1. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 The Canadian Loss Experience Automobile Rating Arthur Tabachneck, Ph.D., Manager Abdul Sattar Al-Khalidi, Ph.D., Senior Statistician Statistical Research and Development CLEAR

2. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Canada Total Area: 3.9 mil sq miles Total Area: 3.7 mil sq miles Population: 298 mil Population: 33 mil

3. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Insurance Bureau of Canada (IBC) 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

4. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Government Insurers Non-Government Insurers Government vs Non-Government Auto Insurance in Canada BI Only Mandatory Coverages

5. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 0.25 mil vehicles 0.076 mil vehicles 0.53 mil vehicles 0.45 mil vehicles 4.2 mil vehicles 6.8 mil vehicles 0.62 mil vehicles 0.66 mil vehicles 2.2 mil vehicles 0.024 mil vehicles Total Private Passenger Vehicles: 18,123,885 0.003 mil vehicles 0.021 mil vehicles

6. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 IBC’s Department of Statistical Research and Development 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

7. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Canadian Loss Experience Automobile Rating (CLEAR) What Why How

8. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 What it is CLEAR 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. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 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. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Low relationship between price and theft claim cost CLEAR Why it was developed Honda CR-V 4 Dr AWD MSRP $31,529 Relative Loss Cost = 126 Subaru Forester 2.5 X Wagon AWD MSRP $30,543 Relative Loss Cost = 388

11. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 Low relationship between price and collision claim cost CLEAR Why it was developed Subaru Impreza WRX 4 Dr AWD MSRP $39,335 Volkswagen Passat GLS V6 4 Dr MSRP $36,113 Relative Loss Cost = 295Relative Loss Cost = 51

12. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 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. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 CLEAR - How it works

14. Casualty Actuarial Society Special Interest Seminar on Predictive Modeling October 5, 2006 VINlink Loss Cost Data Modelling Vehicle Characteristics Formulae Recent Claims Experience Loss Cost Estimates Experience Adjustment Controls and Balancing NVAP Results Rate Group Tables + CLEAR - How it works Review Process