2013 Rate Action Counter Proposal

1. 2013 Rate Action Counter Proposal April 22, 2013

2. BACKGROUND Two of the main causes for the Proposed 2013 Rate Action are: • Escalating accident and long-term injury costs • Management Investment decisions

3. SGI statistical accident accounting practices for motorcycles indicate to the public: • Overall accident costs estimated at $20 million • Long-term injury costs, particularly “wage replacement”, accounts for $11 million of total accident costs • A “projected” shortfall of $9 million BACKGROUND

4. SGI statistical accident accounting practices for motorcycles indicate to the public: • Current rates do not recover costs • Subsidized by other motorists • At Fault 53% of the time • Risk and risk rates attributed directly to vehicle type, or body style BACKGROUND

5. BACKGROUNDISSUES: Investment Losses • SGI investment risk-management decisions have resulted in significant losses in the (bond) market • Investment losses are directly contributing to SGI requesting an overall rate increase of approximately 2.27% • Investment losses contribute to rates rising excessively for some SGI customer demographics, such as the motorcycle category, the highest of which will experience a 39% rate increase

6. BACKGROUNDISSUES: Investment Losses Conclusion: Customers and taxpayers are being asked to offset the losses incurred due to SGI’s investment managerial decisions

7. SGI’s practices and rational used in their statistical analysis are questionable, and are a cause for great concern because statistical analysis drives rates • The vast majority of the world wide accident analysis indicates that in 80% of all motorcycle accidents, where two vehicles are involved, the automobile is at fault ¾ of the time BACKGROUND ISSUES: Escalating Accident Costs Accident Statistics and Analysis:

8. The second largest cause of motorcycle accidents (20%) is the single motorcycle accidents category, and these accidents are largely attributable to inexperience and handler error • Of the 80% of multi-vehicle accidents, where the automobile is at fault, the large majority include serious injury • Of the 20% of single vehicle motorcycle accidents more than 50% of these injuries sustained were of a MINOR nature BACKGROUND ISSUES: Escalating Accident Costs Accident Statistics and Analysis

9. Conclusion: SGI’s statement that in 53% of the cases the motorcyclist is at fault, and therefore responsible for the majority of the long-term injury costs driving the excessive rate hike, is suspect BACKGROUND ISSUES: Escalating Accident Costs Accident Statistics and Analysis

10. Prior to 2011 rating year, and regardless of fault the Auto Fund assigned damages, liability and injury costs to the vehicle the customer was in when they were injured • SGI wrongly assumed a no fault policy made determination of fault moot, and therefore no longer required due diligence and tracking BACKGROUND ISSUES: Escalating Accident Costs Statistical Data and Rate Modeling

11. The formula for determining the base costs for damages, liability and injury was flawed • Only since 2011, has the Auto Fund assigned damages, liability and injury costs to the vehicle at fault BACKGROUND ISSUES: Escalating Accident Costs Statistical Data and Rate Modeling

12. Conclusion: To accept SGI’s statistical data, and the associated costs and rates derived from that data, requires acceptance that Saskatchewan vehicle accident statistics, motorcycle accidents in particular, are a world wide anomaly BACKGROUND ISSUES: Escalating Accident Costs Statistical Data and Rate Modeling

13. Conclusion: Arguably motorcycles do have a high injury claim element, however fault assignment and appropriate allocation of injury costs, are critical to any rate analysis and rate development proposal BACKGROUND ISSUES: Escalating Accident Costs Statistical Data and Rate Modeling

14. Conclusion: Historical data prior to 2011 does not accurately reflect costs of motorcycle accidents. Costs are likely inflated BACKGROUND ISSUES: Escalating Accident Costs Statistical Data and Rate Modeling

15. Policies and rate structures have lagged behind business and revenue requirements year after year, resulting in a “projected” $9 million revenue shortfall • SGI’s solution has been to return to the Crown Rate Schedule and increase rates based on existing flawed accident cost allocation policies BACKGROUND Flawed Historical Rate Proposals and Cost Recovery

16. Three average rate increases in five years for Motorcycle Owners: 2007 – 15% 2009 – 25%2012 – 30% $1000 $1,150 $1,437.50 $1,868.75 • Revised SGI 2013 average rate increase is 16.8% with some instances as high as 39% BACKGROUND Flawed Historical Rate Proposals and Cost Recovery

17. Conclusion: Rate hikes to date still have not addressed the shortfall problem, nor will they in the foreseeable future BACKGROUND Flawed Historical Rate Proposals and Cost Recovery

18. Projected $9 million shortfall and cross-subsidy: • Is dependent on acceptance of the “anomaly” argument • Completely ignores existing large cost recovery affecting contributing revenue streams, such as, package policies BACKGROUND Flawed Historical Rate Proposals and Cost Recovery

