9/10/2014 ICBC R EVENUE R EQUIREMENTS 2014 E XHIBIT B-4 2014 Revenue Requirements Application Informational Presentation September 10, 2014 Agenda • What is ICBC applying for? • Basic Regulatory Framework • Claims Costs: The main driver of the Rate Change – Basic frequency and distracted driving – Basic severity and Claims cost management 1 1
9/10/2014 Agenda • Other Components of Rate Change – Investment Income – Operating Expenses • Information on draft CRC Framework • Structure of Application 2 What is ICBC applying for? • Basic rate increase of 5.2% for 2014 PY • Approved on interim basis • Any difference between final approved and interim rate change deferred to next year’s (2015) rate change – Same as was done for 2013; difference of +0.3% was deferred and will be implemented with the 2014 rate change 3 2
9/10/2014 BASIC REGULATORY FRAMEWORK 4 ICBC’s Regulatory Framework • Special Direction IC2 – ICBC must apply for rate change annually by Aug 31 – Capital management – Rate set according to Accepted Actuarial Practice, subject to rate smoothing provisions: • Limitation on rate change to be within 1.5 percentage points of prior year’s rate change number • Commission may exclude some or all of an unfavourable “loss cost forecast variance” • The 2013 rate exclusion of 6.6% must be discontinued this year 5 3
9/10/2014 Capital Management Plan 160% MCT Threshold for CRC 145% MCT Outlook MCT Capital Management Target ratio for 2014 Margin for rate smoothing 130% MCT Margin for adverse events 100% MCT Statutory Minimum 6 Rate change to cover costs is within band No limitation required -1.5% +1.5% 3.7% 5.2% 6.7% 2014 rate 2013 rate = change change 7 4
9/10/2014 ICBC Rate Changes 11.8% 11.2% 6.6% 6.5% 5.2% 5.2% 3.3% 0.4% -2.4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 8 Implications for 2014 RRA • Indicated rate change is 5.2% – Reflects no capital build, as MCT at target – Within rate change band, so no limitation required – Equals the rate change to cover costs – Last year’s rate exclusion is discontinued • Partially offset by a favourable forecast variance 9 5
9/10/2014 Components of 2014 rate change 15.0% 13.0% 11.0% -3.0% 9.0% 2.9% 2013 Compared to 2014 Impact on Rate Level 6.6% -1.5% 7.0% 5.2% -0.1% 0.3% 5.0% 3.0% 1.0% 0.0% -1.0% -3.0% -5.0% PY 2013 Prior Rate Loss Cost Loss Cost Investment Operating Other Rate Change Rate Level Exclusion Variance Trend Income Expenses to Cover Cost 10 CLAIMS COSTS: THE MAIN DRIVER OF THE RATE CHANGE CHAPTER 3 11 6
9/10/2014 Loss Costs are the main driver Loss and ALAE Payments Operating Expenses Other (including acquisition costs) 12 What is “Loss Cost”? • Provision for Claims Costs in Rate – Expected future claims cost per policy • Claims Cost per Policy – Frequency of claims • (e.g., 15 claims per 1,000 policies) – Severity (average cost of a claim) • (e.g., $40,000) – Loss Cost = Frequency x Severity • (e.g., $600 = (15/1,000) x $40,000) Approximate loss cost of the bodily injury coverage 13 7
9/10/2014 Loss Cost Forecast Variance (all coverages) Last Year’s Loss Cost Forecast $850 $800 $750 Loss Cost $700 $650 $600 $550 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual (2013 Application) PY 2013 Projection (2013 Application) 14 Loss Cost Forecast Variance (all coverages) Re- estimation of Last Year’s Loss Cost Forecast $850 $800 $750 Loss Cost $700 $650 $600 $550 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application) 15 8
9/10/2014 Loss Cost Forecast Variance (all coverages) Difference is the Loss Cost Forecast Variance $850 $800 -1.5 ppts of $750 rate change Loss Cost $700 $650 $600 $550 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application) 16 Loss Cost Forecast Variance (all coverages) $800 2013 RRA $750 $700 +6.6 ppts of Rate change $650 $600 $550 $500 $450 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Accident Year Actual (2012 Application) PY 2012 Projection (2012 Application) Actual (2013 Application) PY 2012 Projection (2013 Application) 17 9
