucher to non-registrants on their total losses GST voucher to non registrants on their total losses. Because many customers would buy a private vehicle as a replacement, the 5% voucher was often not tendered. Since the private sale of vehicles will now be taxed at the same rate as a dealer purchase, ICBC will be paying 12% cash, and the voucher system will no longer be required. • Input Tax Credit on sales of salvage – ICBC is permitted to retain the GST/ HST on the sale of salvage where the customer was not a registrant – this is called a notional input tax credit. These sales account for 80% of vehicles sold as salvage, and the amount retained will rise from 5% under the GST to 12% under the HST. 51 26
6/25/2010 ICBC Costs and Savings Recognition Criteria “Where it is considered that there is a reasonable probability that a future cost (or savings) will be realized that affects the policy year, that future cost (or savings) th t ff t th li th t f t t ( i ) should be included in the rate level analysis” (2005 Filing) Must meet all 3 criteria 1. Demonstrated causal relationship between program and costs (or savings) ( g ) 2. Sufficient and accurate data 3. Future costs (or savings) are probable 52 Explicit Recognition of Claims Savings Program / Factors Policy Year Savings booked Intersection Safety Camera 2010 $10m HST on Claims Costs 2010 $7m Customer Service Centre (CSC) – now referred as 2007 $3m Centralized Claims Injury Centre CCIC Enhanced Graduated Licensing Program g g 2007 $ $36m (GLPe and GLPt) 53 27
6/25/2010 Recognition Through Trends • Examples – Road Safety MOU – Road Improvement Projects – Sea to Sky Highway is a specific example – Infrastructure projects (e.g. Canada Line, Port Mann bridge, etc.) – DRP Penalties – Claims initiatives (once they are established) • Important not to double count 54 Appropriate to Exclude at This Time Program Program Rationale Rationale Increased costs from Olympics (2009 PY) Insufficient data Distracted driving campaign (2010 PY) Mixed results from other jurisdictions Tougher legislation for impaired driving (late New program – 2010) insufficient data 55 28
6/25/2010 Break 56 Session 2 • Trend in Average Premium • Change in Investment Income Change in Investment Income • Change in Capital Provisions • Other Rate Impacts • Change in Operating Expenses • Basic Capital Levels • Basic Capital Levels – historical and outlook historical and outlook • Wrap Up 57 29
6/25/2010 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Change in Operating Expenses Ch i O ti E + 1.5 ppt + 1 5 t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 58 Premium Trend Model • Average premium has declined from 2007 levels 2007 levels • Rate of decline is expected to slow down • Detailed modelling (incl. P/ C split & Retro adj) for enhanced accuracy j) y • Total impact of + 1.3% on PY 2010 rates 59 30
6/25/2010 Impact of Retro Adjustments • BCUC MOI # 10 – Retrospective rating adjustments were previously – Retrospective rating adjustments were previously implicitly included in historical and projected premium amounts. What impact does the previous methodology have on the indication? • Impact on PY 2007 rates using current (explicit) methodology is + 0.1% (explicit) methodology is + 0 1% – PY 2007 indication would have been + 3.4% instead of + 3.3% 60 Trailers Average Premium Model • BCUC MOI # 11 – Please discuss the average premium model for Trailers of low R² value of 76% which suggests a poor fit to the model. • R² value of 76% is considered a good fit. 61 31
6/25/2010 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Change in Operating Expenses Ch i O ti E + 1 5 + 1.5 ppt t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 62 Investment Income • New Money Rate lower than 2007 - New Money Rate lower than 2007 adverse impact on rates (+ 0.5% ) • Yield on Retained Earnings lower than 2007 – adverse impact on rates (+ 0.1% ) • Retained earnings higher than 2007 – favourable impact on rates (-1.8% ) 63 32
6/25/2010 Investment Income Basic Retained Earnings and Investment Yields 1,600 1 600 8% 8% Retained Earnings in $ Millions 1,400 7% 1,200 6% Rates of Return 1,000 5% 800 4% 600 3% 400 2% 200 1% 0 0% 2006 Year-end 2007 Year-end 2009 Q1 2010 Q1 Basic Retained Earnings Return on Retained Earnings New Money Rate 64 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Ch Change in Operating Expenses i O ti E + 1 5 + 1.5 ppt t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 65 33
6/25/2010 Change in Capital Provisions • Capital Provision in rates consists of: – Capital build/ release – to reach management target of 130% MCT – Capital maintenance – to address growth of the business 66 Change in Capital Provisions • Capital build is no longer required – removal has rate impact of -0 6% removal has rate impact of 0.6% • Government Directive requires no capital release in 2010 • Excess capital used to offset future rates • Excess capital used to offset future rates 67 34
6/25/2010 Capital Maintenance Provision • ICBC to apply Capital Management Plan except as regards to release of capital except as regards to release of capital • Capital Management Plan includes capital maintenance provision • 2010 capital maintenance provision is p p $30.8 million - less than 2007 with rate impact of -0.2% 68 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Ch Change in Operating Expenses i O ti E + 1 5 + 1.5 ppt t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 69 35
6/25/2010 Other Matters of Interest • Detailed exposure model • No changes to trend analysis • ULAE percentages • Per-policy broker fees P li b k f • Miscellaneous revenue (DRP) 70 Detailed Exposure Model • Detailed models of homogeneous business segments business segments • Value is more accurate estimates • Nearly all explanatory variables are significant at the 95% level. significant at the 95% level. 71 36
6/25/2010 Changes to Trend Analysis • No changes were made subsequent to th i iti l the initial selection of trending models in l ti f t di d l i ICBC’s Q1 trend analysis. 72 ULAE Percentage • 3-year average reflects recent experience while reducing volatility from individual years • 3-year average is consistent with average used in 2007 RRA, for all coverages except Bodily Injury • Unlike in 2007, where trend was observed in the BI ULAE factors, historical factors are fairly consistent Sensitivity tested for alternate assumptions: • – Tested latest-year through 5-year average factors – All alternate averages result in a rate indication of -1.8% 73 37
6/25/2010 Per-Policy Broker Fees Basic per-policy broker fees in Exhibit H.4 are • projected to PY 2010 using exposure growth of: – 1.5% in 2010 – 1.9% in 2011 Exposure growth is based on the combination of • Personal and Commercial power-unit exposure models. – Combined total of 3.1% growth from to PY 2010 is the same as is used for Manual Basic exposure growth from 2009 in Exhibit B.4.1 74 DRP Program Approach • ICBC bills for DRP Phase 1 and DPP (about 1% positive impact on rates) (about 1% positive impact on rates) • DRP Phase 2 not implemented is a 1.6% impact on rates • Will be addressed in 2011 rate design g application 75 38
6/25/2010 Overview of Rate Change Component Impact PY 2007 Loss Cost Forecast Variance -5.2 ppt Loss Trend to PY 2010 and Prospective Adjustments + 1.7 ppt Trend in Average Premium + 1.3 ppt Change in Investment Income -1.2 ppt Change in Capital Provisions -0.8 ppt Change in Operating Expenses Ch i O ti E + 1 5 + 1.5 ppt t Other + 0.8 ppt PY 2010 Indicated Rate Level Change -1.9 ppt 76 Operating Exp: Annual Impact Expense Type Impact on Annual Annual rate Increase Impact per indication indication Basic policy * Basic policy * (PY 2007 to 2010 ) Government 0.8% 0.27% $1.62 Initiatives Base 0.7% 0.23% $1.38 Total 1.5% 0.50% $3.00 If inflation is 2% , this is 1/ 10 of * Average Basic Policy $600 inflation 77 39
6/25/2010 Operating Expense • 15% of overall costs • Continued prudent cost management • Strong governance and accountability framework • Strong governance and accountability framework • Excluding Olympics and Transformation Program (TP) 3 Components • Business as usual (base operations) • Unusual fluctuation highlighted (Unique items) • Government Initiatives 78 Operating Expense - Base Need to invest in business after sustained fiscal restraint – Focus on claims initiatives – Reduced road test wait time – More customer focus (language line, research and communication) – Better management to staff ratio – Aging facilities Aging facilities – Change management and manager development – Improved governance and controls 79 40
6/25/2010 Operating Expense - Base Increase is cumulative over 4 years (2006 to 2010) • Compensation $55m p $ – $35m contractual, PSEC-approved compensation rates Claims – (~ 2% per annum) Licensing – $10m FTE increases for business needs Finance Human Res – $10m staffing mix for business needs Strategic Mktg • Buildings $7m g $ • Professional Services $7m • Other Operating $9m 80 Operating Expense – Government Initiatives Program Change from 2006 $m $m Compliance ($6.2) Road Safety MOU 8.6 Intersection Safety Camera (ISC) 4.3* $16.7m new Distracted Driving Campaign 2.5 Driver Licensing Security g y 1.3 Total increase $10.5m All programs 100% Basic *$10 m savings for ISC in 2010 rate indication 81 41
6/25/2010 Operating Expense - Allocation • Same allocators as 07 RR Application • Based on Commission-approved allocators • Same content, detail and format as previously approved • Overall Basic % consistent over 4 years (66% • Overall Basic % consistent over 4 years (66% to 67% ) 82 Allocation: Marketing and Broker IBC: rationale behind the new allocation method and change in focus for the department • New method moves $36k to Basic = 0.002% impact on rates – negligible • Change in department focus due to business requirement • Allocator change to maintain causal link between b business and allocator i d ll No allocator change until Commission approval • IBC MOI # 2 83 42
6/25/2010 Other Government Initiatives • Those with potential impacts on future rates • Introduced into Service Agreement documents • Two categories: – Introduced prior to 2010 Introduced prior to 2010 – New 84 Introduced Prior to 2010 • Canadian DL Agreement: deferred to 2011 – support BC in meeting national standards pp g • Enhanced Driver’s Licences: shortfall in volumes and unable to recover costs from user fees • Drinking and Driving: Example of initiative with g g p potential cost impacts < $1 million 85 43
6/25/2010 New Initiatives • Identity management • Impaired driving (roadside prohibitions and changes to vehicle impoundment) • Motorcycle safety (licensing, training, equipment) • Off-Road Vehicles (new regulatory framework) 86 Government Directed Reporting • Report on Distracted Driving included • Also service agreement documents and Road Safety MOU • Future reporting on other items if they will impact future rates 87 44
6/25/2010 Basic Capital Level • Volatility of MCT • Excess from unrealized gains • Excess from Capital Transfer from Optional 88 MCT – Walk Thru 2007 to 2009 • 2007: Change in OSFI guidelines and accounting standards • 2007: Increase of 15% - due to net income offset by AOCI • 2008: Increase of 5% - due to negative impacts of economy offset by lower claims cost and higher revenue g • 2009: Increase of 22% - due to largely due to market recovery (higher investment income and AOCI) 89 45
6/25/2010 Quarterly MCT Since Last Filing Basic MCT % 170% 167% 167% 160% 160% 162% 158% 155% 150% 151% 12% drop in 2 months 140% 141% 141% 138% 136% 130% 133% 132% 120% 123% 124% 121% 119% 119% 110% Basic MCT under “old” OSFI and accounting standards 107% at Dec 06 100% 06-Q4 07-Q2 07-Q4 08-Q2 08-Q4 09-Q2 09-Q4 10-May 90 MCT is Volatile–Historical Trends Basic MCT % 180% 170% 170% 167% 162% 160% 158% 155% 151% 150% 12% drop in 141% 141% 140% 2 months 138% 136% 132% 130% 123% 123% 120% 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3 09-Q4 10-Q1 10-May 91 46
