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Back to the Future. Results from 2000 to 2003 were unsustainable poor Reforms were clearly effective...
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Transcript of Back to the Future. Results from 2000 to 2003 were unsustainable poor Reforms were clearly effective...
AUTO PRODUCT REFORM Back to the Future
Historical Results
1999 2000 2001 2002 2003 2004 2005 2006 200750.00%
55.00%
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
Countrywide Automobile Net Loss Ratios - ex ICBC
Historical Results
Results from 2000 to 2003 were unsustainable poor
Reforms were clearly effective – must remember that reforms are the most effective initially and lose effectiveness as claimants and their advocates adjust to the new reality
Each province is evolving differently - results and trends are quite varied
Alberta
1999 2000 2001 2002 2003 2004 2005 2006 200750.00%
60.00%
70.00%
80.00%
90.00%
100.00%
110.00%
Alberta PP Auto Direct LR
Total TPL Acc Ben Other
Alberta
October 1, 2004 – Major tort reform $4,000 indexed cap on non-pecuniary
damages Maximum payment under AB – Med/ Rehab
increased from $10,000 to $50,000 Outcomes
Significant drop in BI frequency (unexpected) and severity (expected)
Med/rehab loss costs increased much less than expected
Disability income frequency down significantly (unexpected)
Alberta
1999 2000 2001 2002 2003 2004 2005 2006 20070
0.5
1
1.5
2
2.5
3
3.5
Alberta PP Auto Claims Frequency
TPL - BI TPL - PD AB - MR AB - DI
Alberta
As actuaries we: Missed the drop in frequency for BI and AB –DI Likely we underestimate the impact that
lawyers have in their role as advice givers when costing potential reforms – might want to consider this in future costing
Overestimated the impact of the Med/ Rehab – more likely we underestimated the impact of not increasing the timeframe upward from 2 years at the same time as increasing the limits
Alberta
February 8, 2008: Charter judgment rendered stating that Minor Injury Regulation unconstitutional
Immediate Impacts: Every company had to determine if their was
a material impact on their December 31, 2007 outstanding claim reserves/ premium liabilities, should the decision be upheld
Every company had to determine how they would handle claims going forward
Alberta
Next Steps: September 12, 2008 – Appeal heard before
the Court of Appeal Decision by year-end? Supreme Court of Canada?
Auto Insurance Rate Board Final Actuarial Statement from OW Minus 5% for experience, +20% for removal of
cap or +14% Rate board +5%
Alberta
Issues Arising out of this Ruling Estimated impact of removing the Cap
assumes that there was no frequency effect – not supported by the data – increases likely future claims by about 10%
In 2006, AIRB ignored calls to consider impact of potential charter challenge
In 2008, AIRB gave substantial weight to the possibility of the current ruling being overturned
No consideration of the substantial liability that will be incurred for claims in the system if charter challenge is upheld
Alberta
AB government had stated that they had contingency plans if this was struck down – will these see the light of day?
Stakes are very high for the insurers for whom Alberta auto is their main market
How will insureds/ politicians react to 25%+ increase in premiums for mandatory premiums?
Alberta – Actuarial Implications
Need to understand how the claims department is handling the situation Some have left their handling unchanged and
are keeping the excess in an actuarial reserve Others have increased their case reserves on
the assumption that the MIR will not be restored
Others are somewhere in between Given the importance, should consider
doing a sampling of actual case files to see how the issue is being handled
Alberta – Actuarial Implications
Industry data after 31/12/2007 will be of limited usefulness
Should consider what changes will need to be made to ratemaking procedures given the sketchiness of the industry data
DCAT: May want to consider running a scenario wherein auto insurance is nationalized
Alberta – Actuarial Implications
DCAT: Will need to consider the impact of the uncertainty in the high loss ratio scenario (if Alberta is material to the insurer)
Will need to carefully review the reserves for the FA RSPs and Farm – ensure that the assumptions on which the reserves are set are in line with your expectations
We need a better and faster way of determining what are material events during the Jan/ Feb timeframe – should align more closely with the accountants
Ontario
1999 2000 2001 2002 2003 2004 2005 2006 200740.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
120.0%
130.0%
Ontario PP Auto AY Loss Ratios
Total TPL AB Other
Ontario
Latest reforms: Fall 2003 Restore deductibility of CPP Revise cat definition for those under the age of 16 Implement WAD I and II paf’s Tighten definition of serious and permanent Increase ded for non-pecuniary from $15k to $30k
(FLA $7,500 to $15,000) Allow tort for health care for permanent and serious Reduce Med/ Rehab hourly fee Limit fees for completion of forms Regulation of paralegals, prohibition of early lump
sum settlement
Ontario
Impact of reforms was greater than originally estimated – AB frequency dropped 25%
But AB loss ratio now greater than 100% and underlying trends in excess of 12%
More reforms in the pipeline – currently undergoing the mandatory 5 year review of Part VI of the Insurance Act by FSCO
Indeterminate timetable
Ontario
Absent reform, current PP all coverage average street premium is likely inadequate by 10%
If the verbal threshold and deductible were eliminated with no change to accident benefits – loss costs are likely to increase substantially –
Is the verbal threshold unconstitutional? Is the non-pecuniary deductible
unconstitutional?
