1 CIA CONFERENCE VANCOUVER Insurance Corporation of British Columbia: From Then to Now Camille Minogue June 2007

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CIA CONFERENCECIA CONFERENCEVANCOUVERVANCOUVER

Insurance Corporation of British Insurance Corporation of British Columbia:Columbia:

From Then to NowFrom Then to Now

Camille MinogueCamille MinogueJune 2007June 2007

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ICBC’s Specialty Plates for 2010 Winter Olympics

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OutlineOutline

I. Background• ICBC Today• The Road Traveled• Products and Services• Oversight and Regulation

II. Actuarial Road• Rate Design• Revenue Requirements• Capital Management Plan

III. Scenic Tour• Bait Car Program• Road Safety Programs

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Auto Insurance in CanadaAuto Insurance in Canada

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ICBC TodayICBC Today

Canada’s largest Auto insurer

• $ 3.4 billion in written premium

• $ 9.0 billion in assets

• $ 5.4 billion in unpaid claims liabilities

• $ 1.5 billion in retained earnings

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Material damage payments$1.0 B

ICBC Service Delivery ICBC Service Delivery Network Network 2006 Highlights 2006 Highlights

1,000,000 driver licences transactions400,000 driver exams

Driver& Vehicle Licence fees & fines collected on behalf of

Government ($496 M)

Road Safety & Loss Management Programs

($48 M)

ICBC

5,000 Employees

40Claim Centres 21Driver Service Centres 4Call Centres

3.2 million policies($3.4 B written premium)

950,000 claims

Injury Payments$1.3 B

900 Independent Brokers($262 M commission payments)

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Competitive

Optional coverageVehicle• Collision• Comprehensive• Other

Equipment• Motor Vehicle Equipment• Excess Special Equipment• Motor Home Contracts

Individual• Extended Third Party Legal Liability• Excess UMP• Loss of Use• Vehicle Travel Protection

Regulated

Basic coverageCompulsory insurance coverage• Third Party Legal Liability• Accident Benefits• Underinsured Motorist Protection (UMP)• Hit & Run & Uninsured Motorists• Inverse Liability Coverage

Loss Management & Road Safety• Reduce crashes and auto crime

Non-Insurance Services• Vehicle and Driver Licensing• Vehicle Registration• Government Debt Collection

Integrated Operations

ICBC ProductsICBC Products

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Structure of Crown vs. PrivateStructure of Crown vs. Private

Crown Corporation Private Corporation

Shareholders Government Investors

Profit margin To support capital base

To support capital base and provide investor

returns

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The Road Traveled The Road Traveled

Made-in-BC system, benefiting British Columbians:

• Profits stay in BC to benefit policyholders

• ICBC jobs contribute positively to the BC economy

• Expense efficiencies due to size

• Insurance tied to Licensing reduces the number of uninsured motorists

• Presence across the province

• Partnerships with communities

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The Road TraveledThe Road Traveled

1973 – ICBC is established

1977 – Competition on optional coverages allowed

1985 – General insurance division is sold offCanadian Northern Shield formed

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1991 – Financial challenges

1996 – ICBC assumes licensing services from Motor Vehicle Branch of MOT

1996 – No-fault debate

1997 – “Drive to Save Lives” campaign

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“Drive to Save Lives”

Six Point Plan launched in partnership with the Attorney General, BC police forces and local communities• crackdown on impaired drivers

• tough measures to reduce speeding and dangerous driving

• higher insurance costs for drivers responsible for crashes

• new measures to improve driving (graduated licensing)

• strengthened anti-fraud and auto-crime measures

• upgrading insurance systems,injury management anddispute resolution


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The Road Traveled The Road Traveled

2001 - Government Core Services Review

2003 - British Columbia Utilities Commission (BCUC) to regulate ICBC

2007 - Bill 93 becomes effective to ensure a “level playing field”

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ICBC - OversightICBC - Oversight