19. Conclusion: The premise, that both the $9 million shortfall and cross-subsidy positions are directly caused by motorcycle “at fault” accidents, and insufficient rates, is again suspect BACKGROUND Flawed Historical Rate Proposals and Cost Recovery

20. SGI allows new motorcycle learners to operate motorcycle on public roads and highways with no proof or testing of actual operational capacity. • In Saskatchewan, you are not required to pass an operator road test or vehicular proficiency test before operating a motorcycle BACKGROUND Safety Learner Operator Requirements Accident Cost Escalation

21. SGI Learners Permits requires only completing a non-motorcycle specific on-line test that takes approx. 10 minutes • There are 31,000 class 5 drivers with a “motorcycle learner” endorsement • 25% of all motorcycle accidents involve operators with a learner’s license • 25% of the $9 million shortfall is $2,250,000 BACKGROUND Safety Learner Operator Requirements Accident Cost Escalation:

22. Conclusion: Motorcycle Learner training requirements and restrictions are woefully inadequate in Saskatchewan, and as such, are contributing heavily to the increased accident and injury cost numbers, and the present $9 million shortfall BACKGROUND Safety Learner Operator Requirements Accident Cost Escalation:

23. Does not address the cross-subsidy issue, only focuses cross-subsidization on the motorcycle demographic • Does not address the escalating cost of injury claims associated with “high-risk” behavior of “all” motoring demographics • Resulted in significant push-back from the Saskatchewan electorate 2013 Rate Action Impact Application of “same old” Crown Corporation philosophy from the last century, of increasing rates in an attempt to resolve a symptom

24. Instigated negative media response over issues of fairness, and suspicion of statistical rationale • Relies on antiquated arbitrary insurance philosophy of generalized actuarial table application • Ignores “progressive” insurance practice of “individualized” behavioral insurance rating 2013 Rate Action Impact Application of “same old” Crown Corporation philosophy from the last century, of increasing rates in an attempt to resolve a symptom

25. Alienates “Boomer” demographic, the largest fastest growing motorcycle purchasing demographic, which contributes most heavily to all SGI revenue streams (i.e.: homes, cottages, business, boats, trailers, snowmobiles, business fleets, multi-car families, bonding/surety, agro, package policies) • Does nothing to address the issues of allowing untrained, unskilled persons to operate a motorcycle in Saskatchewan 2013 Rate Action Impact Application of “same old” Crown Corporation philosophy from the last century, of increasing rates in an attempt to resolve a symptom

26. Ignores the escalating costs and safety issues associated with permitting unskilled persons to operate a motorcycle • Does nothing to address automobile awareness and education of motorcyclists on shared roadways 2013 Rate Action Impact Application of “same old” Crown Corporation philosophy from the last century, of increasing rates in an attempt to resolve a symptom

27. Related small business and provincial tourism risk • Vital economic discretionary spending in province at risk • “Boomer” demographic has the vast majority in discretionary income to spend on “enjoyment of life” purchases 2013 Rate Action - Ancillary Impacts

28. Dealer network already feeling the negative affect of customer cancellation of new model purchases • Service and service industry revenues at risk • Aftermarket safety equipment and apparel sales reduced 2013 Rate Action - Ancillary Impacts

29. Many small business operators enjoy an increased revenue stream in the spring, fall and summer months due to motorcycle in province travel: • Restaurants in particular enjoy a large increase in customer traffic • Hotel, motel and campgrounds are favored holiday destinations for motorcyclists • All business(s) associated with tourism enjoy a boost in sales due to motorcyclist trade 2013 Rate Action - Ancillary Impacts

30. Recent Insurance industry studies show driving behaviors predict the likelihood of a claim far better than traditional insurance rating variables such as a driver’s demographic profile, age, and the year, make and model of the insured vehicle • Insurance industry, findings from an analysis of 5-billion real-time driving miles, conclude that driving behavior has more than twice the predictive power of any other insurance rating factor Insurance Industry Direction Risk Management and Cost Recovery

31. Loss costs for drivers with the highest-risk driving behavior are approximately 2 ½ times the costs for drivers with the lowest-risk behavior • Progressive Insurance President and CEO Glenn Renwick stated, “We believed that driving behavior was the most predictive rating factor – but didn’t expect the difference to be this dramatic. Actual driving behavior predicts a driver’s risk more than twice as strongly as any other factor.” Insurance Industry Direction Risk Management and Cost Recovery

32. Conclusions: If key driving behaviors are better indicators of risk than traditional rating variable then costs associated with escalating accident and injury costs should be placed directly on the operator’s license, rather than arbitrarily assigned to a vehicle, or vehicle body type Industry results suggest auto insurance rates can be far more personalized than they are today Operators are not members of an arbitrary actuarial class – but individuals with individual driving habits, which should be reflected in the price paid for insurance Insurance Industry Direction Risk Management and Cost Recovery

