California Individual Auto Rating Plans.


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Auto Club (Interinsurance Exchange of the Auto Club) First to record ... of Regulations, Section 2632.8 Optional Automobile Insurance Rating Factors
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California Personal Auto Rating Plans The Good, The Bad and The Ugly Kelleen Arquette

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Agenda California Private Passenger Automobile Regulations Background – Proposition 103 New Regulations Market Impact Pumping and Tempering Market Studies Industry Comments Lessons from Other States What Can Companies Do? Different Regulations

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Background – Proposition 103 Enacted in 1988 Requires premiums in view of specific variables in a specific request Three Mandatory Factors Driving Safety Record Annual Mileage Years of Driving Experience Optional Rating Factors Some can be consolidated with Years of Driving Experience Only affirmed list permitted Mandatory rate diminish Average weight of discretionary components beneath third compulsory element Requires rating arrangement elements to be produced utilizing successive investigation Territorial Restrictions 10 recurrence groups and 10 seriousness groups

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New Regulations Enacted July 14, 2006 Required every guarantor to top the measure of spread a safety net provider can use for regional rating 20 recurrence groups and 20 seriousness groups Although more groups permitted, confinement on weight limits regional scattering Required every back up plan to document an upgraded rate level sign Weight of each discretionary element underneath third obligatory element Two stages First documenting inside 30 days – move part way towards full consistence, including rate recording Second and ensuing filings – accomplish full consistence inside two years

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Implementation – Phase One First recording required to remedy for any rebelliousness by 15% For any element with weight over the third required element, diminish the weight by 15% Initial filings did not finish full consistence for element weights Frequency and seriousness groups Gender and conjugal status at times

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Implementation – Phase One (continued) Auto Club (Interinsurance Exchange of the Auto Club) First to document 7.0% reduction Weights for multi-auto, sexual orientation for a couple of inclusions, recurrence groups and seriousness groups still above third required element Retained ebb and flow recurrence and seriousness band definitions

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Implementation – Phase One (continued) USAA Second to document 5.1% decline Weight for recurrence band calculates still above weight of third required element Retained ebb and flow recurrence and seriousness band definitions Reduced weight of recurrence band elements by bringing down the relativities for the most astounding evaluated groups and expanding the relativities for most reduced appraised groups, rather than treating

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Implementation – Phase One (Continued) California Market Share Pending Rate Changes State Farm: - 8% Mercury: +4.5% Auto Club: - 7% Farmers: 0% Allstate: 0% AIG: - 5% California State Auto: - 5% Progressive: - 2% USAA: - 5% GEICO: - 5%

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Implementation – Phase Two Full consistence with proposed directions must be accomplished by July 14, 2008 Requires no less than one recording – rate and class arrangement Redefine region definitions to 20 domains Number of filings will rely on upon Customer rate sway Customer standard for dependability sign Competition

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Pumping and Tempering Factor weight Weighted normal of the outright distinction of the relativities from the mean Measure of scattering Temper – decreases scattering, diminishes element weight Pump – build scattering, builds element weight Example Driving Safety Record 10 Annual Mileage 9 Years of Driving Experience 8 Frequency Band 13 Possible arrangements Select diverse relativities to adjust weights Temper recurrence band relativities Pump years of driving knowledge, yearly mileage and driving wellbeing record

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Pumping and Tempering (proceeded with) Cross-appropriations Pumping Driving Safety Record – Drivers with mishaps and feelings pay excessively, high extra charges may make motivating force for unreported minor mischances Pumping Annual Mileage – Long yearly mileage drivers finance short yearly mileage drivers, impetus for policyholder to think little of yearly mileage Pumping Years of Driving Experience Higher rates for new drivers improves probability of undisclosed drivers Increase uninsured populace of new drivers (<9 years driving background) and experienced drivers (59+ years of driving background) Temper Cost and Frequency Bands – Urban rates sponsored by rural and country rates Temper Gender/Marital Status – Rates for unpracticed single male drivers sponsored by different drivers

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Pumping and Tempering (proceeded) 2003 study positioned significance of rating variables Three most vital elements associated with misfortune penchant don\'t adjust to California\'s Three Mandatory Factors Insurance score is not a discretionary element in California Years of driving background utilized as a part of California rather than age Source: The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity, Michael Miller, FCAS and Richard Smith, FCAS, Epic Actuaries, June 2003