Oversight and Reporting

ICBC Board

Shareholder’s Letter of Expectations

Treasury Board

External Auditor

Appointed Actuary

Select Standing Committee

BC Utilities Commission

Minister of Public Safety and Solicitor General

Auditor General

Controller General

Crown Agencies Secretariat

Oversight and Reporting

ICBC Board

Shareholder’s Letter of Expectations

Treasury Board

External Auditor

Appointed Actuary

Select Standing Committee

BC Utilities Commission

Minister of Public Safety and Solicitor General

Auditor General

Controller General

Crown Agencies Secretariat

Strategic Planning

Current Context

Mission, Vision, Goals and Objectives

Corporate Measures and Targets

Corporate Strategies

Business Planning

Line of business strategies and tactics

Line of business measures and targets

Budgeting

Reporting on Performance

Providing information on how well we achieve our objectives and targets

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RegulationRegulation

• BC Utilities Commission (BCUC):

– Independent regulator for Basic rates since 2003

– Ensure no cross-subsidization of ICBC’s Optional insurance by Basic

– Ensure all costs are managed reasonably

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Rate RegulationRate Regulation

• Per Utilities Commission Act

– Rates must not be unjust, unreasonable, unduly discriminatory or unduly preferential

– Rates will be determined by hearing, open to all interested parties

– Rates can be reviewed on ICBC request, BCUC request or interested party request

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BCUC ProcessBCUC Process

• “Quasi-judicial”

• Public process

• Interest Based

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Regulation of ICBCRegulation of ICBC

ICBC

BCUC

GovernmentDirectives

Special Directions

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Excerpts from IC2:

3(1)(b)(ii) Commission must set rates in a way that will allow the Corporation to achieve by December 31, 2014 an MCT ratio of at least 100% on its Basic business

3(1)(c) Commission must fix rates on the basis of accepted actuarial practice

Special Direction IC2Special Direction IC2

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ICBC

Regulation of ICBCRegulation of ICBC

Government Special DirectionsDirectives

BCUC

Filings

Information Requests

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BCUC ProcessBCUC Process

1. ICBC submits Application to the BCUC

2. Application reviewed by BCUC and Intervenors

3. BCUC and Intervenors ask questions through written information requests

4. BCUC and Intervenors ask questions in oral hearings

5. BCUC issues Decision

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Insurance vs. UtilitiesInsurance vs. Utilities

Insurance Utilities

Risk Classification System Rate Design

Rate Indications Revenue Requirements

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I. Background

II. Actuarial Road • Rate Design• Revenue Requirements• Capital Management Plan

III. Scenic Tour• Bait Car Program

• Road Safety Programs

Part II – Actuarial RoadPart II – Actuarial Road

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Actuarial RoadActuarial Road

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Jun-07

FCAS actuaries 1 1 0 1 1 3 5

ACAS actuaries 0 1 0 0 2 2 4

Analysts 9 8 10 8 8 9 7

Total Actl Staff 10 10 10 9 11 14 16

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2007 Rate Design – Basic Insurance2007 Rate Design – Basic Insurance

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ICBC’s Current Rate DesignICBC’s Current Rate Design

• Rate Class

• Territory

• Claim Rated Scale

• Commercial Fleet Plan

• Seniors Discount

• Disability Discount

• Driver Penalty Point Premium

• Multiple Crash Premium

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Special Direction IC2 Special Direction IC2

Items in IC2 relating to rate design:

• Rating variables of age, gender and marital status cannot be used in pricing

• Discounts for disabled and seniors are permitted

• Rates are to remain relatively stable and predictable

BCUC

Government

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Government DirectiveGovernment Directive

Prepare and implement a plan that:

• Addresses high risk drivers

• Maintains senior and disability discounts

• Proposes changes to meet ongoing business requirements

Retain until 2011 the following elements:

• Claim Rated Scale (CRS)

• Rate territories and their boundaries

• Existing rate classes

ICBC

Government

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Rate Design ApplicationRate Design Application

Multi-year PlanShort term:

• Driver Risk Premium

• Other Operators

• Rate Adjustments

• Commercial Fleet PlanLong Term:

• CRS

• Rate Class and Territory

ICBC

BCUC

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Multi-year planMulti-year plan

• The purpose of the plan:

• Present ICBC’s vision, overall goals, objective and strategies for Rate Design

• Set out ICBC’s plans for rating variables that will be preserved

• Convey that changes need to be sequenced in logical and gradual manner

• Avoid rate shock* Plan subject to BCUC approval

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Driver Risk Premium (DRP)Driver Risk Premium (DRP)