6/25/2010 MCT – Impact of Capital Transfer 180% 162% 160% 140% MCT without AOCI 140% 141% 136% $630m 120% Capital transfer 107% 100% Including Capital 85% Transfer 80% 79% Excluding Capital Transfer 60% 58% 54% 42% 42% 40% 61% MCT without AOCI ith t AOCI 22% 22% 23% 20% and without capital transfer 5% 0% 2003 2004 2005 2006 2007 2008 2009 92 MCT is Sensitive to External Factors Change in Claims (impact on Basic income) Impact on Basic MCT 1% change in current year claims costs ($20m) 2% 1% change in Unpaid Claims ($45m) 5% 1% change in discount rate ($100m) 10% Change in Investment Impact on Basic MCT 1% change in investment yield ($70m) 1% change in investment yield ($70m) 7% 7% 1% change in equity prices ($170m) 17% 1% change in interest rates on fixed income 13% investments ($130m) 93 47
6/25/2010 MCT – 2008 Example of Volatility Main Component of 2008 Basic Capital Impact on Available Available Basic MCT Basic MCT % Favourable Prior Years’ Claims Adjustments + 10% ($90m) Decrease in AOCI ($ 118m) -14% 94 MCT at End 2011 • Q1 forecast of MCT at end 2010 is 168.5% • MCT at end 2011 is forecasted to decrease to 164% • Assumes claims cost trend increase of 1.1% offset by -0.4% for change in income from retained earnings income from retained earnings • Rate indication offset to 0% per government directive 95 48
6/25/2010 Basic Excess Capital Summary • Historical trends showed MCT is volatile (nearly 40% swing in 2 years quarterly fluctuations) 40% swing in 2 years, quarterly fluctuations) • Much of excess over 130% is from unrealized gains • Sensitive to external factors • Result of $630m capital transfer from Optional per Government Directive 96 Basic Excess Capital Outlook • Investment market volatility likely to persist • Stock returns modest St k t d t • Downward pressure on bond value as interest rates trend higher • Strong likelihood that market forces adversely impact net income and MCT in short term • Improvements in claims cost trend unlikely to persist as the BC economy recovers 97 49
6/25/2010 Review Working Session • Explain major items impacting rates √ • Explain significant changes in: √ – Business Operations – External Circumstances • Provide commentary on matters of √ • Provide commentary on matters of √ interest 98 Next Steps • Information Requests – June 29 • ICBC Responses – July 20 • Letters of Comment – August 4 • ICBC Reply – August 17 ICBC Reply August 17 • BCUC Decision – August 31 99 50
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission Attachm ent 2 – Matters of I nterest I nsurance Corporation of British Columbia June 25, 2010
MATTERS OF I NTEREST Review Working Session, June 17, 2010 Presentation Matter of I nterest # Question/ Request Reference Given that developing losses using traditional actuarial methodologies is a subjective exercise, please demonstrate via a claims run-off exhibit by 2010 RR BCUC.MOI.1 Slide 7 coverage how accurate the previous ultimate loss estimates have been at successive valuations. How are the following items that would be expected to reduce the claims trends for 2010, factored into the trend analysis: tougher legislation for drinking driving expanded intersection cameras, DRP penalties to 2010 RR BCUC.MOI.2 Slides 52-55 discourage bad driving, Sea to Sky highway improvements, the Canada Line, Road Safety MOU, Distracted Driving Programs and enhanced driver licensing security measures? Please provide additional discussion relating to the prospective loss adjustment for Intersection Safety Camera (ISC) savings, specifically covering the following issues: rationale for crash sites being lower for new 2010 RR BCUC.MOI.3 sites than existing sites, support for the average cost per crash forecasts, Slide 47 weather the frequency reduction estimates are based on the initial cohort of sites and if so to please provide progression of historical frequency rates. Please provide rationale for category percentages selected for the HST 2010 RR BCUC.MOI.4 Slides 48-51 prospective adjustment. How has the trend to warmer winters been factored into the trend 2010 RR BCUC.MOI.5 Slides 13 and 15 analysis? For any changes or after the fact modifications that have been made to 2010 RR BCUC.MOI.6 the trend analysis please provide and explanation of why the changes Slide 72 were made. Please provide additional concrete analysis to support that the trend 2010 RR BCUC.MOI.7 analyses are not conservative but are aimed to provide an unbiased "best Slide 41 estimate" of costs and revenues. Is possible to incorporate into the trend analysis an estimate of a factor 2010 RR BCUC.MOI.8 with no historical data points. If yes, how does ICBC make these types of Slides 42 and 46 estimates? Please provide additional information, not included in Chapter 6, on 2010 RR BCUC.MOI.9 measures to moderate BI court award. Premiums: Retrospective rating adjustments were previously implicitly 2010 RR BCUC.MOI.10 included in historical and projected premium amounts. What impact does Slide 60 the previous methodology have on the indication? 2010 RR BCUC.MOI.11 Premiums: Please discuss the average premium model for Trailers of low Slide 61 R² value of 76% which suggests a poor fit to the model. Exposure: Given that personal exposure is forecasted by summing the modeled exposure for the underlying business segments, is it ICBC’s opinion that individual business segment models for personal exposure Slides 18, 19 and 2010 RR BCUC.MOI.12 have better fit (R² and F-statistic values)? Additional details on individual 71 business segment models and their fit statistics, including significance tests for explanatory variables (T-scores) would be helpful. For Loss and Expenses please provide additional information on: 2010 RR BCUC.MOI.13 • ULAE percentages being selected on a 3 year average when a 2 year Slide 73 average was used previously. For Loss and Expenses please provide additional information on: 2010 RR BCUC.MOI.14 • The origin of the exposure growth rate used in the Basic Commercial Per- Slide 74 Policy Broker Fees 1
MATTERS OF I NTEREST Review Working Session, June 17, 2010 Presentation Matter of I nterest # Question/ Request Reference For Loss and Expenses please provide additional information on: • It appears that for certain business segments the personal and commercial split of data for frequency and severity modeling has resulted in a much lower “fit” to frequency and severity models than in previous filings. Please elaborate on the following: • the option of combining personal and commercial data for business segments where there is insufficient data to produce meaningful 2010 RR BCUC.MOI.15 Slide 40 econometric models or where models selected produce lower R² values than when combined data is used • how combined personal and commercial models change current frequency and severity estimates and ultimately the final indications. • the use of back testing on the models selected? • the significance levels of coefficients for the econometric models (T- scores). Given the size of the MCT, would it be reasonable to discontinue the provision for maintaining MCT until MCT falls to more reasonable levels? 2010 RR BCUC.MOI.16 Is there anything in the government directives or Commission decisions Slide 68 which would preclude the Commission from reducing or eliminating the provision for maintaining the MCT in 2010? How much is that provision? In ICBC’s Quarterly Report filed with the BCUC on May 28th the Year-End outlook (December 31, 2010) estimates the MCT to be 168.5% . Please provide a discussion on what ICBC expects the MCT to be at the end of 2010 RR BCUC.MOI.17 Slide 95 either PY 2010 or December 31, 2011, including a details on how the - 1.9% rate reduction applied for is expected to slow down the growth in the MCT as experienced since 2006 when it was 121% . The rationale for the revised approach to the DRP program and the 2010 RR IBC.MOI.1 Slide 75 implications this has for risk and changes in premiums going forward. The rationale behind the new Marketing and Broker Services allocation 2010 RR IBC.MOI.2 method, including the rationale for the change in focus for the Marketing Slide 83 and Broker Services Department. An explanation as to why the indicated rate level change for Third Party Liability is -0.4% while the rate level change for Part 7's is -18.8% and the Slides 35, 36 and 2010 RR IBC.MOI.3 underlying explanation for the different percentages, particularly in terms 38 of claims handling. 2
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission Attachm ent 3 – Sum m ary of Exhibit D.0 as Discussed at Review W orking Session I nsurance Corporation of British Columbia June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission SUPPLEMENTARY I NFORMATI ON Sum m ary of Exhibit D.0 as Discussed at Review W orking Session 1. ICBC’s trending process is designed to produce predictive models which are significant and logical, yet parsimonious, and which generate an unbiased estimate of future claims costs. As each coverage may have unique circumstances, ICBC evaluates models for each coverage separately. The type of model and length of experience period used are based on a number of important considerations, including: • Stability of the model over time. • Responsiveness of the model to key features of the data. • Overall statistical fit of the model to historical data. • Logical connection between the explanatory variables and the claims statistic being modeled. • Features of the historical data including recurring or non-recurring changes (e.g., operational changes, coverage changes, distributional changes in types of risks). • Experience from previous use of similar models. • Economic and social influences. 2. The selected models are shown in Chapter 3, Exhibit D.0, as well as the historical values. The responsiveness of the model and its fit to the historical values may be evaluated visually by comparison of the modeled and actual values for each year. The graphs may also show key features of the historical values, and be used to consider the reasonability of the model forecasts. It should be noted that the econom etric models are used in order to capture the key features and influences seen in the historical data in order to provide a more accurate forecast, while the exponential models are used to m ore simply capture observed trends in the data without attempting to fit closely to historical values. 3. In addition to the graph of historical versus m odeled values, Exhibit D.0 also notes the explanatory variables, gives statistics for goodness-of-fit to historical values, and shows additional diagnostic graphs. The explanatory variables should be seen to have a logical connection to the claims statistics, where possible. The measures of fit to the historical values should correspond to the visual comparison discussed above, and are considered to be good for all econom etric models. The diagnostic charts dem onstrate certain statistical features of the m odel residuals, which is the difference between the modeled value and I nsurance Corporation of British Colum bia 1 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission actual historical value for each period. The plot of residuals versus fitted values may be used to illustrate that the model is unbiased, because the points may be seen to be equally distributed both above and below the level of zero on the vertical axis. Additional technical features of the m odels which are depicted in the diagnostic charts are described in paragraph 11 of Exhibit D.0. 