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The Canadian Loss Experience Automobile Rating. 2004 Ratemaking Seminar Philadelphia - March 11-12, 2004. Henning Norup Vice President, Information Research and Analysis Insurance Bureau of Canada. Presentation to 2004 Ratemaking Seminar. CLEAR. Why it was developed. - PowerPoint PPT Presentation
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The Canadian Loss Experience Automobile Rating
Henning NorupHenning NorupVice President, Information Research and AnalysisVice President, Information Research and Analysis
Insurance Bureau of CanadaInsurance Bureau of Canada
2004 Ratemaking Seminar
Philadelphia - March 11-12, 2004
Low relationship between price and theft frequency Subaru Impreza
WRX MSRP $35,000
Volkswagen Jetta GLX
MSRP $34,000
Relative Frequency = 451
Relative Frequency = 80
CLEAR
Why it was developed
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Isuzu Rodeo 4DR 4WD
MSRP = $32,000Relative Loss Cost = 148
MSRP = $31,000Relative Loss Cost = 33
Buick Rendezvous 4DR 2WD
Low relationship between price and collision repair cost
CLEAR
Why it was developed
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Under a price-based rating system, the added cost of features designed to reduce insurance claims could result in a higher premium.
Traction ControlABS
Seat Belt Pretensioners
Theft Deterrent Systems
Airbag Restraint Systems
CLEAR
Why it was developed
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Low relationship between price and replacement costs
CLEARWhy it was developed
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$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
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$100
$150
$200
$250
$300
$350
$400
$450
MSRP
Fender Cost
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Low relationship between price and replacement costs
CLEARWhy it was developed
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$0
$50
$100
$150
$200
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$300
$350
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$450
MSRP
Fender Cost
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Insure re ason ab ility o f Ve h icle data
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
CLEAR - How it works
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Assure re asonab ility o f insurancedata (fo r all cov e rage s)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
CLEAR - How it works
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Pro je ct Pu b licatio n Y e ar F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
CLEAR - How it worksAssu re reasonab ility o f insu rance da ta
(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Build /Incorpo rateData Normalization M od e ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
De v e lo p /Re v ie w /Ap p lyStatistical M o d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Sta tis tica l Mode lling(e ve ry th ree yea rs)
De v e lop fo rmu lae thatcan be use d to e stimatenormalize d claim facto rs
from v e h icle characte r istics
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
Statistical models to estimate claim frequency and severity
TF=INT + BBS + WB1*w + WB2 * w**2 + WB3 * w**3 + A1 *a + A2 * a**2 + A3 * a**3
+ A1H1 * h * a + H1 * h + P1 * p + P2 * p**2 + P1A2 * a**2 * p + DDT + TDSINT = intercept BBS = vehicle body stylesWB1 = wheel baseWB2 = wheel base2
WB3 = wheel base3
A1 = vehicle ageA2 = vehicle age2
A3 = vehicle age3
H1 = power ratioA1H1 = age and power ratio interaction
P1 = priceP2 = price2
P1A2 = age2 and price interactionDDT = drive trainTDS = theft deterrent systema = age * 0.1h = exp[(weight/power)*(-0.001)]w = wheel basep = ln(price*0.001)TF = 20 * sqrt(frequency)
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Adjust e stimate s tore fle ct actual e xpe rie nce
Ad jESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
Calcu lateLC & Re l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
C a lcu la teLC & R e l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Ad ju st RLCs fo r Risk Lo ad ing an dco ntro l chan ge w ith p r io r RLC
Ad jRLC=(ip r ice >=65k)*[EstRLC((ip r ice -45k)/5k)*10]
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Ad ju st R L C s fo r R isk L o a d in g a n dco n tro l ch a n g e with p r io r R L C
Ad jRLC=(ip r ice >=65k)*[EstRLC((ip r ice -45k)/5k)*10]
Con v e rt Ad jRLCs to Rate G rou ps