• DRP to replace Driver Penalty Points (DPP) premium

• DRP more reflective of the risk of causing crashes and the associated financial implications

• 3 year scan beginning Jan 1, 2008 (DPP is a one year scan)

• Worst 5% of the population as compared to 1 to 2% for DPP

* Plan subject to BCUC approval

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Other Operators Other Operators

• 22% of claims involve a driver who is not the PO/RO, whether at fault or not

• Initially, minimal additional premium of $25

• Over time, we will transition to more actuarially based premiums

• Need to implement as a significant step towards a more driver based system


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Rate AdjustmentsRate Adjustments

• Approximately 1500 customer groups

• Reallocation of $9 million to commercial classes from the personal classes

• Phased implementation with 6% cap on annual changes

• Going forward, to be a normal ongoing process


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2007 Revenue Requirements2007 Revenue Requirements – Basic – Basic InsuranceInsurance

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2007 Revenue Requirements2007 Revenue RequirementsApplicationApplication

ICBC proposes 3.3% rate increase

Application also includes

• Revised capital management plan

• Investment operations

• Response to bodily injury costs

• Operating Expenses

– Governance and accountability framework

• Performance measures

• Financial allocation

• Road Safety rationale and assessment methodology

ICBC

BCUC

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Adjustment to 2006 Base Policy Year + 1.2%

Trend to 2007 Policy Year + 2.1%

Capital Provision + 0.2%

Other - 0.2%

2007 Required Rate Level Change + 3.3%

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Projection of Claims CostProjection of Claims Cost

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Ult

imat

e L

oss

an

d A

LA

E (

$ m

illi

on

s)

Actual (2006 App) Projected to PY 2006 (2006 App)

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1.2% Adjustment to Base 2006 PY

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Ult

imat

e L

oss

an

d A

LA

E (

$ m

illi

on

s)

Actual (2006 App) Actual (2007 App)

Projected to PY 2006 (2006 App) Projected to PY 2006 (2007 App)

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1.2% Adjustment to Base 2006 PY

2.1% Increase for Trend to 2007 PY

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Ult

imat

e L

oss

an

d A

LA

E (

$ m

illi

on

s)

Actual (2006 App) Actual (2007 App) Projected to PY 2006 (2006 App)

Projected to PY 2006 (2007 App) Projected to PY 2007 (2007 App)

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2007 Capital Management Plan – 2007 Capital Management Plan – Basic InsuranceBasic Insurance

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Special Direction IC2Special Direction IC2

• IC2 requires BCUC to ensure that ICBC achieves a minimum amount of capital as measured by the MCT

3(1)(b) require the corporation to achieve, byDecember 31, 2014, and to maintain,after that date, capital available equal toat least 100% of MCT . . .

• BCUC then directed ICBC to develop a Capital Management Plan for the Basic insurance business

BCUC

Government

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Basic Ins. Capital Management Basic Ins. Capital Management PlanPlan

• Actuarial Department led development of the Plan

• DCAT analysis performed

• Indicated management target MCT ratio = 130%

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Basic Capital Management Basic Capital Management PlanPlan

2006 Revenue Requirements Application:

• ICBC filed a capital management plan for Basic insurance

• Proposed management target MCT of 100%

ICBC

BCUC

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July 2006 BCUC Decision, Commission determined that

• 100% MCT ratio for Basic is inadequate as a management target and is to be considered a minimum

• ICBC should set capital management target within DCAT indicated range and establish its capital plan accordingly

ICBC

Basic Capital Management Basic Capital Management PlanPlan BCUC

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2007 Revenue Requirements Application:

• ICBC filed revised capital management plan

• Proposed management target MCT of 130%

ICBC

BCUC

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Specifics of the Plan

• Builds to a target MCT ratio of 130% by 2014

• Calls for two provisions in be included in rates:

– Capital build provision

– Capital maintenance provision

• Subject to BCUC approval

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0

130

Basic MCT

Basic Capital Management Basic Capital Management Plan Plan

Remove 1/10th of Basic surplus

Before 2014 Capital Build Provisions

1/7, 1/6, 1/5, ...

