September 10, 2014 Agenda What is ICBC applying for? Basic - - PDF document

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September 10, 2014 Agenda What is ICBC applying for? Basic - - PDF document

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9/10/2014 ICBC R EVENUE R EQUIREMENTS 2014 E XHIBIT B-4 2014 Revenue Requirements Application Informational Presentation September 10, 2014 Agenda What is ICBC applying for? Basic Regulatory Framework Claims Costs: The main driver

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SLIDE 1

9/10/2014 1 2014 Revenue Requirements Application Informational Presentation

September 10, 2014

  • What is ICBC applying for?
  • Basic Regulatory Framework
  • Claims Costs: The main driver of the Rate

Change

– Basic frequency and distracted driving – Basic severity and Claims cost management

1

Agenda

B-4 ICBC REVENUE REQUIREMENTS 2014

EXHIBIT

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SLIDE 2

9/10/2014 2

  • Other Components of Rate Change

– Investment Income – Operating Expenses

  • Information on draft CRC Framework
  • Structure of Application

2

Agenda

  • Basic rate increase of 5.2% for 2014 PY
  • Approved on interim basis
  • Any difference between final approved and

interim rate change deferred to next year’s (2015) rate change

– Same as was done for 2013; difference of +0.3% was deferred and will be implemented with the 2014 rate change

3

What is ICBC applying for?

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SLIDE 3

9/10/2014 3

BASIC REGULATORY FRAMEWORK

4

ICBC’s Regulatory Framework

5

  • Special Direction IC2

– ICBC must apply for rate change annually by Aug 31 – Capital management – Rate set according to Accepted Actuarial Practice, subject to rate smoothing provisions:

  • Limitation on rate change to be within 1.5 percentage

points of prior year’s rate change number

  • Commission may exclude some or all of an

unfavourable “loss cost forecast variance”

  • The 2013 rate exclusion of 6.6% must be discontinued

this year

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9/10/2014 4

6

100% MCT Statutory Minimum Margin for adverse events 130% MCT Margin for rate smoothing 145% MCT Capital Management Target 160% MCT Threshold for CRC Outlook MCT ratio for 2014

Capital Management Plan

7

6.7% 5.2% 3.7%

Rate change to cover costs is within band

No limitation required

  • 1.5%

+1.5%

2014 rate change 2013 rate change

=

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9/10/2014 5

8

0.4% 6.5% 3.3%

  • 2.4%

11.2%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 6.6% 5.2% 11.8% 5.2%

ICBC Rate Changes Implications for 2014 RRA

9

  • Indicated rate change is 5.2%

– Reflects no capital build, as MCT at target – Within rate change band, so no limitation required – Equals the rate change to cover costs – Last year’s rate exclusion is discontinued

  • Partially offset by a favourable forecast variance
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SLIDE 6

9/10/2014 6

Components of 2014 rate change

10 0.0%

  • 0.1%

0.3% 5.2% 6.6% 2.9%

  • 3.0%
  • 1.5%
  • 5.0%
  • 3.0%
  • 1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% PY 2013 Rate Level Prior Rate Exclusion Loss Cost Variance Loss Cost Trend Investment Income Operating Expenses Other Rate Change to Cover Cost 2013 Compared to 2014 Impact on Rate Level

CLAIMS COSTS: THE MAIN DRIVER OF THE RATE CHANGE CHAPTER 3

11

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9/10/2014 7

Loss Costs are the main driver

12

Loss and ALAE Payments Operating Expenses Other (including acquisition costs)

What is “Loss Cost”?

  • Provision for Claims Costs in Rate

– Expected future claims cost per policy

  • Claims Cost per Policy

– Frequency of claims

  • (e.g., 15 claims per 1,000 policies)

– Severity (average cost of a claim)

  • (e.g., $40,000)

– Loss Cost = Frequency x Severity

  • (e.g., $600 = (15/1,000) x $40,000)
  • Approximate loss cost of the bodily injury coverage

13

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9/10/2014 8

Loss Cost Forecast Variance

(all coverages)

Last Year’s Loss Cost Forecast

14

$500 $550 $600 $650 $700 $750 $800 $850 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Loss Cost Accident Year

Actual (2013 Application) PY 2013 Projection (2013 Application)

Loss Cost Forecast Variance

(all coverages)

Re-estimation of Last Year’s Loss Cost Forecast

15

$500 $550 $600 $650 $700 $750 $800 $850 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Loss Cost Accident Year

Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application)

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9/10/2014 9

Loss Cost Forecast Variance

(all coverages)

Difference is the Loss Cost Forecast Variance

16

$500 $550 $600 $650 $700 $750 $800 $850 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Loss Cost Accident Year

Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application)

  • 1.5 ppts of

rate change 17

Loss Cost Forecast Variance

(all coverages)

$450 $500 $550 $600 $650 $700 $750 $800 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Accident Year

Actual (2012 Application) PY 2012 Projection (2012 Application) Actual (2013 Application) PY 2012 Projection (2013 Application) +6.6 ppts of Rate change

2013 RRA

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9/10/2014 10

Components of 2014 rate indication

18 0.0%

  • 0.1%

0.3% 5.2% 6.6% 2.9%

  • 3.0%
  • 1.5%
  • 5.0%
  • 3.0%
  • 1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% PY 2013 Rate Level Prior Rate Exclusion Loss Cost Variance Loss Cost Trend Investment Income Operating Expenses Other Rate Change to Cover Cost 2013 Compared to 2014 Impact on Rate Level

Components of 2014 rate indication

19 0.0%

  • 0.1%

0.3% 5.2% 6.6% 2.9%

  • 3.0%
  • 1.5%
  • 5.0%
  • 3.0%
  • 1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% PY 2013 Rate Level Prior Rate Exclusion Loss Cost Variance Loss Cost Trend Investment Income Operating Expenses Other Rate Change to Cover Cost 2013 Compared to 2014 Impact on Rate Level

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9/10/2014 11

20

Loss Cost Trend

(all coverages)

$500 $550 $600 $650 $700 $750 $800 $850 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Loss Cost Accident Year

Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application) 21

Loss Cost Trend

(all coverages)

$500 $550 $600 $650 $700 $750 $800 $850 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Loss Cost Accident Year

Actual (2013 Application) PY 2013 Projection (2013 Application) Actual (Current Application) PY 2013 Projection (Current Application)

PY 2014 PY 2014

2.9 ppts of rate change

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SLIDE 12

9/10/2014 12

Main Driver of Loss Costs: Bodily Injury (BI)

  • Represents 75% of Claims Costs
  • Over last few years there has been

– A significant and unfavourable shift in the frequency of BI claims – A large increase in the rate at which injured parties are obtaining legal representation

22

BI Frequency Forecast

23

0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Frequency Accident Year Actual PY 2014 Projection (Current Application) PY 2013 Projection (2013 Application) PY 2013 Projection (Current Application) Model (2013 Application) Model (Current Application)

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BI Severity

24 25

Rate of represented BI claims

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26

Legal Representation Severity Pending Frequency Foundation People, Processes, Technology

Corporate strategy to address BI claims

Influence Control

BI FREQUENCY AND DISTRACTED DRIVING CHAPTER 7

27

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9/10/2014 15

Road Safety is focusing on BI frequency

  • Safe Systems strategic framework

– Enforcement is largest investment – Road improvements continue – Education and awareness re-prioritized to reflect trends and emerging factors

  • Focused on outcomes

– Reducing crashes overall – Reducing frequency of BI claims

28

Distracted Driving is…

  • An emerging piece of the overall crash

picture

  • A concern throughout the developed

world

  • Part of a social shift in society to instant

communication

  • Interrupting an otherwise positive crash

trend

29

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9/10/2014 16

One key factor contributing to BI claims frequency is a recent increase in rear-end crashes resulting in injury

5,000 10,000 15,000 20,000 25,000 30,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Incidents

Top Crash Configurations in Casualty Crashes (ICBC Data 2001-2012)

REAR END SIDE IMPACT SINGLE VEHICLE UNDETERMINED HEAD ON SIDE SWIPE - SAME DIRECTION SIDE SWIPE -OPPOSITE DIRECTION REAR TO REAR

30 31

Distraction is leading cause

0% 10% 20% 30% 40% 50% 60% Casualty Crash Incidents Contributing Factors

Contributing Factors in Casualty Crashes

Rear End Crashes and All Configurations (TAS: 8 year average, 2005-2012)

All Configurations RE Crashes

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9/10/2014 17

No silver bullet: a strategic approach

  • A 3 pillar approach to crash reduction as

recommended by the WHO

– Legislation: informing government of crash trends, research – Enforcement: 2 campaigns, community policing, crash mapping causal factors – Education and awareness: new partnerships, new advertising approach, building groundswell of support

32

Dad – Caught in a glance

33 https://www.youtube.com/watch?v=DQPKG8YaXL8

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9/10/2014 18

Heading Home – Only takes a second

34 https://www.youtube.com/watch?v=OixjoQetvyw

Stop Light – Intersections are not safe

35 https://www.youtube.com/watch?v=a5ZSJxGya7s

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9/10/2014 19

Engaging Stakeholders

36

Chris & Mike – Stoplight texting

37 http://youtu.be/VS_aDNipELU

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9/10/2014 20

Squire & Dean – Emails at stop signs

38 http://youtu.be/JZ_W37FCYmA

Kristi & Karen – Quick calls

39 http://youtu.be/QR8bdSTZb10

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9/10/2014 21

Distracted driving campaign

40

ICBC will provide media support for enhanced enforcement during the campaign. Community Policing volunteers will conduct Cell Watch deployments to remind drivers to leave their phones alone, and record noticeable driver distraction.