4. Please note that ICBC’s selection of trending models and forecasted values relies on statistical and qualitative considerations com bined with actuarial judgement. While it is desirable to have strong statistical evidence of a good fit (such as having a high R 2 ), it is equally as desirable to select models that provide strong intuitive appeal (explanatory variables should be logically related to the item being forecasted). The actuarial Standards of Practice in Canada require that a number of factors be considered when preparing a trending model. ICBC actuaries considered that the factors described in the Standards of Practice and the selected trending models represent an appropriate balance of considerations which ICBC believes is dem onstrated by the material included in Exhibit D.0. I nsurance Corporation of British Colum bia 2 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission Attachm ent 4 – Prospective Adjustm ents and Accepted Actuarial Practice in Canada I nsurance Corporation of British Columbia June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission SUPPLEMENTARY I NFORMATI ON Prospective Adjustm ents and Accepted Actuarial Practice in Canada 1. The Standards of Practice of the Canadian Institute of Actuaries cover ratemaking for property casualty insurance through section 2600 which is in the form of an exposure draft effective September 2009. An exposure draft forms part of accepted actuarial practice in Canada. These standards apply to the derivation of indicated rates (i.e., rate indications) for property and casualty insurance. 2. Section 2600 indicates that the data used in the preparation of actuarial rate indications is of two types: subject experience and related experience. Subject experience includes premiums, claims, expenses, and other data that is relevant, meaning that the information has a significant and demonstrable bearing on the matter at hand. Related experience is information other than the subject experience that is analogous to the coverage under consideration. The analogous information permits the actuary to infer that, because the analogous information agrees with the subject information in some respects, it probably will agree in other respects as well. 3. The 2010 Streamlining Revenue Requirements Application includes prospective adjustments to recognize factors that will have a bearing on the premiums, claims or expenses for the policy period in question but which otherwise cannot be captured by the actuaries through the development or trending processes used in preparing the rate indication. Prospective adjustments are determ ined based on related experience as defined in the preceding paragraph. 4. The current application includes two prospective adjustments. One is for the Harm onized Sales Tax that is to be effective July 1, 2010 and another is for the enhancem ent of Intersection Safety Cam eras (ISC). The latter prospective adjustm ent makes a useful illustration of the use of analogous information to determine a prospective adjustment. Intersection safety cam eras exist at present and claims frequency and severity data is available for existing sites. In the evaluation of the impact of the enhancem ent of ISC, the data for existing sites is analogous information and it can be used to evaluate the expected savings associated with enhancem ents. It is appropriate to include a prospective adjustment in this case because there is a meaningful enhancement that is going to occur and also because there is related experience with which to estimate the impact of enhancem ents. I nsurance Corporation of British Colum bia 1 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission 5. Recently a Distracted Driving Campaign has comm enced in BC. It includes restrictions on using hand-held devices while operating a motor vehicle. While it is hoped that this will result in a reduction in the number of crashes, there is no data in BC to indicate this is the case. Other jurisdictions, for instance California, have introduced similar restrictions and information from such jurisdictions is a potential source of related experience. However, the early indication from the California experience is that there is no statistically significant reduction in crashes attributable to these restrictions. The Distracted Driving Campaign is an example of a situation where there is no analogous data available to support a prospective adjustment being included in the actuarial rate indication. Another way of putting this is that at the present time the best available estimate of the impact of the Distracted Driving Campaign is $0. 6. Certain road improvem ent projects or infrastructure projects, such as the Sea to Sky Highway or the Canada Line, are similar in nature to the Distracted Driving Campaign in that there is no related experience to use in estimating the impact on claims of these particular projects. It is also the case that road improvem ents and infrastructure projects have taken place in the past and their impact is embedded in the subject experience and results in some level of improvement being forecasted as part of the loss trending process. In order for it to be appropriate to consider making prospective adjustments for such projects, they would have to be seen as having a greater than normal impact on claims as compared to other such projects in the past. In addition related experience would need to be available to determine the prospective adjustment, which is not the case. W. T. Weiland 18 June 2010 I nsurance Corporation of British Colum bia 2 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission Attachm ent 5 – Capital Provision in the Actuarial Rate I ndication I nsurance Corporation of British Columbia June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission SUPPLEMENTARY I NFORMATI ON Capital Provision in the Actuarial Rate I ndication 1. At the Review Working Session, ICBC agreed to elaborate in writing on its response to Commission Staff Matter of Interest (MOI) 2010 RR BCUC.MOI.16: Given the size of the MCT, would it be reasonable to discontinue the provision for maintaining MCT until MCT falls to more reasonable levels? Is there anything in the government directives or Com mission decisions which would preclude the Commission from reducing or eliminating the provision for maintaining the MCT in 2010? How much is that provision? 1 2. This Supplementary Information addresses the legal rationale for including the capital maintenance provision in the policy year 2010 rate indication. There are two key points, each of which is addressed below: • Accepted actuarial practice, which Special Direction IC2 provides that the Commission must apply in fixing rates, precludes the approach contemplated in 2010 RR BCUC.MOI.16 of setting rates lower than required to cover costs. • The Governm ent Directive 2 of May 18, 2010 with respect to Basic Excess Capital approved by Order in Council 287/ 10, May 27, 2010 (the Governm ent Directive regarding Basic Excess Capital) requires ICBC to retain excess capital and apply it to offset future rate increases, and the approach outlined in 2010 RR BCUC.MOI.16 is inconsistent with that intention. A SPECI AL DI RECTI ON I C2 AND ACCEPTED ACTUARI AL PRACTI CE 3. Section 3(1)(c) of Special Direction IC2 requires the Commission to “… fix [ Basic insurance] rates on the basis of accepted actuarial practice… ”. Accepted actuarial practice precludes the approach contemplated in 2010 RR BCUC.MOI.16 for the reasons explained below. The information provided in paragraphs 4 to 9 below on accepted actuarial practice in this context is the evidence of ICBC’s Chief Actuary and the Reviewing Actuary. 4. The Standards of Practice of the Canadian Institute of Actuaries cover ratemaking for property and casualty insurance through section 2600 which is in the form of an exposure draft effective September 2009. An exposure draft forms part of accepted actuarial practice in Canada. These standards apply to the derivation of indicated rates (i.e., rate indications) for property and casualty insurance. 1 ICBC addressed the issue in, the first instance, at slide 68 of the Presentation (see Attachment 1). 2 Appendix 4 A of the 2010 Streamlined Revenue Requirements Application. I nsurance Corporation of British Colum bia 1 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission 5. Section 2610.06 requires that a rate indication provide for all costs so that the insurance system is financially sound. Therefore, it would be inconsistent with accepted actuarial practice to omit a cost element from the rate indication. One of these cost elements is the amount of capital required to meet and maintain the target capital levels, which ICBC refers to as the capital provision. In a situation where there is a law or Government Directive that the actuary must follow and which conflicts with accepted actuarial practice, then under the Standards of Practice the actuary is to comply with the law or Government Directive. ICBC submitted a Capital Management Plan 3 6. that sets out the determination of the capital provision as the sum of the two am ounts: • A capital maintenance provision to account for the growth in the capital required under the Minimum Capital Test (MCT) that occurs because of factors such as growth of the driving population, increases in the liabilities for claims costs, and growth in investment assets. The additional required capital due to the impact of these factors is a cost item, as defined under the standard of practice noted above, that must be accounted for in the rate indication analysis. • A capital build provision that provides an amount according to the Capital Management Plan that adjusts the capital available toward the target level of 130% MCT. For the 2010 Streamlined Revenue Requirements Application, the capital build was not determined in accordance with ICBC’s Capital Management Plan because of the Government Directive regarding Basic Excess Capital not to release excess capital where the actuarial rate indication is negative. 7. The two components of the capital provision were defined separately for distinct purposes. The capital maintenance provision provides for the growth in required capital, and as such is considered by the actuaries as a necessary permanent component of the rate. The capital build provision, on the other hand, is the mechanism to build or release capital, when there is a capital shortfall or excess, respectively. Moreover, the capital maintenance component of the capital provision is an important element in achieving the objective of relatively stable and predictable rates. The Commission has accepted the Capital Management Plan, and ICBC has applied the Capital Management Plan consistently. 3 Chapter 6.2 of the 2007 Revenue Requirements Application. I nsurance Corporation of British Colum bia 2 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission 8. To illustrate what occurs if a cost element such as the capital maintenance provision (or any other cost element, such as broker fees or premium tax) were omitted from the rate indication analysis, consider the impact that it would have on rates. The effect would be to use capital to make up for the cost not covered by the rates. In the case of the capital provision it would mean a reduction to the MCT level by 3% to 4% per year. The reduction in the MCT level each year attributable to excluding any other element such as broker fees or premium taxes from the rate indication will differ depending on the size of the cost element being excluded, but the principle is the same. Setting rates in a way that omits a cost element is inconsistent with accepted actuarial practice. 9. Furtherm ore, if the capital maintenance provision were included in the rate indication only when the capital level fell below a certain threshold, the reintroduction of the capital maintenance provision would have an adverse impact on rates in the range of 1.5% to 2.0% and would contribute to volatility in the rates. This impact would be on top of any other factors that influence ICBC’s rate level. 10. In order to remain consistent with accepted actuarial practice and Special Direction IC2 , the capital maintenance provision in the policy year 2010 rate indication should remain to account for the growth in required capital. B THE GOVERNMENT DI RECTI VE REGARDI NG BASI C EXCESS CAPI TAL 11. ICBC respectfully submits that the Government Directive regarding Basic Excess Capital also precludes the Com mission from altering the Capital Management Plan to rem ove the capital maintenance provision from the PY 2010 rate indication. 