Ontario
Ontario auto represents 56% of the non-government auto writings across the country, 25% of the total industry
Implications of either no changes to product (given current trends) or changes that further enhance product likely to lead to a significant consumer/ political push back
Ontario – Actuarial Implications
For some companies, results are poor enough that may lead to the dpac needing to be written down or setting up a premium deficiency
DPAC: A scenario where the verbal threshold/ deductible are ruled unconstitutional should be considered, if Ontario auto is a significant exposure
DPAC: A scenario wherein the industry in nationalized should be considered, if Ontario is a significant exposure – political fall-out of significant rate increases should not be taken lightly
Should a contingent liability be established? If it was, on what basis and using what assumptions?
Trends in AB high enough that should consider adjusting historical data to reflect current inflation
Quebec
1999 2000 2001 2002 2003 2004 2005 2006 2007
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Quebec Auto Direct Calendar Year Loss Ratios
Total TPL AB Other
Quebec
Few reforms being considered Most concentrated auto market in
Canada Results continue to be excellent although
premiums have been flat for the last 4 years
Maybe an hybrid system not so bad!
New Brunswick
1999 2000 2001 2002 2003 2004 2005 2006 20070.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
New Brunswick PP Auto AY Loss Ratio
Total TPL AB Other
New Brunswick
On July 1, 2003 implemented $2,500 cap on non-pecuniary losses for minor injuries
Mandatory filing of rates with 20% default reduction in rates
Experience has been excellent since – currently upward trend in all coverages
New Brunswick
1999 2000 2001 2002 2003 2004 2005 2006 20070
0.5
1
1.5
2
2.5
3
New Brunswick PP Auto Frequency
TPL- BI TPL - PD AB -MR AB - DI
New Brunswick
BI frequency dropped – not anticipated in the original costing
AB – MR and AB –DI frequency also dropped – not anticipated in original costing
Despite expectations, no test cases selected or trial dates set for a charter challenge
New Brunswick
Current private passenger premiums for compulsory coverages are adequate but only if cap in place – would need significant increases for both BI and AB if cap removed
Impact could be around greater than Alberta ($160 per car) as cap is lower – a significant increase with major political fall-out
New Brunswick – Actuarial Implications
DCAT: If the cap is removed, would the political fall-out be big enough to push into government insurance?
DCAT: If cap is removed, what are the loss ratio / reserve implications?
Should a contingent liability be set up particularly given that there is no current legal action? Would this acceptable under IFRS?
Nova Scotia
1999 2000 2001 2002 2003 2004 2005 2006 20070.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Nova Scotia PP Auto AY Loss Ratio
Total TPL AB Other
Nova Scotia
November 1, 2003 $2,500 cap on non-pecuniary damages for
Minor Injuries October 6, 2008 – trial begins before
Supreme Court of Nova Scotia Seeks to strike down as outside the power of
regulation part of NS Reg 182/2003 which defines ‘resolves within 12 months’
Seeks to strike down cap as unconstitutional
Nova Scotia
Like NB, unanticipated drop in BI frequency Like NB, unanticipated drop in AB – MR Current rates are adequate IF cap stays in
place Rates now have to be filed every 2 years –
what impact will this have? Expected costs if cap is struck down – as per
NB What happens if cap is found constitutional
but Regulation is ultra vires? What would “resolves within 12 months” mean?
Nova Scotia – Actuarial Implications
Should a separate contingent liability be established? How should this be determined?
What probability should be used? Should there be view put forward by the CIA or should each actuary come to their own conclusions? Do we need more guidance on issues such as this?
DCAT implications similar to NB
Prince Edward Island
Issues similar to New Brunswick April 1, 2004 - $2,500 cap on non-
pecuniary losses for Minor injuries No test cases selected or trial dates set
Newfoundland and Labrador
1999 2000 2001 2002 2003 2004 2005 2006 20070.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
N &L PP Auto AY Loss Ratio
Total TPL AB Other
Newfoundland & Labrador
August 1, 2004 $2,500 straight non-pecuniary deductible for
all injuries and some minor reforms At most, a modest decrease in loss costs
No charter challenge at this time
N &L – Actuarial Implications
Likely very few – impact of the reforms was so small that even if they were somehow undone, would have little impact
Summary
Ontario auto results are not sustainable both in absolute terms and in terms of underlying trends – this will have to be considered in both the setting of reserves and the running of adverse scenarios for DCAT
Charter challenges in Alberta will have to be considered in setting reserves at 12/31/2008.
How should the charter challenge issue in NS be considered in setting reserves at 12/31/2008?
Summary
Can we make improvements to our costing methodologies to better consider claimant behaviour?
For companies for whom auto is a significant line, may want to consider running adverse scenarios that include nationalization in response to consumer/ political reaction to significant rate increases.
Questions?