A framework for monitoring progress

  • Attempting to overcome confounding

factors

  • Use of frequency of rear-enders as one of

several indicators of effectiveness of strategy

  • Developing methodology for

incorporation into monitoring and evaluation framework

41

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9/10/2014 22

CLAIMS COST MANAGEMENT CHAPTER 6

42 43

Legal Representation Severity Pending Frequency Foundation People, Processes, Technology

Corporate strategy – areas of focus

Influence Control

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9/10/2014 23

Legislative framework and product

  • Legislation

– Tort system with full right of recovery – Provides less certainty over claims costs

  • ICBC’s dual role

– Coverage, service, fair compensation – Duty to defend and manage claims costs

  • Legal representation

44

Claims is focused on areas of greatest opportunity

  • Sections/areas of focus:

– Organizational capacity

  • Significant transformational change

– Claims cost management initiatives

  • Managing represented claims
  • Reducing number of pending claims
  • Addressing fraudulent claims

45

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9/10/2014 24

46

Transformational change enables greater capacity to achieve results

Foundation People, Processes, Technology

Claims Transformation

  • New organizational model/structure (People)

– Claims functional organizational model - 2011 – Claims job hierarchy - 2013

  • New systems and business processes

– Roll out first phase new systems and business processes – November 2013 – Roll out final phase of new systems and business processes - April 2014

Claims initiatives mitigate cost pressures

47

$20,000 $25,000 $30,000 $35,000 $40,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Severity Accident Year Selected Severity Without Impacts of Claims Initiatives

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9/10/2014 25

Claims initiatives moderate cost pressures

  • Improvements to first contact

– Claims process; benefits; file assignment

  • Information campaign

– Improved understanding of claims process

  • Proportional legal process and costs
  • Working with stakeholders

48 49

Rate of representation is increasing

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9/10/2014 26

Legal representation is occurring earlier in the process

50

Customer Attitudes Survey

  • Historical approach

– Claims focused investigation

  • Customer experience/interactions
  • Early representation by area or office
  • Customer Attitudes Survey

– Identify and investigate the key factors (drivers) that influence customers’ decisions to seek representation

  • Cross-divisional expertise and analytic data

modelling were used

51

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9/10/2014 27

Key driver of representation: perceived lawyer benefits

52

  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40% 50% 60% 70% 10 20 30 40 50 60 70 80 90 100 Relative Impact on Propensity to Rep Composite Score Perceived Lawyer Benefits 9.9% Tolerance of Lawyer Detriments 3.6% Deserving Attitude 3.2% Expect Difficult Process 2.9% Expect Unfair Compensation 2.4% Economic Motivation 1.4% Expect Unfair Treatment 0%; Expect Biased Adjusters 0%

Managing pending bodily injury claims

  • Growth in number of pending claims

during TP transition

– File moves during implementation of new org structure and job hierarchy – Training, adapting to the new system, working in co-existence

  • Increased focus on settling older,

represented claims in 2014

53

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9/10/2014 28

Fraud strategy aligned to corporate bodily injury strategy

  • Claims Adjuster and SIU infrastructure

– Training, process, alignment – Improved resource utilization

  • New system benefits will take time

– Improved data collection and analysis

  • Developing a fraud roadmap

– Alignment to the corporate BI strategy

54

Summary

  • Resolve claims in fair and

reasonable manner through effective and efficient interactions, recognizing ICBC’s dual role

55

  • ICBC took steps to address emerging pressures

and is seeing some success

  • ICBC must remain focused in implementing the

new Claims system

  • Going forward, areas of focus leverage research

and new systems over time

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9/10/2014 29

INVESTMENT INCOME CHAPTER 5

56

Components of 2014 rate indication

57 0.0%

  • 0.1%

0.3% 5.2% 6.6% 2.9%

  • 3.0%
  • 1.5%
  • 5.0%
  • 3.0%
  • 1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% PY 2013 Rate Level Prior Rate Exclusion Loss Cost Variance Loss Cost Trend Investment Income Operating Expenses Other Rate Change to Cover Cost 2013 Compared to 2014 Impact on Rate Level