12. The Government Directive regarding Basic Excess Capital is legislation, which the Commission must recognize and accept pursuant to section 3(1)(c.1) of Special Direction IC2 . Principles of legislative interpretation require that the Commission look to the words of the legislation (i.e. the Directive), and also consider those words in light of the overall objective and context of the Directive. In this case, the wording of the Directive, and the overall thrust or objective of the Directive, dictate that ICBC should continue to employ the capital maintenance provision contemplated in the Capital Management Plan. 13. The Directive specifies that “ICBC should continue to apply the Capital Management Plan, except with respect to the release of capital.” The Directive assum es the Capital Management Plan rem ains in place with the exception of the release of capital. As I nsurance Corporation of British Colum bia 3 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission discussed above, the Capital Management Plan, which the Commission approved in Order G- 3-08 in the context of the 2007 Revenue Requirem ents Application 4 , addressed the capital maintenance provision and the capital build/ release provisions separately. The capital maintenance provision has a particular purpose as described above. 14. The approach evident in the above description of including a capital maintenance provision calibrated to the management target, regardless of the actual MCT level, is consistent with the distinct purpose served by a maintenance provision and its role in limiting volatility in rates. 15. More fundamentally, as a matter of legal interpretation, the Commission must give effect not only to the written word of the legislation, but also the spirit or objective of the Directive. In this case, Government has been explicit regarding its intention. The Directive sets out Government’s intention to retain capital in 2010 and use it to offset future rate increases. It states: The directions contained herein are intended to outline a fram ework to the Insurance Corporation of British Columbia that will provide for rate stability and predictability while minimizing the need for Basic rate increases. And further: This approach advances the objective of ensuring relatively stable and predictable universal compulsory autom obile insurance rates. By applying this approach in the current situation, for instance, ICBC will use its Basic capital to help moderate actuarially indicated rate increases for Basic automobile insurance in the future. Also, limiting the annual and cumulative amount by which capital available can be released ensures that Basic automobile insurance will remain sufficiently capitalized over time. 16. The approach outlined in the question of reducing or eliminating the capital maintenance provision to reduce Basic excess capital is, in essence, a m eans of accomplishing indirectly what Governm ent has specifically directed ICBC not to do – i.e., release capital to further reduce rates in 2010 instead of using it to offset future rate increases. ICBC respectfully submits that the Commission must give effect to (i.e., recognize and accept) the Governm ent Directive regarding Basic Excess Capital by continuing to apply the capital maintenance provision as contemplated in the Capital Management Plan and retaining the excess capital to offset future rate increases. 4 January 2008 Decision on Revenue Requirements, page 17. I nsurance Corporation of British Colum bia 4 June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission Attachm ent 6 – Correspondence on Status of Driver Risk Prem ium Program Phase 2 I nsurance Corporation of British Columbia June 25, 2010
I CBC’s June 2 5 , 2 0 1 0 Filing w ith the BC Utilities Com m ission SUPPLEMENTARY I NFORMATI ON Correspondence on Status of Driver Risk Prem ium ( DRP) Program Phase 2 1. Since the January 2008 Decision on Rate Design ICBC has kept the Commission apprised of the status of DRP Phase 2, beginning with a letter on March 17, 2008. In Order G-125-08 the Commission approved a proposed delay of the fourth category (Phase 2) offences of DRP with a scan period to begin on January 1, 2009 and inclusion in the DRP program on January 1, 2010. 2. In Letter L-60-08 dated January 25, 2009, the Commission directed ICBC “to provide with its next revenue requirements application a description of the measures that it proposes to undertake in order to replace the DRP revenue that will not be collected as a result of the delayed implementation of Phase Two of the DRP program.” As requested, ICBC responded to the directive in Chapter 3, Section D.9.4 of the 2010 Streamlined Revenue Requirem ents Application. The Letter also directed ICBC to “… submit a calculation of the expected impacts associated with the detailed estimates within 30 days of the date of this letter.” ICBC responded on February 25, 2009 by providing the requested calculation. 3. As to the role of DRP Phase 2 in its rate design, ICBC most recently provided a Rate Design Update to the Commission in early 2010 indicating its intent to put forward a proposal for a revised approach to the DRP program for the Commission’s approval with its rate design application for a Driving Record Model (DRM) in 2011, under which higher-risk drivers will pay more Basic insurance premiums. In advance of DRM, ICBC does not intend to undertake any new measures to replace Basic insurance premiums that would have been charged for DRP Phase 2. These plans are consistent with a letter issued by Governm ent to ICBC on February 25, 2010 regarding ICBC’s rate design initiatives. The Rate Design Update is currently before the Commission. 4. ICBC’s correspondence with the Commission regarding DRP from March 17, 2008 to present is attached. I nsurance Corporation of British Colum bia 1 June 25, 2010
March 17, 2008 British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Erica M. Hamilton, Commission Secretary Re: Basic I nsurance Rate Design - Update on Other Operator and Driver Risk Prem ium Dear Ms. Hamilton: I would like to take this opportunity to provide the Commission with information on the status of two matters addressed in ICBC’s past Rate Design Application, Other Operator and the Driver Risk Premium (DRP). Other Operator As discussed in the Rate Design Application, Other Operator is an initiative directed at moving towards a more driver-based rate design and having Basic insurance rates more reflective of risk. ICBC has taken a number of steps to implement Other Operator and are awaiting the necessary amendments to the Insurance (Vehicle) Regulation . ICBC will advise the Commission when the amendments to the Regulation are enacted. As a period for training and other implementation steps will be required after the amendments’ wording and effective date are known, ICBC expects to proceed with implementation of the Other Operator proposal approximately nine months after the amendments are brought into force. Driver Risk Prem ium DRP, which is directed at high-risk drivers, is an important aspect of ICBC’s Multi Year Rate Design Plan. The Commission approved the DRP in advance of the Rate Design Application Decision (Order G-126-07, issued on October 19, 2007) in recognition of ICBC’s need to educate customers and stakeholders about DRP prior to January 1, 2008. The Commission will recall that DRP involved premiums being charged to drivers who, over a period of three years have accumulated: • At least one motor vehicle related Criminal Code of Canada conviction, or 10 point Motor Vehicle Act conviction (as set out in Appendix 17.1B of ICBC’s Application); • At least two roadside suspensions, under section 215 or 90.3 of the Motor Vehicle Act; … / 2 151 West Esplanade | North Vancouver | British Columbia | V7M 3H9 | 604-661-2800
- 2 - • At least one conviction for Excessive Speed, under section 148(1) of the Motor Vehicle Act ; or • At least three convictions for any motor vehicle offences under the Motor Vehicle Act, the Motor Vehicle Act Regulations, Criminal Code of Canada convictions, Excessive Speed convictions, and roadside suspensions. ICBC commenced an extensive communication campaign relating to DRP in late 2007, as planned. ICBC has also proceeded as planned with implementing the scan period for the first three categories above as of January 1, 2008, and is on target to begin charging the higher of the Driver Penalty Point (DPP) premium or DRP premium starting in January 2009. In light of a number of recent inquiries and concerns expressed by the public and other stakeholders directed at understanding the correlation between the fourth DRP category and driving behaviour, ICBC believes that further public and stakeholder communication and feedback is warranted prior to implementation of that one aspect of DRP. ICBC believes that this can be successfully completed within a year. As a result, ICBC intends to begin the scan period for the fourth category on January 1, 2009 (i.e., one year later) and similarly begin charging premiums starting in January 2010. Yours truly, Donnie Wing, CA Senior Vice President, Insurance, Marketing and Underwriting CC: James Fraser, Director 151 West Esplanade | North Vancouver | British Columbia | V7M 3H9 | 604-661-2800
SIXTH FLOOR, 900 HOWE STREET , B OX 2 50 VANC OUVER , s. c. CANADA V6Z 2N3 ERICA M. HAMILTON TEL EPHONE: (604) 6 60 -47 00 C OMMIS SION SE CRETARY Co mmission. Se cretary (a) bcuc.com BC TOLL FRE E: 1-800- 66 3- 13 85 web site: http:// www . bcu c. com FA CS IMILE: (604) 660- 11 02 Log. No. 24648 VIAE-MAIL dO llnie. wing@ich c. com March 31, 2008 regaffairs@icbc.com Mr , Donnie Wing, CA Senior Vice President, Insurance, Marketing and Underwriting Insurance Corporation of British Columbia Suite 340 - 151 W. Esplanada North Vancouver, B.c. V7M 3H9 Dear Mr. Wing: Re: Update on Other Operator and Driver Risk Premium Insurance Corporation of British Columbia's ("ICBC") letter dated March 17,2008 regarding Basic Insurance Rate Design - Update on Other Operator (" 00") and Driver Risk Premium ("DRP"), discusses the timing of implementation of the 00 and DRP programs. As noted in the letter, the DRP involves premiums being charged to drivers who have accumulated over a three year period: • At least one motor vehicle related Criminal Code of Canada conviction or ten point Motor Vehicle Act ("MVA") conviction; • At least two roadside suspensions; • At least one conviction for Excessive Speed; or • At least three convictions for any motor vehicle offences under the MVA, MVA Regulations, Criminal Code of Canada convictions, Excessive Speed convictions or roadside suspensions. ICBC's letter states that it has proceeded as planned with implementing the scan period for the first three categories as of January 1, 2008 and is on target to begin charging the higher of the Driver Penalty Point ("DPP") premium or DRP starting in January 2009. The letter also states that in light of recent stakeholder inquiries and concerns, ICBC believes that further public and stakeholder communication and feedback is warranted prior to implementation of the fourth aspect of the DRP program. ICBC believes that the public and stakeholder communication and feedback can be successfully completed within a year and therefore it intends to begin the scan period for the fourth category on January 1, 2009 and begin charging premiums in January 2010. The January 31, 2007 Special Direction from the BC Solicitor General, approved by Order in Council No. 039 dated February 2,2007, states that "Changes affecting high-risk drivers should be applied to driver actions occurring in 2008 and subsequent years. ICBC must submit the plan for high risk drivers to the Commission for its approval prior to its implementation." .. .1 2