Rate Gro up =1*(Ad jRLC<34.5)+(Ad jRLC/10-1.95)*(34.5<=Ad jRLC<=304)+(Ad jRLC/20+13.275)*(Ad jRLC>304)
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
C a lcu la teLC & R e l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
C o nve rt Ad jR LC s to R a te G ro ups
Rate G ro up=1*(Ad jRLC<34.5)+(Ad jRLC/10-1.95)*(34.5<=Ad jRLC<=304)+(Ad jRLC/20+13.275)*(Ad jRLC>304)
Acco mplishRe v e rsal Co n tro l
Assu re re v e rsalsare ju stifie d
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
C a lcu la teLC & R e l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Ad ju st R L C s fo r R isk L o a d in g a n dco n tro l ch a n g e with p r io r R L C
Ad jRLC=(ip r ice >=65k)*[EstRLC((ip r ice -45k)/5k)*10]
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Accomp lishR eve rsa l C on tro l
Assu re re v e rsalsare ju stifie d
Balan ce Tab le
In d u ce d r ift,d e p re ciatio no r rate le v e l
n e u trality
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
C a lcu la teLC & R e l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Ad ju st R L C s fo r R isk L o a d in g a n dco n tro l ch a n g e with p r io r R L C
Ad jRLC=(ip r ice >=65k)*[EstRLC((ip r ice -45k)/5k)*10]
C o nve rt Ad jR LC s to R a te G ro ups
Rate G ro up=1*(Ad jRLC<34.5)+(Ad jRLC/10-1.95)*(34.5<=Ad jRLC<=304)+(Ad jRLC/20+13.275)*(Ad jRLC>304)
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Balan ce Tab le
In d u ce d r ift,d e p re ciatio no r rate le v e l
n e u trality
Acco mplishRe v e rsal Co n tro l
Assu re re v e rsalsare ju stifie d
Con v e rt Ad jRLCs to Rate G rou ps
Rate Gro up =1*(Ad jRLC<34.5)+(Ad jRLC/10-1.95)*(34.5<=Ad jRLC<=304)+(Ad jRLC/20+13.275)*(Ad jRLC>304)
Ad ju st RLCs fo r Risk Lo ad ing an dco ntro l chan ge w ith p r io r RLC
Ad jRLC=(ip r ice >=65k)*[EstRLC((ip r ice -45k)/5k)*10]
Calcu lateLC & Re l LC
(Ad jEstF *Ad jEstS)/
W t Av g LC
Ad just estima tes to re flectactua l expe r ience
AdjESTF=ESTF(1+M AFF)Ad jESTS=ESTS(1+M AFS)
Est Cla im s=Actual # Cla im s less effectsdue to tariffs & /or discounts
Est Loss=Actual Loss less effects due todue to tariffs & /or discounts
Bu ild /Inco rp o ra teD a ta No rma liza tion Mode ls
Pro je ct Pu b lica tio n Ye a r F le e t
Bu ild lin k mo d e l b ase d o nth re e mo st re ce n t accid e n tye ars an d sale s e stimate s
Assu re reasonab ility o f insu rance da ta(fo r a ll cove rages)
Stat Plans Error CheckingAccuracy Checks Reasonability Checks
# Exposures Prem ium s # Cla im s Loss
In su re re aso na b ility o f Ve h ic le d a ta
W he e lb ase : 2718 TDS: NoW e igh t: 1889 Style : SUVDriv e train : 4 ABS: Y e sPrice : $43,356 Doors: 4VCODE: 6706 Y e ar: 2001Airbag : Y e s Powe r: 190
D e ve lo p /R e view/App lySta tis tica l Mo d e ls
De v e lo p an d ap p ly fo rmu laeto e stimate n o rmalize d claim
fre q u e n cy an d se v e rityfro m v e h icle ch aracte r istics
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
1. Maintain vehicle characteristics db2. Develop statistical models3. Obtain national claims’ data4. Develop and apply normalization models5. Estimate loss costs6. Adjust estimates7. Calculate relativities8. Establish rate groups9. Balance table
Presentation to
2004 Ratemaking Seminar
March 11, 2004
CLEAR - How it works
Loss Cost Data
Modelling
Vehicle Characteristics
Formulae
RecentClaims
Experience
Loss Cost Estimates
ExperienceAdjustment
FinalAdjustments and
Balancing
NVAPResults
Vehicle Characteristics
RateGroup Table
+
VINLink
Presentation to
2004 Ratemaking Seminar
March 11, 2004
PD: Severity as a function of Body Style
0
2000
4000
6000
8000
10000
12000
14000
1P 2P 3P 4P MP SS CV PV SW 2D 4D
Body Style
Sev
erit
y
Presentation to
2004 Ratemaking Seminar
March 11, 2004
PD: Loss Cost as a function of Body Style
0
100
200
300
400
500
600
1P 2P 3P 4P MP SS CV PV SW 2D 4D
Body Style
Lo
ss C
ost
Presentation to
2004 Ratemaking Seminar
March 11, 2004
BI: Frequency as a function of Body Style
0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%
1P 2P 3P 4P MP SS CV PV SW 2D 4D
Body Style
Fre
qu
ency
Presentation to
2004 Ratemaking Seminar
March 11, 2004
BI: Severity as a function of Body Style
020000400006000080000
100000120000140000160000
1P 2P 3P 4P MP SS CV PV SW 2D 4D
Body Style
Sev
erit
y
Presentation to
2004 Ratemaking Seminar
March 11, 2004
Newer Vehicle Claim Frequencyas a function of Body Style
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2D 4D 3P 4P SW CV MP PV 1P 2P SS
Body Style
Co
llisi
on
Cla
im
Fre
qu
ency
"Collision
DCPD
Presentation to
2004 Ratemaking Seminar
March 11, 2004
