The Canadian Loss Experience Automobile Rating

1. The Canadian Loss Experience Automobile Rating 2004 Ratemaking Seminar Philadelphia - March 11-12, 2004 Henning Norup Vice President, Information Research and Analysis Insurance Bureau of Canada

2. Presentation to 2004 Ratemaking Seminar CLEAR Why it was developed Low relationship between price and theft frequency Subaru Impreza WRX MSRP $35,000 Volkswagen Jetta GLX MSRP $34,000 Relative Frequency = 451 Relative Frequency = 80 March 11, 2004

3. Presentation to 2004 Ratemaking Seminar CLEAR Why it was developed Low relationship betweenprice and collision repair cost MSRP = $32,000 Relative Loss Cost = 148 Isuzu Rodeo 4DR 4WD MSRP = $31,000 Relative Loss Cost = 33 Buick Rendezvous 4DR 2WD March 11, 2004

4. Presentation to 2004 Ratemaking Seminar CLEAR Why it was developed Under a price-based rating system, the added cost of features designed to reduce insurance claims could result in a higher premium. Traction Control ABS Seat Belt Pretensioners Theft Deterrent Systems Airbag Restraint Systems March 11, 2004

5. Presentation to 2004 Ratemaking Seminar CLEAR Why it was developed Low relationship between price and replacement costs March 11, 2004

6. Presentation to 2004 Ratemaking Seminar CLEAR Why it was developed Low relationship between price and replacement costs March 11, 2004

7. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

8. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

9. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

10. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

11. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

12. Presentation to 2004 Ratemaking Seminar CLEAR - How it works Statistical models to estimate claim frequency and severity TF=INT + BBS + WB1*w + WB2 * w**2 + WB3 * w**3 + A1 *a + A2 * a**2 + A3 * a**3 + A1H1 * h * a + H1 * h + P1 * p + P2 * p**2 + P1A2 * a**2 * p + DDT + TDS INT = intercept BBS = vehicle body styles WB1 = wheel base WB2 = wheel base2 WB3 = wheel base3 A1 = vehicle age A2 = vehicle age2 A3 = vehicle age3 H1 = power ratio A1H1 = age and power ratio interaction P1 = price P2 = price2 P1A2 = age2 and price interaction DDT = drive train TDS = theft deterrent system a = age * 0.1 h = exp[(weight/power)*(-0.001)] w = wheel base p = ln(price*0.001) TF = 20 * sqrt(frequency) March 11, 2004

13. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

14. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

15. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

16. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

17. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

18. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

19. Presentation to 2004 Ratemaking Seminar CLEAR - How it works March 11, 2004

20. Presentation to 2004 Ratemaking Seminar CLEAR - How it works 1. Maintain vehicle characteristics db 2. Develop statistical models 3. Obtain national claims’ data 4. Develop and apply normalization models 5. Estimate loss costs 6. Adjust estimates 7. Calculate relativities 8. Establish rate groups 9. Balance table March 11, 2004

21. Presentation to 2004 Ratemaking Seminar CLEAR - How it works Loss Cost Data Vehicle Characteristics Recent Claims Experience NVAP Results Vehicle Characteristics Loss Cost Estimates Experience Adjustment + Formulae Modelling Final Adjustments and Balancing Rate Group Table VINLink March 11, 2004

22. Presentation to 2004 Ratemaking Seminar March 11, 2004

23. Presentation to 2004 Ratemaking Seminar March 11, 2004

24. Presentation to 2004 Ratemaking Seminar March 11, 2004

25. Presentation to 2004 Ratemaking Seminar March 11, 2004

26. Presentation to 2004 Ratemaking Seminar March 11, 2004