2 ICBC's March 29,2007 Rate Design Application outlined a DRP program and implementation schedule that included a scan on all four categories of offences beginning in January 1, 2008. Commission Order No. G-126-07 approved the DRP, as applied-for, prior to issuing its Reasons for Decision on the Application in order to allow ICBC to " ... undertake a communications campaign to ensure that the public is aware of changes regarding ICBC's proposed transition from the DPP program to the DRP ... ". The Commission is requesting additional information regarding ICBC's proposed change to the implementation of the DRP and requests responses to the following questions by April 14, 2008. 1. Does ICBC's proposed change to the implementation of the DRP program meet the requirements set out in the January 31, 2007 Special Direction from the BC Solicitor General? Why or why not? ICBC's letter states that "In light of 2. a number of recent inquiries and concerns expressed by the public and other stakeholders directed at understanding the correlation between the fourth DRP category and driving behaviour. .. " it believes further public and stakeholder communication and feedback is warranted. Please provide more detail on the number of recent inquiries and concerns expressed and on the specific issue or issues related to the correlation between the fourth DRP category and driving behaviour. Were other issues related to the DRP program raised that were material to ICBC's conclusion that it should defer implementation of the fourth DRP category for a year? If so, please describe those issues. 3. The Commission, in its January 9,2008 Decision on page 27, notes that it had approved the DRP by Order No. G-126-07 and directed ICBC to file an actuarial analysis report for the DRP program following the implementation. It further states that "This directive does not preclude ICBC from third anniversary of recommending DRP rate adjustments in the interim, to improve the effectiveness and/or fairness ofDRP, based on statistical analysis, practical experience and/or industry practice." Is it consistent with the program applied-for and approved by the Commission to delay the implementation of the fourth DRP category until January 1, 201O? Ifso, how? Ifnot, why does ICBC not see a need to reapply to the Commission to amend the implementation of the program from that which it applied-for and which was approved by the Commission? Does ICBC consider the proposed delay in implementation of the fourth DRP category to be consistent with the Commission's comment on page 27 of the Decision? Why or why not? 4. ICBC in its March 17 letter states that it intends to begin the scan period for the fourth category on January 1,2009 and begin charging premiums starting in January 2010. The 'scan period' was described in ICBC's 2007 Rate Design Application (p. 17.1-3) as the 12-month period ending five months prior to the driver's birthday, during which time driving convictions committed would be added to the driver's record for the purpose of determining the DRP premium. While the initial scan period was proposed to be one year, ICBC also stated in the Application that" ... one year is not a sufficiently long enough time period to develop the information required to establish a driver's premium" (2007 Rate Design Application, p. 17.1-5). Did ICBC consider beginning the scan period for the fourth category of violations on January 1, 2008, even though it proposes that the premium based on that fourth category would not be implemented until January 1, 201 O? If not, why not? If so, why was it rejected? .. ./3
3 Will the proposed delay in the 'scan period' also limit or delay the data collection required to provide the actuarial analysis report for the DRP as directed by the Commission's Rate Design Decision at page 27? If so, please explain why such data collection cannot proceed irrespective of a delay in the implementation of the DRP based on the fourth category of violations? Yours truly ffiuviU- Erica M. Hamilton JWF/dg ICSC/Cor/Other Operator & Driver Risk Premium-IR No. 1
April 14, 2008 British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Erica M. Hamilton, Commission Secretary Re: Additional I nform ation Regarding the Driver Risk Prem ium ( DRP) Program Dear Ms. Hamilton: This letter is in response to the Commission’s letter of March 31, 2008 requesting additional information concerning ICBC’s update on the implementation of the DRP program. ICBC’s responses to the Commission’s additional information requests are included in the following pages. We trust that this information will be of assistance to the Commission. Yours truly, Donnie Wing, CA Senior Vice President, Insurance, Marketing and Underwriting CC: James Fraser, Director, Strategic Services Kathy Parslow, Director Regulatory Affairs and Planning, ICBC Enclosures 151 West Esplanade | North Vancouver | British Columbia | V7M 3H9 | 604-661-2800 | regaffairs@ex.icbc.com
I CBC’s DRP Response, April 1 4 , 2 0 0 8 Additional I nform ation Regarding the Driver Risk Prem ium ( DRP) Program Q1 . Does I CBC’s proposed change to the im plem entation of the DRP program m eet the requirem ents set out in the January 3 1 , 2 0 0 7 Special Direction from the BC Solicitor General? W hy or w hy not? A1 . The portions of the January 31, 2007 government directive specifically relating to high-risk drivers read as follows: ICBC can contribute to solving the aggressive driving issue through the initiation of a more driver based rate design system that increases the direct accountability of drivers by ensuring that those high-risk drivers who have more crashes, more claims, multiple motor vehicle violations and/ or serious Criminal Code convictions are required to pay more premium dollars. … ICBC is directed to prepare and implement a basic insurance rate design plan that must: … (2) address the issue of high-risk drivers, as set out in this directive, as a new rate design factor beginning in the 2008 rate year. ... This approach to rate design positions ICBC to introduce changes required for a more driver based rate design structure in a gradual and systematic manner without undermining historical stability and predictability. The government directive requires ICBC to: 1. Develop a rate design plan that ensures that drivers who exhibit high-risk characteristics “pay more premium dollars”; 2. Ensure that the rate design plan includes a rate design factor targeting these drivers beginning in the 2008 rate year; 3. Implement rate design in a gradual and systematic manner that ensures stability and predictability. ICBC has complied with the government directive as follows: 1. The DRP provides for direct accountability and ensures that those high-risk drivers who have received 24-hour roadside suspensions, a conviction(s) for excessive speed, and/ or serious Criminal Code convictions are required to pay more premium dollars. 2. The Driver Risk Premium has been implemented as a new rate design factor beginning in the 2008 rate year. 3. Implementation of the 4 th category of the DRP (three or more convictions) beginning in January 1, 2009 continues to be in keeping with the government directive to make changes in a “gradual and systematic manner”. Insurance Corporation of British Columbia 1
I CBC’s DRP Response, April 1 4 , 2 0 0 8 Q2 . I CBC’s letter states that “I n light of a num ber of recent inquiries and concerns expressed by the public and other stakeholders directed at understanding the correlation betw een the fourth DRP category and driving behaviour…” it believes further public and stakeholder com m unication and feedback is w arranted. Please provide m ore detail on the num ber of recent inquiries and concerns expressed and on the specific issue or issues related to the correlation betw een the fourth DRP category and driving behaviour. W ere other issues related to the DRP program raised that w ere m aterial to I CBC’s conclusion that it should defer im plem entation of the fourth DRP category for a year? I f so, please describe those issues. A2 . Background The vast majority of customer feedback received about the DRP related to the DRP Warning Letter sent to approximately 144,000 customers in December 2007. The letter informed these customers about the DRP program and advised that if they maintained their current level of convictions/ roadside suspensions that they may be paying the DRP to reflect the increased risk that they posed. The purpose of the letter was to inform and educate customers about the inception of DRP and why convictions/ roadside suspensions impact premiums (customers were advised that this was just a warning letter and not a bill). Customers were advised that if they did not want to be included in DRP in the future, they needed to change their driving behaviour. ICBC’s various customer call centres (Customer Contact Head Office, Customer Contact Victoria, Driver Testing & Vehicle Information, Broker Enquiry Unit, Autoplan Sales and Claims Contact Centre), logged approximately 3,500 calls from customers relating to the DRP during the period from December 2007 to February 2008. In addition, brokers have reported that numerous customers contacted them to discuss DRP during the period, but the exact number of these contacts is not known. Further, ICBC received approximately 570 calls, letters, and emails to its Fair Practices Department concerning the DRP program that required individual responses during the same period. Other contacts which were not specifically logged include those made in person or phoned in at Driver Service Centres and Claim Centres. Discussion ICBC received a significant amount of feedback about the DRP and the following summarizes key comments: • Customers who never had a claim or a recent claim did not understand the correlation between violations and risk of having a crash; • Customer did not think that their particular type of violation(s) such as seatbelt violations should result in an additional premium for them; • Customer would like to see more customer friendly communication regarding the DRP; • Customers did not remember that they had three or more convictions; Insurance Corporation of British Columbia 2
I CBC’s DRP Response, April 1 4 , 2 0 0 8 • Customers do not see the intuitive relationship between certain driving violations and the cost of insurance. A key issue arising from this feedback is that many customers felt that some of the violations that are included in the 4 th DRP category are not indicative of high risk behaviour. As a result, ICBC wants to undertake additional customer and stakeholder consultations, analyze the feedback and get a better understanding of their issues. After ICBC has an opportunity to analyze this information, ICBC may incorporate this customer feedback into its analysis as we proceed with the program. Additional examples of customer feedback to ICBC about the DRP are enclosed. Q3 . The Com m ission, in its January 9 , 2 0 0 8 Decision on page 2 7 , notes that it had approved the DRP by order No. G-1 2 6 -0 7 and directed I CBC to file an actuarial analysis report for the DRP program follow ing the third anniversary of im plem entation. I t further states that “This directive does not preclude I CBC from recom m ending DRP rate adjustm ents in the interim , to im prove the effectiveness and/ or fairness of DRP, based on statistical analysis, practical experience and/ or industry practice.” I s it consistent w ith the program applied for and approved by the Com m ission to delay the im plem entation of the fourth DRP category until January 1 , 2 0 1 0 ? I f so, how ? I f not, w hy does I CBC not see a need to reapply to the Com m ission to am end the im plem entation of the program from that w hich it applied for and w hich w as approved by the Com m ission? Does I CBC consider the proposed delay in im plem entation of the fourth DRP category to be consistent w ith the Com m ission’s com m ent on page 2 7 of the Decision? W hy or w hy not? A3 . ICBC believes that the DRP, incorporating the implementation of the fourth category in 2009, is consistent with the Commission’s Decision. Fundamentally, DRP was intended to address the problem of high-risk drivers, and this remains the intention and effect of the DRP. ICBC’s Filing envisioned the implementation of DRP as an incremental process. As noted in the question, the Commission also recognized that the implementation of DRP would be subject to adjustments over time in its January 9, 2008 Decision (at p.27): “This directive does not preclude ICBC from recommending DRP rate adjustments in the interim, to improve the effectiveness and/ or fairness of DRP, based on statistical analysis, practical experience and/ or industry practice.” Both ICBC and the Commission also recognized the importance of ensuring that the public was aware of, and understood, the DRP prior to its implementation, as communication is essential to obtain additional benefit associated with altered behaviour. Paragraph 65 of Chapter 17.1 refers to the need for a public communication process, and the Commission’s Order No. G-126-07 provided early approval of the DRP program so that ICBC could Insurance Corporation of British Columbia 3
