The Canadian Loss Experience Automobile Rating

1. CLEAR The Canadian Loss Experience Automobile Rating Arthur Tabachneck, Ph.D., Manager Abdul Sattar Al-Khalidi, Ph.D., Senior Statistician Statistical Research and Development

2. Canada Total Area: 3.9 mil sq miles Population: 33 mil Total Area: 3.7 mil sq miles Population: 298 mil

3. Created in 1964 over concern that poor underwriting practices, caused by inadequate information, were threatening the ability of insurers to meet claims liabilities Trade organization which serves as the voice of over 90% of the non-government P&C insurance sold in Canada Lobby governments for changes to public policy Formulate industry positions Offer organized insurance crime investigative services Collect, validate and store information Provide a forum for member companies to achieve the P&C insurance industry’s common vision Insurance Bureau of Canada (IBC)

4. Government vs Non-Government Auto Insurance in Canada Non-Government Insurers BI Only Mandatory Coverages Government Insurers

5. Total Private Passenger Vehicles: 18,123,885 0.021 mil vehicles 0.003 mil vehicles 0.024 mil vehicles 4.2 mil vehicles 0.25 mil vehicles 0.076 mil vehicles 0.53 mil vehicles 2.2 mil vehicles 2.2 mil vehicles 0.62 mil vehicles 0.66 mil vehicles 0.45 mil vehicles 6.8 mil vehicles

6. Manage databases of the entire country’s auto premium and claims information Build and maintain databases of VIN, VIN groupings and vehicle characteristics Assist IBC’s investigative efforts’ with all needed analytical services Conduct analytical research to help identify any emerging trends Develop and apply statistical models to normalize data and estimate anticipated normalized claim data Provide advisory make/model/model year-specific Collision, Comprehensive, Property Damage and Accident Benefit ratings for all Canadian government and non-government insurers IBC’s Department of Statistical Research and Development

7. Canadian Loss Experience Automobile Rating (CLEAR) • What • Why • How

8. CLEAR What it is automobile insurance rating developed in 1989 by a working group of actuaries, CIPs, IT professionals, statisticians and underwriters equitable and defensible based on each make/model’s pure vehicle experience risk ≈ rate groups (symbols) symbols are convertible to differentials (rating factors) Lower risks=Lower rates

9. CLEAR Why it was developed most claims result in repair not replacement price is only one of many possible predictive factors cost saving features shouldn’t increase insurance premiums crash test results may not reflect overall experience a vehicle’s experience may change over time because there are over 200 insurers, and only 18 million vehicles, Canadian insurers have to share their data to enable credible predictions

10. CLEAR Why it was developed Low relationship between price and theft claim cost Subaru Forester 2.5 X Wagon AWD MSRP $30,543 Honda CR-V 4 Dr AWD MSRP $31,529 Relative Loss Cost = 388 Relative Loss Cost = 126

11. CLEAR Why it was developed Low relationship between price and collision claim cost Subaru Impreza WRX 4 Dr AWD MSRP $39,335 Volkswagen Passat GLS V6 4 Dr MSRP $36,113 Relative Loss Cost = 295 Relative Loss Cost = 51

12. CLEAR - How it works • Body style • Drivetrain • Wheelbase • Weight • Engine displacement • Engine horsepower • MSRP • Indexed MSRP • Type of brakes • Theft deterrent system • Track width • Height • Types of airbags • Manufacturer • Seating capacity • Brake assistance • Ground clearance • Traction control • Stability control • Types of headrestraints • Seatbelt pretensioners • Lane departure warning • Tracking system • Parts marking • Engine type • Engine placement • Age • General model and model

13. CLEAR - How it works

14. CLEAR - How it works Vehicle Characteristics Loss Cost Data Recent Claims Experience NVAP Results Loss Cost Estimates Experience Adjustment Formulae + Modelling VINlink Review Process Controls and Balancing Rate Group Tables