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Market Studies – Robert Downer Study appointed by Personal Insurance Federation of California (PIFC) and Association of California Insurance Companies (ACIC) Study performed by Robert Downer of ARM Consultants, Inc. Information from four expansive auto back up plans Study concentrated on rate changes for individual drivers instead of rates in respect to demonstrated costs Study expected income nonpartisan changes Study appears Over 60% of all drivers will get a rate build Nearly 75% of drivers with 34 years driving background (50+ years of age) will get rate increments Over 60% of California Good Drivers will get rate increments Over 55% of drivers not considered California Good Drivers will get rate diminishes Source: Personal Insurance Federation of California Reference Book, "Effect of request to adjust utilization of Optional Rating Factors", Robert Downer

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Market Studies – Mercer Oliver Wyman Study California Department of Insurance charged study by Mercer Oliver Wyman Participation from a few organizations Three guideline sets finished by partaking organizations, information gave to Mercer Oliver and Wyman for investigation Study concentrated on rate changes for individual drivers as opposed to rates in respect to showed costs Study accepted income unbiased changes Study indicates Rate increments for 52 of 58 areas Approximately 60% of California drivers would get a rate expand 27% of all drivers will get a rate increment of more than 10% Rural drivers sponsor urban drivers Magnitude of cross-appropriations range from $344 million to $742 million Two studies show same results – New directions will bring about rate changes for drivers over the state Rate changes not considered in either think about Source: California Farm Bureau Federation Fact Sheet, "Proposed Amendment of Title 10 California Code of Regulations, Section 2632.8 – Optional Automobile Insurance Rating Factors" Californians to Stop Unfair Rate Increases, "Two Different Studies – Same Conclusion, Department of Insurance Proposal Will Result In Higher Auto Insurance Rates for More Drivers?"

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Industry Comments – 45 Day Comment Period Insurer remarks amid 45 day remark period before entry of new controls Rates ought to be cost-based and significantly identified with the danger of misfortune A driver\'s area (postal district) ought to be a basic component in figuring protection rates Drivers in rustic locales of the state ought not be compelled to finance the rates for drivers in urban areas of the state The proposed controls will bring about subjective rates on account of the demonstration of pumping and hardening and the subsequent cross-endowments. Pumping and treating move rate relativities in inverse bearing of showed

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Lessons from different states - Michigan Essential Insurance Act Take-all-comers arrangement Territory confinements 20 domains Maximum 10% rate differential between adjoining regions Restrictions on greatest rate differential amongst most astounding and least appraised regions (most minimal evaluated at the very least 45% of most astounding evaluated) Market Impact Urban regions financed by rural and country regions Insurers had some expertise in urban or rustic zones, with rates that mirrored their business sector range Coverage accessibility issues in Detroit Increase in the automatic business sector, particularly in Detroit Similarities to California Regulations Territory limitations that make an endowment for urban drivers CA back up plans must acknowledge all California Good Drivers Source: Mackinac Center for Public Policy, www.mackinac.org, "The Essential Insurance Act"

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Lessons from different states - Massachusetts State-ordered rates Territories Territory definitions are re-characterized at regular intervals Urban regions sponsored by provincial regions 27 regions Age, sexual orientation and conjugal status precluded Mandatory Offer Rule Tempering and topping Exit confinements Reallocation of premiums crosswise over safety net providers in light of misfortune experience Source: Chapter 2 "Accident coverage Regulation: The Massachusetts Experience" Sharon Tennyson, Mary A. Weiss, Laureen Regen

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Lessons from different states – Massachusetts (proceeded with) Market Impact Cross-appropriations – urban regions sponsored by rustic domains, unpracticed drivers financed by experienced drivers Massachusetts accident coverage showcase less productive than the U.S. accident protection market general Increase in lingering market Fewer firms in the business sector contrasted with different states Shift to Massachusetts-just firms Cross-sponsorships twist shopper conduct Insurance premiums charged don\'t reflect genuine expense of giving protection Greater relative cooperation of high hazard drivers in the driving and safeguarding populace, expanding normal expected costs Companies have some expertise in urban or country markets Regulations lead to higher protection costs Source: Chapter 2 "Collision protection Regulation: The Massachusetts Experience" Sharon Tennyson, Mary A. Weiss, Laureen Regen Nation

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