After 2014 Capital Build Provision

1/5

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Capital Provision in RatesCapital Provision in Rates

Included in 2006 rates

Addn’l in 2007 rates

Capital Maintenance 1.7% +0.2%

Capital Build 0.6% +0.0%

Total Capital Provision 2.3% +0.2%

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I. Background

II. Actuarial Road

III.Scenic Tour• Bait Car Program

• Road Safety Programs

Part III – Scenic TourPart III – Scenic Tour

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Bait Car ProgramBait Car Program

• Operated by the Integrated Municipal Provincial Auto Crime Team (IMPACT) made up of twenty-two specialized police auto theft investigators from seven police forces in the Greater Vancouver Area.

• The largest Bait Car fleet in North America.

• Everything taking place inside a bait car is caught on audio and video.

• Engine is disabled at the click of a mouse button.

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Road Safety ProgramsRoad Safety Programs

Education

Engineering

Enforcement & Regulation

Road Improvements

50 % IRR

Road Improvements

50 % IRR

Children, Youth, Seniors

Impaired, Distraction, High Risk

Children, Youth, Seniors

Impaired, Distraction, High Risk

Enhanced Traffic Enforcement Funding

Graduated Licensing – $56 M in claims savings in 1st 3yrs alone…

Legislation/Regulations

Enhanced Traffic Enforcement Funding

Graduated Licensing – $56 M in claims savings in 1st 3yrs alone…

Legislation/Regulations

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EducationEducation

• Youth Employment Initiative• CAPP Program (Career and Personal Planning)• Road Sense Speakers• Road Sense Team Youth Oriented Programs

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EngineeringEngineering

• Retrofit Program - using crash and claims data, ICBC works with local governments to select project sites that may reduce crashes

• Engineering Studies – consultant engineering firms determine the exact problem(s) at the site and the appropriate interventions

• Safety Audits – ICBC reviews plans for roads or structures being built by a municipality or road authority and looks at the project from a safety perspective

• Safety Conscious Planning – ICBC works with engineers to develop guidelines to assist municipalities in their transportation planning

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Intersection ImprovementsIntersection Improvements

• 4 Way Stop Control

• Flashing Beacons

• Traffic Signals

• Signal Improvements

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Pedestrian Safety Pedestrian Safety ImprovementsImprovements

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Wildlife Collision Prevention Program (WCCP)• Almost 10,000 animal-related collisions per year in BC, costing more

than $23 million in claims

• Over 300 injuries and 4 fatalities per year

• 4,300 animals are recorded as killed

• 13,000 animal deaths go unrecorded

• Education and Mitigation Projects include:– Reflectors / Lighting / Wildlife Warning Signs

– Intelligent Warning Systems that detect the presence of approaching vehicles or animals, and send signals to activate sounds, lights or scents

– Scents to deter animal crossings: odours associated with predators (wolf urine) and odours associated with bad smells (rotten eggs)

Road Safety ChallengesRoad Safety Challenges

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EnforcementEnforcement

Auto Crime• Community grants

• Stolen Auto Recovery

• Lock Out Auto Crime parking lot audits

• CAT (Combat Auto Theft) in partnership with BCAA

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Unsafe Speed and Aggressive Driving• Extra police enforcement on high volume, high crash

routes

• Volunteer Speed Watch groups are visible reminders of the need to slow down, especially in school, playground or residential zones

• Integrated Traffic Camera Unit administers intersection safety cameras and photo radar

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Impaired Driving• Drinking Driving CounterAttack

– year round visible enforcement– ICBC funds police overtime for CounterAttack roadchecks from

April to December

• Public awareness and education

• Public service campaigns– Get Home Safe– Operation Red Nose

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Fraud PreventionFraud Prevention

Special Investigation Unit• One of the largest SIU departments of all North American insurance

companies

• SIU officers have extensive backgrounds in law enforcement from a variety of police agencies.

• All officers have Peace Officer Status and are designated by the Attorney General as Special Provincial Constables.

• In 2006, ICBC anti-fraud programs resulted in:– More than $75 million in savings to BC motorists– 104 convictions against 69 defendants– Over $207,000 paid back to ICBC in restitution and fines– ICBC fraudsters sentenced to a total of 2,087 days behind bars

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QUESTIONSQUESTIONS

Documents

1 CIA CONFERENCE VANCOUVER Insurance Corporation of British Columbia: From Then to Now Camille Minogue June 2007