I CBC’s DRP Response, April 1 4 , 2 0 0 8 “undertake a communications campaign to ensure that the public is aware of [ the] changes… ”. ICBC has, via the media and its own communications, provided comprehensive awareness of DRP to the majority of people in the province. In particular, DRP received coverage via local television news, many newspaper articles and letters, and many radio news clips. In addition, ICBC sent out the DRP Warning Letters mentioned in the response to question two, posted DRP information on icbc.com, communicated to brokers so that they could discuss DRP with customers, and relevant ICBC brochures were updated to include DRP references. Despite these communications, based upon the customer feedback received, the fourth category (three or more convictions for any motor vehicle offence) is not adequately understood by customers. As indicated in question two, ICBC intends to undertake further analysis of customer and stakeholder feedback. Once ICBC’s analysis of this information is complete ICBC may incorporate it as it proceeds with the program. The fundamental elements of the DRP remain intact and the changes are consistent with the Commission’s Decision. ICBC believes that a one year change in the implementation date for one of four elements of the DRP is required and that it can and should be implemented by way of ICBC filing revised Tariff pages with the Commission prior to the end of 2008. Q4 . I CBC in its March 1 7 letter states that it intends to begin the scan period for the fourth category on January 1 , 2 0 0 9 and begin charging prem ium s starting in January 2 0 1 0 . The ‘scan period’ w as described in I CBC’s 2 0 0 7 Rate Design Application ( p. 1 7 .1 -3 ) as the 1 2 -m onth period ending five m onths prior to the driver’s birthday, during w hich tim e driving convictions com m itted w ould be added to the driver’s record for the purpose of determ ining the DRP prem ium . W hile the initial scan period w as proposed to be one year, I CBC also stated in the Application that “… one year is not a sufficiently long enough period of tim e to develop the inform ation required to establish a driver’s prem ium ” ( 2 0 0 7 Rate Design Application, p. 1 7 .1 -5 ) . Did I CBC consider beginning the scan period for the fourth category of violations on January 1 , 2 0 0 8 , even though it proposes that the prem ium based on that fourth category w ould not be im plem ented until January 1 , 2 0 1 0 ? I f not, w hy not? I f so, w hy w as it rejected? W ill the proposed delay in the ‘scan period’ also lim it or delay the data collection required to provide the actuarial analysis report for the DRP as directed by the Com m ission’s Rate Design Decision on page 2 7 ? I f so, please explain w hy such data collection cannot proceed irrespective of a delay in the im plem entation of the DRP based on the fourth category of violations? ICBC did consider beginning the scan period for the 4 th category as outlined above, but A4 . decided not to proceed. Given the feedback from stakeholders and customers, ICBC felt it was prudent to delay the implementation of the 4 th category until the consultations and analysis of the customer and and stakeholder feedback has been completed. (NOTE - the scan period referenced in the first paragraph in the second sentence of the Commission’s question refers to the scan period for DPP and not DRP.) Insurance Corporation of British Columbia 4
I CBC’s DRP Response, April 1 4 , 2 0 0 8 Implementing the scan for the 4 th category in January 2009 will not limit or delay the data collection required to provide the actuarial analysis report for the DRP as directed by the Commission. Insurance Corporation of British Columbia 5
Subject: Customer email regarding DRP letter, Example 1 To whom it may concern, Recently I recieved a letter from you stating that I am a bad driver, and that ICBC is "getting tough on drivers like you". First off it has been three years since I have received a speeding ticket. How may I ask, does this lump me into the dangerous driver category. Second, in my 8 years of driving I have never been in any kind of accident. How again does this make me a ?dangerous driver?? I have never been so insulted in my entire life. The letter that I received was rude and absolutely ridiculous. If you think that I am going to sit back and let you insult me, you are dead wrong. I would like a letter of apology, signed by Paul Taylor himself, or I will be going to all newspapers in the Okanagan to let them know just what kind of entity that ICBC is. Sincerely
Subject: Customer feedback on DRP letter, Example 2 Dear ICBC; It is with considerable alarm that I received a very aggressive and unfair letter (dated Dec. 11) from Paul Taylor basically accusing me of being a bad driver and further, if I don't smarten up, I will be paying a lot more for insurance in the future. Have you people taken leave of your senses? I made a phone call and asked what my driving record was in recent years. I have 3 seat belt violations and 1 failure to produce a valid driver's licence. Very naughty, but harmless, and quite fluky actually. I almost always wear my seat belt these days, finally. When I started driving there were no seat belts in cars and it took me a while to adjust without slipping up. The seat belt checks were almost literally outside my door in North Van, the failure to produce a valid drivers licence was at one of those seat belt checks, 1 block from home when I was going to the corner store. I have this 'bad' habit of buckling up after I start moving. Sometimes when I am driving a block, or two I have forgotten, not anymore. By the way, the seat belt check is a regular occurrence on Keith Road at the same location, I have been waved thru countless times. I live around the corner. I have no points and haven't had any in years. I don't think that I have ever had more than 3 points in any given year (and most years none) in the 45 years of my driving record. I have had nothing more than a handful of minor speeding tickets on open highways (always radar and always the lowest penalty possible). I have never in 45 years of driving been convicted of any driving offence other than your 'garden variety' that even good drivers get caught up in from time to time. I have one claim against me in 45 years, a minor rear ender, no damage to my vehicle. I keep hearing that drivers like myself can get cheaper insurance from companies in the private sector. I have never bothered looking into this as I am aware that I am currently paying the lowest rate possible at ICBC. Thanks to your threatening letter, it is my intention to now look into spending my insurance money elsewhere. Yours truly,
From: Sent: Monday, DecemlJer 17, :m07 2:06 PM To: Feedback Subject: Letter of 12/11/07 Driver Risk Premium 'Letter of 12/11/07 Driver Risk Premium Subject: Name: E-mail: Comments: To Paul Taylor: I was surprised and angered to read the letter you sent da~ed December 11, 2007. In it YO.li say I have had "multiple driving convictions and/or suspensions in the past number of years, which means you are putting others at risk because of your bad driving habits". I take exception to-being accused of being a bad driver. I arn-guiity 6£ having three-speeding tickets in the past 10 years, and none for the past 4 years. Does this. make me a bad driver. I applaud the idea of bad drivers paying more for driving "convictions and/or suspensions!!, but not for occasional speeding tickets. I would appreciate some clairfication on the criteria you used to select drivers for this mailing list. Sincerely,
_!:=_c:-~!ft-.tf!Z UlI r I , ~ ",OfJJ reference date . DEC 2 0 2U07 RfEClEffVfEfU I I . DE~ 21 2007 Paul Taylor LCBC .... _ ....... ""'---- ... _-c-,;.- 151 W. Esplanade North Vancouver BC V7M 3H9 Dear Mr. Taylor, Enclosed a copy of a letter I received today under your signature and North Vancouver address. , I do not know about the multiple driving convictions and/or suspen,siohs this letter says I've had. You included a brochure on the new Driver Pena'lty Point premiums which mentions roadside suspensions, excessive speed convictions and Criminal Code of Canada offences. I am not aware of having any of these either. In the last three years I have had some tickets for not wearing a seat belt. I just looked at my last one. It is called a Violation Ticket. Is this what the letter is refering to as a "driving conviction"? I don't recall any speeding charges in the past three years. I have not had an alcholic drink in 25 years so that eliminates roadside suspensions and drunk driving, etc. I have been involved in some automobile accidents in the past three years. Every single one was determined to be 100% the other parties fault in every case. Because of my safe driving and good record my automobile insurance with ICBe in 2005 had the 43% discount. In 2006 I had the 43% discount. In 2007 I had the 43% discount. r expect the full discount when I get my 2008 insurance. Your letter begins by telling me I've had multiple driving convictions arid/or suspensions and that I'm putting others at risk. I do not under- stand. Would you please explain? Thank you for your consideration,
Quesnel Cariboo Observer, Page 0006, 26-Dec-2007 Little too late Canada Post carriers bags are little heavier this year as they have to cart around nasty letters from ICBC to thousands of drivers throughout the province. Wording in the letters state ICBC is concerned about how they drive and have plans to do something about it in the new year. They say ICBC is getting tough on drivers like you (those who receive the letters) and come Jan. I they're introducing driver risk premiums which means extra costs to reflect the increased risk these drivers pose on the road. These premiums, according to ICBC, help keep insurance rates low and stable for good drivers. The letters list convictions of driver-related offences, road-side suspensions and such over a three- year period. This heavy-handed approach has certainly generated response in all media with many stories of drivers receiving the letters for offences such as seat belt infractions. We are all for reducing the rates we pay, but it doesn't appear drivers not deemed bad, are receiving letters telling them their rates are going down. One bad driver letter recipient reported he enjoys the Road Star package with accompanying benefits and yet the letter suggests otherwise. Many say the offences are at least three years old and why threaten now. It would appear ICBC president and CEO Paul Taylor has adopted a Grinch-style attitude right before Christmas. The letter indicates rate increases on average of $500, or possibly thousands of dollars more a year as early as 2009. It's hard to imagine if a driver chooses not to wear a seat belt, gets caught several times, pays the fines, could be a menace to other drivers, but according to ICBC that's exactly what they believe. Drinking and driving, habitually excessive speed and reckless driving, absolutely should be slammed, but that should have been done since the first drivers' licences were issued back nearly 100 years. Where was ICBC then? Maybe ICBC should look more closely at who they are calling bad drivers and nail the real offenders. Painting everyone with the same brush, is just another whitewash job and this province certainly doesn't another one of those.