9/10/2014 Components of 2014 rate indication 15.0% 13.0% 11.0% -3.0% 9.0% 2.9% 2013 Compared to 2014 Impact on Rate Level 6.6% -1.5% 7.0% 5.2% -0.1% 0.3% 5.0% 3.0% 1.0% 0.0% -1.0% -3.0% -5.0% PY 2013 Prior Rate Loss Cost Loss Cost Investment Operating Other Rate Change Rate Level Exclusion Variance Trend Income Expenses to Cover Cost 18 Components of 2014 rate indication 15.0% 13.0% 11.0% -3.0% 9.0% 2.9% 2013 Compared to 2014 Impact on Rate Level 6.6% -1.5% 7.0% 5.2% -0.1% 0.3% 5.0% 3.0% 1.0% 0.0% -1.0% -3.0% -5.0% PY 2013 Prior Rate Loss Cost Loss Cost Investment Operating Other Rate Change Rate Level Exclusion Variance Trend Income Expenses to Cover Cost 19 10
9/10/2014 Loss Cost Trend (all coverages) $850 $800 $750 Loss Cost $700 $650 $600 $550 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application) 20 Loss Cost Trend (all coverages) $850 $800 PY 2014 PY 2014 2.9 ppts of $750 rate change Loss Cost $700 $650 $600 $550 $500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application) 21 11
9/10/2014 Main Driver of Loss Costs: Bodily Injury (BI) • Represents 75% of Claims Costs • Over last few years there has been – A significant and unfavourable shift in the frequency of BI claims – A large increase in the rate at which injured parties are obtaining legal representation 22 BI Frequency Forecast 2.5% 2.0% 1.5% Frequency 1.0% 0.5% 0.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accident Year Actual PY 2014 Projection (Current Application) PY 2013 Projection (2013 Application) PY 2013 Projection (Current Application) Model (2013 Application) Model (Current Application) 23 12
9/10/2014 BI Severity 24 Rate of represented BI claims 25 13
9/10/2014 Corporate strategy to address BI claims Legal Severity Representation Influence Control Frequency Pending Foundation People, Processes, Technology 26 BI FREQUENCY AND DISTRACTED DRIVING CHAPTER 7 27 14
9/10/2014 Road Safety is focusing on BI frequency • Safe Systems strategic framework – Enforcement is largest investment – Road improvements continue – Education and awareness re-prioritized to reflect trends and emerging factors • Focused on outcomes – Reducing crashes overall – Reducing frequency of BI claims 28 Distracted Driving is… • An emerging piece of the overall crash picture • A concern throughout the developed world • Part of a social shift in society to instant communication • Interrupting an otherwise positive crash trend 29 15
9/10/2014 One key factor contributing to BI claims frequency is a recent increase in rear-end crashes resulting in injury Top Crash Configurations in Casualty Crashes (ICBC Data 2001-2012) 30,000 25,000 REAR END 20,000 SIDE IMPACT Incidents SINGLE VEHICLE UNDETERMINED 15,000 HEAD ON SIDE SWIPE - SAME DIRECTION 10,000 SIDE SWIPE -OPPOSITE DIRECTION REAR TO REAR 5,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 30 Distraction is leading cause Contributing Factors in Casualty Crashes Rear End Crashes and All Configurations (TAS: 8 year average, 2005-2012) 60% Casualty Crash Incidents 50% 40% 30% 20% 10% 0% All Configurations RE Crashes Contributing Factors 31 16
9/10/2014 No silver bullet: a strategic approach • A 3 pillar approach to crash reduction as recommended by the WHO – Legislation: informing government of crash trends, research – Enforcement: 2 campaigns, community policing, crash mapping causal factors – Education and awareness: new partnerships, new advertising approach, building groundswell of support 32 Dad – Caught in a glance https://www.youtube.com/watch?v=DQPKG8YaXL8 33 17
9/10/2014 Heading Home – Only takes a second https://www.youtube.com/watch?v=OixjoQetvyw 34 Stop Light – Intersections are not safe https://www.youtube.com/watch?v=a5ZSJxGya7s 35 18
9/10/2014 Engaging Stakeholders 36 Chris & Mike – Stoplight texting http://youtu.be/VS_aDNipELU 37 19
9/10/2014 Squire & Dean – Emails at stop signs http://youtu.be/JZ_W37FCYmA 38 Kristi & Karen – Quick calls http://youtu.be/QR8bdSTZb10 39 20
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