33. SGI requires additional revenues to reduce and eliminate the existing revenue shortfall and cover future costs • We have serious concerns regarding SGI’s statistics, analysis and conclusions, as well as how the shortfall has been assigned • We disagree completely with SGI’s outdated philosophy of blanket rate hikes as cost recovery mechanisms, tied to vehicles and vehicle classes Summary

34. If “Risk” is defined as “the potential that a chosen action or activity (including the choice of inaction) will lead to a loss” Summary

35. Then For the purpose here, risk and its associated costs are defined by individual behavior, not by an object Summary

36. Therefore To mitigate risk it is the behavior of the operator that must be the focus of the cost recovery mechanism, not some arbitrary vehicle classification scheme Summary

37. Mandatory Safety Training for All New Motorcycle Endorsement Applicants 2013 Rate Action Counter Proposal Learner Program – Safety and Risk / Cost Reduction

38. Graduated Learners Endorsement Level 1 Endorsement: • Utilize existing written test • Issued for safety training purposes only (existing classroom and hands-on rider safety training as per the existing programs in Saskatchewan) 2013 Rate Action Counter Proposal Learner Program – Safety and Risk / Cost Reduction

39. Graduated Learners Endorsement Level 2 Endorsement: • Issued after completing Level 1 course • Road eligible endorsement limited to 1 calendar year 2013 Rate Action Counter Proposal Learner Program – Safety and Risk / Cost Reduction

40. Graduated Learners Endorsement Level 3 Endorsement: • Graduated full motorcycle endorsement • Restricted as per existing SGI policy 2013 Rate Action Counter Proposal Learner Program – Safety and Risk / Cost Reduction

41. Administrative Recommendations • Review motorcycle endorsement restrictions for potential areas of safety enhancement • Migrate training fees toward compensatory rates • Compensatory rates create a potential business application • Enhance regular Driver Training motorcycle awareness 2013 Rate Action Counter Proposal Learner Program – Safety and Risk / Cost Reduction

42. Revise the existing Safe Driver Recognition Program demerit/surcharge schedule for “all vehicle operators” based on operational/behavioral record not class of vehicle, or vehicle body type The existing SDR Program surcharge schedule can and should be revised to reflect the realistic fiscal consequences of high-risk behavior, accident, and injury costs 2013 Rate Action Counter Proposal Rates, Risk Management and Cost Recovery Potential

43. Revise demerit categories to reflect high-risk behavior • Increase demerit surcharge rates for driving infractions • Lengthen premium surcharge reduction program timelines from one-time demerit surcharge, for example 3 to 5 years • Escalate demerit surcharge rates for driving infractions causing damage, injury and death 2013 Rate Action Counter Proposal Rates, Risk Management and Cost Recovery Potential

44. Escalate and expand existing license suspension policy • Ensure lengthened Safe Driver Recognition (SDR) program surcharge timeframes remain in place applicable throughout and beyond license suspension • Retain and expand SDR “reward” program beyond 20% for all vehicle operators based on operational/behavioral record 2013 Rate Action Counter Proposal Rates, Risk Management and Cost Recovery Potential

45. Surcharge Revenue Stream Safe Driver Recognition Injury Cost Recovery Proposal

46. Stringent on-going Assessment of Fault – due diligence: • Enables future assessment of all high-risk operators • Enables on-going focused fair cost assessment and revenue recovery • Increased ability to gauge/predict all future driver behavioral impact on costs and rate • Requires involvement of law enforcement, due diligence 2013 Rate Action Counter Proposal Rates, Risk Management and Cost Recovery Potential

47. Focuses directly on vehicle operator “Behavioral Management” • Shapes driver behavior • Progressive self-healing policy driven by individual operator behavior • Utilizes existing systems already in effect 2013 Rate Action Counter Proposal BENEFITS

48. Aligns with existing “rate shock” avoidance policy • Positive public support across all “vehicle operator” demographics • Rate increases “avoidable” for all safe driver segments • Supports all public safety initiatives 2013 Rate Action Counter Proposal BENEFITS

49. Focuses cost associated with all vehicular “high risk” segments • Reduced frequency of future rate application requirements • Ease of implementation and administration • Self escalating “individualized” rates relative to driver behavior • Focuses cost recovery appropriately eliminating cross subsidy 2013 Rate Action Counter Proposal BENEFITS

50. Increased ability to assess high risk regardless of vehicle type • Recovers high risk costs for all segments regardless of vehicle type • Potential to reduce future “vehicular” high risk costs *(affective suspension/demerit policy) • Eliminate risks associated with long term learners’ endorsement 2013 Rate Action Counter Proposal BENEFITS