Manitoba Public Insurance Working with Manitobans to Reduce Risk on the Road Quebec City June 2008 CAS Spring Meeting

2 Lines of Business Basic: –Compulsory coverage with guaranteed access Extension: –Optional coverage above Basic –Non-universal, profitable, open to competition SRE: –Ensures large trucking fleets have access to coverage –Non-universal, profitable, open to competition Driver & Vehicle Licencing: –Premiums collected on drivers license as mandated by government

3 Basic Compulsory Program

4 History Manitoba Public Insurance Act passed Operations began November 1, 1971 Two main changes: –Compulsory insurance –Crown corporation Terms and conditions of Autopac coverage and Manitoba Public Insurance responsibilities set down in legislation. Insurance and registration linked (co-terminality)

5 Founding Principles Return 85 cents for every dollar collected Premiums invested to provide income Administered by one government agency Compulsory, with guaranteed access Minimize claims inconvenience Provide reasonable, basic protection, with lower rates than those charges from private companies

6 Basic Coverage (Percentage of Claims Costs ) All Perils (53.6%) –Collision and Comprehensive coverage with a $500 Deductible Personal Injury Protection Program (38.8%) –No-fault accident benefits provided to all Manitobans injured in automobile accidents in Canada or the United States. Third Party Liability Coverage (7.6%) –$200,000 limit Note: All of these coverages are mandatory

7 Vehicle Rating Factors Territory (4 territories & commuter) Insurance Use Rate Groups (modified CLEAR rate groups) Registered Owner Driving Experience (Discount off base premium up to 25%) MPI chooses not to use age, gender, or marital status as rating factors

8 Drivers Licence Premium Premium also collected on drivers license as mandated by government Provides coverage not provided with vehicle premium: third party liability if unknowingly driving uninsured vehicle Ensures all drivers contribute to the fund

9 Why do drivers need to contribute? Unique to public insurance: In private jurisdictions, owners must name all drivers on policy -- policy is on individual, not vehicle Here, premium is on car, not individual – how to address? Add premium to drivers licence Amount of premium depends on driving record

10 Driver Licence Premiums Basic Drivers’ Licence premiums: –Range from $20 (5 merits) to $45 (0 merits) Demerit Point Additional Premiums –Surcharge for customers with very poor at-fault claim and conviction history –Range from $200 (6 demerits) to $999 (21 or more demerits) Accident Surcharges –$200 to $1200 per at-fault accident

11 Research on Driver Risk At-Fault Accidents X1 Previous Yr Minors X2 Previous Yr Actual Frequency Current Yr # Drivers ,732, , , , , , , , Y = *X *X2 R 2 =.9682

12 MPI’s Claims Size Distribution 2002 to 2006 Manitobans report the vast majority of their claims (~80% have a $200 deductible). Reasons: Compulsory Coverage Guaranteed Access Low Deductible Relatively Minor Penalties for Average Drivers Average payout may appear lower when compared to private companies

13 Basic Financial Statistics February 29, /08 Written Premiums $651M Assets$2,178M Unpaid Claims$1,384M Retained Earnings $145M

14 How much do we need?

15 Where does it come from?

16 Average Rates by Class (2008) * Includes: All perils coverage ($500 ded.), no-fault personal injury protection, and $200K TPL. ORV’s only have TPL coverage. ClassProposed Avg. Rate Private Passenger$905 Commercial$688 Public$1,649 Motorcycle$1,181 Trailer$44 ORV$18

17 Historical Premiums vs. Ultimate Losses (in $millions) Fiscal Year Net Earned Premium Rebates Paid EP excluding Rebates Ultimate Losses Loss Ratio 2003/04$549$0$549$ % 2004/05$584$54$530$ % 2005/06$619$60$559$ % 2006/07$646$63$583$ % 2007/08$665??? $546>=82.1%

18 Corporate Accountability

19 Corporate Accountability Minister and Cabinet Board of Directors Standing Committee of Legislature on Public Utilities Crown Corporations Council Public Utilities Board Appeals process, Ombudsman

20 The Public Utilities Board Process June: File Rate Application –Six volumes of information July: Round 1 Information Requests –200 to 300 questions August: Round 2 Information Requests –200 to 300 questions October: Public Hearings –2 to 3 weeks December: PUB Order –Rates effective March 1 of the following year

21 The Basic Rate Stabilization Reserve (RSR) The Public Utilities Board also regulates the amount that MPI can hold in Retained Earnings for its Basic Line of Business The estimated PUB approved RSR range for 2008/09 is $72M to $109M, or the equivalent of 26% to 39% of MCT. MPI recommended using a range of 50% to 100% MCT in its 2007 Rate Application, but this was rejected by the PUB.

22 Interesting Actuarial Opportunities at MPI The Immobilizer Incentive Project

23 Auto Thefts in Winnipeg Actual Results as of February 28, 2005 Insurance YearClaimsFrequency/ 1000 Units SeverityIncurred ($M) 2000/016, $2,191$ /026, $2,435$ /035, $2,353$ /046, $2,457$ /058, $2,744$23.1 Forecast 2005/068, $2,827$ /078, $2,911$ /088, $2,999$ /099, $3,089$28.1

24 Most at Risk List Grouped Vehicles in make/model/model year band combinations Examples of vehicle groupings: –Plymouth Voyager : 1 in 9 stolen per year –Dodge Caravan : 1 in 9 stolen per year theft data by Rank for Winnipeg : Group% Units% of Thefts Top %50.4% Top %66.5% Top %75.2%

25 Now what? Some possible options: –Surcharge the most risky vehicles: Cost was estimated at approximately $200 in excess over our CLEAR rate groups –Reduce Coverage: Raise deductibles or do not allow the purchase of reduced deductible Extension (optional) products –Provide customers with incentives to protect their vehicles: subsidize immobilizer purchases –Make immobilizers mandatory for certain risky vehicles: But who pays for immobilizer?

26 Action June 2005: MPI offers to cover 50% the cost ($140) of installing an immobilizer. August 2005: Winnipeg Auto Theft Suppression Strategy (WATSS) April 2006: MPI offers to pay 100% ($280) of the cost to install an immobilizers on the “Most-at-Risk” (MaR) vehicles. Sept 2007: Immobilizers become mandatory on MaR vehicles. Sept 2008: Immobilizers become mandatory on MaR II vehicles.

27 Total Theft Frequency in Winnipeg/Commuter Areas January 1, 2004 to April 30, 2008

28 Auto Thefts in Winnipeg Actual versus Forecast Insurance YearActualForecastDifference 2005/06$19.3$24.2-$ /07$21.2$25.4-$ /08$14.9$26.7-$ /09*$1.0$4.7-$3.7 Total$56.4$81.1-$24.7 Immobilizers Installed*:~100,000 Cost:~$30M * As at April 30, 2008

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