S IX TH FLOOR, 900 HOWE STREET, BOX 250 ERICA M. HAMILTON VAN COUVER, B.C. CANADA V6Z 2N3 COMMISSION SECRETARY TELEPHONE: (604) 660-4700 BC TOLL FREE: 1- 800-663-1385 Commission. Secretary@beuc.com web site: http :// www.beuc.com FA CSIMILE: (604) 660-1102 Log. No. 24648 VIAE-MAIL May 12,2008 regaffairs@icbc.com Ms. Kathy Parslow Director, Regulatory Affairs and Planning Insurance Corporation of British Columbia Suite 340 - 151 West Esplanada North Vancouver, B.C. V7M 3H9 Dear Ms. Parslow: Re: Insurance Corporation of British Columbia ("ICBC") Implementation of Other Operator and Driver Risk Premium The Commission, in its January 9, 2008 Decision, approved various elements ofICBC's 2007 Basic Insurance Rate Design Application, including the Other Operator ("00") and Driver Risk Premium ("DRP") program. ICBC, in a letter dated March 17 , 2008, discussed the timing of implementing the 00 and DRP programs. Other Operator In its letter, ICBC stated that it has taken a number of steps to implement 00 and is awaiting the necessary amendments to the Insurance (Vehicle) Regulation and will advise the Commission when the amendments to the Regulation are enacted. ICBC also states that because further implementation steps will be required after the amendments are enacted, it expects to implement its 00 proposal approximately nine months later. Driver Risk Premium The DRP involves premiums being charged to drivers who have accumulated over a three year period: • At least one motor vehicle related Criminal Code a/Canada conviction or ten point Motor Vehicle Act ("MVA") conviction; • At least two roadside suspensions; • At least one conviction for Excessive Speed; or • At least three convictions for any motor vehicle offences under the MVA, MVA Regulations, Criminal Code a/Canada convictions, Excessive Speed convictions or roadside suspensions. ICBC's letter stated that it has proceeded as planned with implementing the scan period for the first three categories as of January 1,2008 and is on target to begin charging the higher of the Driver Penalty Point ("DPP") premium or DRP starting in January 2009. The letter also stated that in light of recent stakeholder inquiries and concerns, ICBC believes that further public and stakeholder communication and feedback is warranted prior to implementation of the fourth category of the DRP program. ICBC believes that the public and stakeholder communication and fe edback can be successfully completed within a year and therefore it intends to begin the scan period for the fourth category on January 1, 2009 and begin charging premiums in January 2010. . . .1 2
2 In a letter dated March 31, 2008 the Commission requested that ICBC provide additional infonnation by way of responses to specific questions with respect to the proposed change to the implementation of the DRP. ICBC responded to the Commission's request on April 14,2008. The Commission has reviewed ICBC's responses and notes ICBC's comments regarding the customer feedback it received, namely: • Customers who had not had a claim or a recent claim did not understand the correlation between violations and the risk of a collision; • Customers did not think that their particular types ofviolation(s) such as seatbelt violations should result in an additional premium for them; • Customers would like to see more customer friendly communication regarding the DRP; • Customers did not remember that they had three or more convictions; and • Customers do not see the intuitive relationship between certain driving violations and the cost of Insurance. The Commission further notes ICBC's submission that the fundamental elements of the DRP remain intact and that implementing the scan for the fourth category in January 2009 will not delay or limit the data collection required to provide the actuarial analysis report for the DRP as directed by the Commission. The Commission also acknowledges ICBC's submission that the proposed changes comply with the provincial government's January 31, 2007 directive relating to high-risk drivers, and that the changes are consistent with the Commission's January 9,2008 Decision. Commission Detenninations With respect to the delay in implementing the 00, the Commission recognizes that ICBC cannot proceed with implementation until after the Regulation is amended and accepts ICBC's proposal, but directs ICBC to report to the 00 the Commission by May 1, 2009 on the status of program, if it has not been implemented by then. Concerning the proposed change in implementation of the DRP, the Commission accepts that customer response with respect to the fourth category indicates a need for further customer communication and warrants a delay of the scan for those violations until January 1,2009. The nature of the customer feedback, summarized above, indicates that in order to avoid any further delay, ICBC must take more care in its customer communications. For example, the Commission is sympathetic to the concerns of customers who fail to see the connection between seatbelt violations and increased risk. ICBC's future communications with customers on the DRP should either do a more thorough job of drawing the connections between driver behaviour and the associated impact on premiums, or the program should be more precise in selecting only those violations that increase the risk. ICBC has indicated that it will implement the DRP fourth category scan by January 1,2009, but ifICBC intends to change the fonn of the DRP or if it wishes to delay beyond that date, ICBC is directed to apply to the Commission for approval. JWF/rt lCBC/Cor/Other Operator and Driver Risk Premium
cc: Mr. Donnie Wing, CA Chief Financial Officer Insurance Corporation of British Columbia d01lnie. wing@icbc.com ICBC Rate Design Intervenors (ICBC-2007RD-RJ)
building trust. driving confidence. June 27, 2008 British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Erica M. Hamilton, Commission Secretary Re: Revised Tariff for Implementation of Driver Risk Premium Dear Ms. Hamilton: Please find enclosed for the Commission's approval, proposed amendments to the Basic Insurance Tariff for implementation of the Driver Risk Premium (DRP) except the DRP fourth category. ICBC's March 29, 2007 Rate Design Application contained a proposal for the creation of a new Driver Risk Premium. Further to that proposal, ICBC's letter to the Commission dated July 20, 2007 included proposed amendments to the Basic Insurance Tariff for implementation of the DRP and Other Operator. While the Commission accepted those changes, the related DRP amendments were not in Tariff page format for the Commission Secretary to sign. The attached Tariff pages are now in Tariff format and contain additional revisions as discussed below. In Schedule E, the definition of a "MVA Conviction" has been rewritten. The version of this definition filed with ICBC's July 20, 2007 letter defined the term "MVA Conviction" with reference to the list of offences that presently trigger Driver Penalty Points (DPP) in the Schedule to Division 28 of the Motor Vehicle Act Regulation, BC Reg 26/58. ICBC's review of the DRP program indicated that the list of DPP offences does not capture a number of Motor Vehicle Act offences that were used in the analysis of the correlation between MVA convictions and crash rates referred to in ICBC's Rate Design Application at pages 17.1-7 to 17.1-11. The revised definition of "MVA Conviction" in the attached version of Schedule E captures offences that are committed while driving which is consistent with the statistical analysis that ICBC conducted in designing the DRP program. In Section 4.2 of Schedule E, reference to roadside suspensions has been added. Roadside suspensions were inadvertently left out of the July 20, 2007 draft. That omission, if not corrected, would mean that receipt of a roadside suspension would not result in a reinstatement of DRP despite the fact that the driver had been found driving without a licence. In addition, the list of driving related offences that will result in a reinstatement of the DRP has been expanded to include MVA Convictions, as defined in Schedule E. Finally, as discussed in ICBC's letters to the Commission dated March 17, 2008 and April 14, 2008, the proposed amendments reflect the delayed implementation of the category of DRP offences that relate to motorists who accumulate three or more convictions or roadside suspensions within a three year scan period. .../2 151 West Esplanade I North Vancouver I British Columbia I V7M 3H9 I 604-661-2800 I regaffairs@icbc.com
- 2 - lCBC is requesting the enclosed amendments to be effective January 1, 2008, which is consistent with the date in the 2007 Rate Design Application and previously approved by the Commission. Yours truly, ----- Q I /J c:::--J u-~r -+or Kathy Parslow Director, Regulatory Affairs and Planning Cc: James Fraser, Director, Strategic Services Donnie Wing, CA, Chief Financial Officer, ICBC Enclosures 151 West Esplanade I North Vancouver I British Columbia I V7M 3H9 I 604-661-2800 I regaffairs@icbc.com