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9/10/2014 30

Investment Income

  • Favourable impact on rates due to:

– Higher New Money Rate due to:

  • Increase in interest rate forecast and
  • Proposed revised formula

– Higher income from Basic equity

  • Proposed revised formula for New Money

Rate

– Accommodates introduction of high yield bonds into strategic asset mix – Incorporates risk premium for credit assets

58

New Money Rate

Asset Type Current Proposed

Equities Forecast 30-year Canada bond yield plus Commission approved equity risk premium Same Real Estate Forecast CPI plus premium of 4.25% Same Fixed Income Forecast 3-year Canada bond yield Same – but only applies to risk-free fixed income assets Credit (corporate bonds, mortgages & high yield bonds) N/A Forecast 3-year Canada bond yield + credit risk premium

59

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OPERATING EXPENSES CHAPTER 8

60

Loss Costs are the Primary driver

61

Loss and ALAE Payments Operating Expenses Other (including acquisition costs)

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9/10/2014 32

Components of 2014 rate indication

62 0.0%

  • 0.1%

0.3% 5.2% 6.6% 2.9%

  • 3.0%
  • 1.5%
  • 5.0%
  • 3.0%
  • 1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% PY 2013 Rate Level Prior Rate Exclusion Loss Cost Variance Loss Cost Trend Investment Income Operating Expenses Other Rate Change to Cover Cost 2013 Compared to 2014 Impact on Rate Level 63

Operating Expenses: 2014 Outlook

  • Minimally favourable impact on rate

indication (-0.1 ppt)

  • Growth of operating expenses outpaced by

growth in ICBC’s business

  • In 2014 facing compensation, technology,

and inflationary cost pressures

  • Proactive cost management continues:
  • perational efficiencies and managing

budgets within targets

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9/10/2014 33

CUSTOMER RENEWAL CREDIT CHAPTER 4

64

CRC Regulatory Requirements

Per Special Direction IC2 and 2013 Government Directive every year for which the Commission sets Basic insurance rates, it should approve a CRC if – There is capital available “well in excess” – CRC will not result in the MCT falling below the capital management target – Rates will remain relatively stable and predictable despite the approval of the CRC – It is cost-effective to implement

65

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9/10/2014 34

66

Margin for adverse events 130% MCT Margin for rate smoothing 145% MCT Capital Management Target 160% MCT Threshold for CRC Outlook MCT ratio for 2014

Per Decision on 2013 RRA

150% MCT Pay CRC such that MCT returns to 150%

Content of CRC chapter

  • Guiding principles for framework
  • Eligibility criteria for customers
  • How the CRC will be calculated and how

customers will redeem the CRC

  • Cost effective implementation requires

CRC system to be based on new Insurance system

67

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9/10/2014 35

STRUCTURE OF APPLICATION

68

Structure of Application

  • Chapters 1 and 2: Application and

Introduction & Executive Summary

  • Chapter 3: Actuarial rate indication level

analysis

  • Chapter 4: Customer Renewal Credit

– Draft framework with details to be settled as systems requirements completed

  • Chapter 5: Investments

– Proposed revision to the formula for the New Money Rate

69

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9/10/2014 36

Structure of Application

  • Chapter 6: Claims Cost Management

– Responds to 2013 Decision, including:

  • Results of claimant/customer attitudes survey
  • Experience of other jurisdictions
  • Fraud data and update
  • Metrics during Claims transition
  • Chapter 10: Performance Measures

– Metrics to support corporate BI strategy, including BI frequency – Removal of New Claims Initiation 120 and 210 seconds measures

70

Structure of Application

  • Chapter 7: Road Safety

– Proposal for streamlining Road Safety reporting – 2014 Education and Awareness priorities included Distracted Driving Strategy

  • Chapter 8: Operating expenses

– Focus on operating expense categories on corporate basis – Allocation to Basic explained at outset of chapter – New incentive pay plan explained

71

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9/10/2014 37

Structure of Application

  • Chapter 9: Government Initiatives with

Service Agreement documents

  • Appendices:

– Participants’ Reference Guide, including glossary – Basic Insurance Info Sharing – 2014-2016 Service Plan – 2013 Annual Report

72

SUMMARY

73

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9/10/2014 38

Summary

  • 5.2% = required rate to cover costs
  • Compliance with regulatory framework
  • Corporate strategy to address BI claims

– BI frequency through road safety – BI severity through claims cost management

  • Favourable impact of investment income and
  • perating expenses
  • Information on CRC
  • Improvements to structure of Application

74

QUESTIONS

75