Manitoba Public InsuranceWorking with Manitobans to Reduce Risk on the Road

Quebec CityJune 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

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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)

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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 1994-2007)

• 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

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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

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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

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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

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Research on Driver RiskAt-Fault

Accidents X1Previous Yr

Minors X2Previous Yr

ActualFrequencyCurrent Yr

# Drivers2002-2004

0 0 0.0570 1,732,9100 1 0.1115 102,1160 2+ 0.1644 16,6891 0 0.1012 90,8001 1 0.1484 14,5241 2+ 0.2191 3,524

2+ 0 0.1827 4,5762+ 1 0.2327 1,4182+ 2+ 0.2529 597

Y = .0582 + .0559*X1 + .0493*X2 R2 = .9682

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MPI’s Claims Size Distribution2002 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

10% below $13920% below $27630% below $40640% below $56250% below $81760% below $1,21670% below $1,80480% below $2,68190% below $4,517100% below $5,000,000

% of Claims

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Basic Financial StatisticsFebruary 29, 2008

• 07/08 Written Premiums $651M

• Assets$2,178M

• Unpaid Claims$1,384M

• Retained Earnings $145M

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How much do we need?

Distribution of Claims and Expenses in 2007/08

83%

5%

10% 3%

Claims

Commissions

Operating

Premium Taxes

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Where does it come from?

Distribution of Revenues in 2007/08

80%

14%

4% 2%

Vehicle Premiums

Investment Income

DL Premiums

Service Fees

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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.

Class Proposed Avg. RatePrivate Passenger $905Commercial $688Public $1,649Motorcycle $1,181Trailer $44ORV $18

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Historical Premiums vs. Ultimate Losses(in $millions)

Fiscal Year

Net Earned

PremiumRebates

Paid

EPexcluding Rebates

Ultimate Losses

Loss Ratio

2003/04 $549 $0 $549 $436 79.4%

2004/05 $584 $54 $530 $463 87.4%

2005/06 $619 $60 $559 $500 89.4%

2006/07 $646 $63 $583 $555 95.2%

2007/08 $665 ??? ??? $546 >=82.1%

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Corporate Accountability

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Corporate Accountability

• Minister and Cabinet

• Board of Directors

• Standing Committee of Legislature on Public Utilities

• Crown Corporations Council

• Public Utilities Board

• Appeals process, Ombudsman

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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

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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.

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Interesting Actuarial Opportunities at MPI

The Immobilizer Incentive Project

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Auto Thefts in WinnipegActual Results as of February 28, 2005

Insurance Year Claims Frequency/1000 Units

Severity Incurred ($M)

2000/01 6,216 17.67 $2,191 $13.6

2001/02 6,584 18.52 $2,435 $16.0

2002/03 5,823 16.12 $2,353 $13.7

2003/04 6,371 17.46 $2,457 $15.7

2004/05 8,401 22.71 $2,744 $23.1

Forecast2005/06 8,569 22.71 $2,827 $24.22006/07 8,740 22.71 $2,911 $25.42007/08 8,915 22.71 $2,999 $26.72008/09 9,094 22.71 $3,089 $28.1

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Most at Risk List

• Grouped Vehicles in make/model/model year band combinations

• Examples of vehicle groupings:– Plymouth Voyager 1990-1994: 1 in 9 stolen per year– Dodge Caravan 1990-1994: 1 in 9 stolen per year

• 2002-2004 theft data by Rank for Winnipeg:

Group % Units % of TheftsTop 50 10.4% 50.4%Top 100 18.7% 66.5%Top 150 27.0% 75.2%

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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?

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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.

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Total Theft Frequency in Winnipeg/Commuter TerritoriesJan 1, 2004 to April 30, 2008

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2004

01

2004

04

2004

07

2004

10

2005

01

2005

04

2005

07

2005

10

2006

01

2006

04

2006

07

2006

10

2007

01

2007

04

2007

07

2007

10

2008

01

2008

04

2008

07

2008

10

2009

01

2009

04

2009

07

2009

10

Year/Month

Thef

t Fre

quen

cy

Most at Risk I Most at Risk II Non-MaR Vehicles

Total Theft Frequency in Winnipeg/Commuter AreasJanuary 1, 2004 to April 30, 2008

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Auto Thefts in WinnipegActual versus Forecast

Insurance Year Actual Forecast Difference

2005/06 $19.3 $24.2 -$4.9

2006/07 $21.2 $25.4 -$4.3

2007/08 $14.9 $26.7 -$11.8

2008/09* $1.0 $4.7 -$3.7

Total $56.4 $81.1 -$24.7

Immobilizers Installed*: ~100,000 Cost: ~$30M

* As at April 30, 2008

Thank you