Insurance Corporation of British Columbia Basic Insurance Tariff Basic Insurance Premiums Page 33 First Revision Effective: January 1, 2008 2.G. Premium Payable for Driver’s Certificates 2.G.1 Premium Payable for Driver’s Certificate The annual premium payable by a person for a driver’s certificate issued pursuant to section 43 of the IVR is the total of: (a) the greater of: (i) the point penalty premium calculated in accordance with Section 2 of Schedule E, C and (ii) the driver risk premium calculated in accordance with Section 3 of Schedule E, N and (b) the multiple crash premium calculated in accordance with Schedule F. 2.G.2. Application of Other Basic Insurance Tariff Provisions and IVR Sections Section 2.K of this Basic Insurance Tariff and section 15.7 of the IVR apply in respect of premium payable for driver’s certificates. Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 1 First Revision Effective: January 1, 2008 SCHEDULE E DRIVER PENALTY POINT PREMIUM 1. Definitions In this Schedule: “10 point MVA Conviction” means a conviction for any offence under the Motor Vehicle Act that is listed in Table 4 set out in the Schedule to Division 28 of the Motor Vehicle Act Regulation , BC Reg 26/58 as amended from time to time, “Contravention” means any: (a) 10 point MVA Conviction, (b) Criminal Code of Canada Conviction, (c) Conviction for Excessive Speed, or (d) Roadside Suspension, N “Conviction for Excessive Speed” means a conviction for an offence under section 148 of the Motor Vehicle Act , “Criminal Code of Canada Conviction” means a conviction for any driving offence under the Criminal Code of Canada that is listed in Table 4 set out in the Schedule to Division 28 of the Motor Vehicle Act Regulation , BC Reg 26/58 as amended from time to time, “MVA Conviction” means any conviction for an offence under the Motor Vehicle Act or the Motor Vehicle Act Regulation that (a) arises directly or indirectly out of the use or operation by the offender of a vehicle other than a cycle, or (b) is committed while the offender is using or operating a vehicle except a cycle, “ one-year scan period ”, in respect of a person, means the 12 month period starting 17 months before the anniversary of the person's birth date, “Roadside Suspension” means a suspension pursuant to section 90.3 or 215 of the Motor Vehicle Act , N “three-year scan period” in respect of a person, means the 36 month period starting 41 months before the anniversary of the person’s birth date, but does not include any portion of that 36 month period before January 1, 2008. 2. Penalty Point Premium 2.1 For the purpose of this section 2, the classes of drivers set out in Table 1 of this Schedule are established. Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 2 First Revision Effective: January 1, 2008 2.2 A person falls within a class of drivers established under subsection 2.1, if the total of the following equals the number of point penalties that in column A of Table 1 identifies that class: (a) the number of point penalties recorded by ICBC against the driving record of that person for offences committed during the one-year scan period; and (b) the number of point penalties recorded by ICBC, since the date of the last assessment, against the driving record of that person for offences committed before the one-year scan period. 2.3 The annual point penalty premium payable by a person for a driver's certificate is the amount shown in column B of Table 1 opposite the number of point penalties that, in column A of that Table, identifies the person's class. Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 3 First Revision Effective: January 1, 2008 TABLE 1 – Penalty Point Premium Column A Column B Class of Drivers by Number of Annual Premium ($) Point Penalties 0-3 nil 4 175 5 230 6 300 7 415 8 520 9 640 10 905 11 1 080 12 1 260 13 1 680 14 1 920 15 2 160 16 2 480 17 2 800 18 3 120 19 3 440 20 3 760 21 4 160 22 4 560 23 4 960 24 5 360 25 5 760 26 6 240 27 6 720 28 7 200 29 7 680 30 8 160 31 8 720 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 4 First Revision Effective: January 1, 2008 32 9 280 33 9 840 34 10 480 35 11 120 36 11 760 37 12 400 38 13 040 39 13 680 40 14 560 41 15 360 42 16 160 43 16 960 44 17 760 45 18 560 46 19 520 47 20 480 48 21 440 49 22 400 50 or more 24 000 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 5 First Revision Effective: January 1, 2008 3. Driver Risk Premium 3.1 The annual driver risk premium payable by a person for a driver’s certificate is determined with reference to the Contraventions recorded by ICBC in respect of that person during the three-year scan period and is the total of the amounts set out in Column B of each of Tables 2, 3 and 4 that correspond to the number and type of Contraventions referred to in each Table. TABLE 2 – Driver Risk Premium for Criminal Code Convictions and 10 Point MVA Convictions Driver Risk Premium Schedule Column A Column B Number of Contraventions: Criminal Code of Canada Premium Conviction or 10 point MVA Conviction 1 $ 905 2 $ 3,760 N 3 $ 8,160 4 $ 14,560 5 $ 24,000 6 $ 24,000 7 $ 24,000 8 $ 24,000 9 $ 24,000 10 $ 24,000 11 $ 24,000 12 $ 24,000 13 $ 24,000 14 $ 24,000 15 $ 24,000 16 $ 24,000 17 $ 24,000 18 $ 24,000 19 $ 24,000 20 $ 24,000 21 $ 24,000 22 $ 24,000 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 6 First Revision Effective: January 1, 2008 23 $ 24,000 24 $ 24,000 25 $ 24,000 26 $ 24,000 27 $ 24,000 28 $ 24,000 29 $ 24,000 30 $ 24,000 31 $ 24,000 32 $ 24,000 33 $ 24,000 34 $ 24,000 35 $ 24,000 36 $ 24,000 37 $ 24,000 38 $ 24,000 39 $ 24,000 40 $ 24,000 41 $ 24,000 42 $ 24,000 43 $ 24,000 44 $ 24,000 45 $ 24,000 46 $ 24,000 47 $ 24,000 N 48 $ 24,000 49 $ 24,000 50 $ 24,000 TABLE 3 – Driver Risk Premium for Roadside Suspensions Driver Risk Premium Schedule Column A Column B Number of Contraventions: Premium Roadside Suspension 1 $ 0 2 $ 370 3 $ 430 4 $ 490 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 7 First Revision Effective: January 1, 2008 5 $ 560 6 $ 640 7 $ 740 8 $ 850 9 $ 980 10 $ 1,130 11 $ 1,300 12 $ 1,500 13 $ 1,730 14 $ 1,990 15 $ 2,290 16 $ 2,630 17 $ 3,020 18 $ 3,470 19 $ 3,990 20 $ 4,590 21 $ 5,280 22 $ 6,070 23 $ 6,980 24 $ 8,030 25 $ 9,230 26 $ 10,610 27 $ 12,200 28 $ 14,030 N 29 $ 16,130 30 $ 18,550 31 $ 20,000 32 $ 20,000 33 $ 20,000 34 $ 20,000 35 $ 20,000 36 $ 20,000 37 $ 20,000 38 $ 20,000 39 $ 20,000 40 $ 20,000 41 $ 20,000 42 $ 20,000 43 $ 20,000 44 $ 20,000 45 $ 20,000 46 $ 20,000 47 $ 20,000 48 $ 20,000 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 8 First Revision Effective: January 1, 2008 49 $ 20,000 50 $ 20,000 TABLE 4 – Driver Risk Premium for Convictions for Excessive Speed Driver Risk Premium Schedule Column A Column B Number of Contraventions: Convictions for Premium Excessive Speed 1 $ 320 2 $ 370 3 $ 430 4 $ 490 5 $ 560 6 $ 640 7 $ 740 8 $ 850 N 9 $ 980 10 $ 1,130 11 $ 1,300 12 $ 1,500 13 $ 1,730 14 $ 1,990 15 $ 2,290 16 $ 2,630 17 $ 3,020 18 $ 3,470 19 $ 3,990 20 $ 4,590 21 $ 5,280 22 $ 6,070 23 $ 6,980 24 $ 8,030 25 $ 9,230 26 $ 10,000 27 $ 10,000 28 $ 10,000 Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
Insurance Corporation of British Columbia Basic Insurance Tariff Schedule E: Driver Penalty Point Premium Page 9 First Revision Effective: January 1, 2008 29 $ 10,000 30 $ 10,000 31 $ 10,000 32 $ 10,000 33 $ 10,000 34 $ 10,000 35 $ 10,000 36 $ 10,000 37 $ 10,000 38 $ 10,000 N 39 $ 10,000 40 $ 10,000 41 $ 10,000 42 $ 10,000 43 $ 10,000 44 $ 10,000 45 $ 10,000 46 $ 10,000 47 $ 10,000 48 $ 10,000 49 $ 10,000 50 $ 10,000 4. Refunds C 4.1 In the circumstances described in column A of Table 5 of this Schedule E and subject to the C minimum time requirements set out in column B of Table 5 and the additional requirements set out in column C of Table 5, ICBC shall, on application, refund to a person named on a driver’s certificate or his personal representative that part of the premium, calculated according to section 2.H of this Basic Insurance Tariff, paid for the period the driver’s certificate is not in use or for the term of the driver’s certificate remaining unexpired on the day it is surrendered. 4.2 Notwithstanding anything in section 4.1 of this Schedule E, if a person who has applied for and been granted a refund in accordance with section 4.1 is, during the term of the driver’s certificate for which the refund has been granted: N (a) convicted of an offence listed in Tables 2, or 4 of this Schedule or convicted of any MVA Conviction, or receives a roadside suspension, or (b) involved in a motor vehicle crash while driving a motor vehicle, the person must repay the amount of the refund paid by ICBC as premium. Amended effective January 1, 2008 Accepted:__________________________ Commission Secretary:__________________________
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