krsuronrrecolporplkn dbrftlsh Insurance Exeoutive Office Mailing address: Corpwation We 517-151 W. Espfanade PO Box 2606 Fmncial Allocation Mdmdobgy of Wsh Nadh Vancouver BC V7M 3Hg 348 W. Georgia St. Columbia Vancouver BC V6B 3W8 September 24,2004 Ms. Lindsay Olson Insurance Bureau of Canada 510 Burrard Street Suite 101 0 Vancouver, BC V6C 3A8 Dear Ms. Olson: Re: ICBC's July 5. 2004 Filin~ Please find endosed ICBC's Information Requests No.1 to the Insurance Bureau of Canada. Yours truty, Donnie Wing, CA Vice President, Investments and Corporate Development Attachments (1) cc: British Columbia Utilities Commission Attention: Robert J. Pellatt Registered lntetvenors in Project No. 3698362
IINSURANCE CORPORATION OF BRITISH COULMBIA (ICBC) ICBC Information Requests on Intervenor Written Evidence to Insurance Bureau of Canada Insurance Corporation of British Columbia ( ICBC ) An Application for Approval of the Financial Allocation Methodology and a Filing relating to Road Safety and Collection of Data Relating to Age, Sex and Marital Status and a Filing containing Actuarial and 2005 Financial Information Insurance Bureau of Canada 1.0 Reference: Analysis of ICBC's Financial Allocation Methodology Barb Addie Experience Specifically Related to This Assignment page 1 Please provide a copy of every report, study, analysis, written evidence, or other document, produced in the last five years, in which Ms. Addie has addressed the subject of financial allocation. 2.0 Reference: Analysis of ICBC s Financial Allocation Methodology Barb Addie Experience Specifically Related to This Assignment page 1 Please provide copies of the papers outlining the impact of removing age/gender as rating variables in New Brunswick and Nova Scotia. 3.0 Reference: Analysis of ICBC s Financial Allocation Methodology Barb Addie Experience Specifically Related to This Assignment page 1 Item no. 3 listed in the experience of Barb Addie indicates that Ms. Addie has been responsible for several automobile insurance rate filings in Ontario, New Brunswick, Alberta and Nova Scotia. Please provide a full copy of the most recent such automobile insurance rate filing. 4.0 Reference: Analysis of ICBC s Financial Allocation Methodology Introduction page 4 At page 4 of the September 2004 Analysis filed with the BCUC it says there is no published information on the number of vehicles written by ICBC under Optional Coverages. Please explain in detail the manner in which the Analysis would be different if published information on the number of vehicles written by ICBC under Optional Coverages was available. ICBC Information Requests to Insurance Bureau of Canada Page 1 of 8
5.0 Reference: Analysis of ICBC s Financial Allocation Methodology Table 1-British Columbia Accident Year 2003 page 5 5.1 What is the source of these numbers? 5.2 What do the Number of Claims represent e.g. exposures, coverages, accident count? 5.3 What is the Optional (or Extended Third Party Liability) portion of the number of claims under the Third Party Liability + UMP 258, 241? 6.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 5 At page 5 the Analysis states The ultimate goal of allocation methods is to distribute costs amongst different products so as to ensure appropriate pricing of products and monitoring/measurement of results. Please provide the source documents used by Ms. Addie to conclude that is the ultimate goal of allocation methods. 7.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 5 Please provide the sources used by Ms. Addie to arrive at her understanding that the fundamental goal of allocating costs between Basic and Optional coverages is to ensure that the Basic coverage does not subsidize the management of the Optional book. 8.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 5 At page 5 of the Analysis it states It is my understanding that the fundamental goal of allocating costs between Basic and Optional coverages is to ensure that the Basic Coverage does not subsidize the management of the Optional book. 8.1 Is this fundamental goal different than the ultimate goal referenced earlier in that same paragraph? 8.2 If yes, please explain in what manner, and why, the fundamental goal differs from the ultimate goal. 9.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 7 At page 7 the Analysis refers to the number of claims under the extended Third Party Liability coverage, and goes on to state it seems reasonable to assume that it would be a relatively small number (being third party claims in excess of $200,000). Please provide the annual number of claims under Extended Third Party Liability coverage that was assumed for the purposes of the Analysis of Ms. Addie. ICBC Information Requests to Insurance Bureau of Canada Page 2 of 8
10.0 Reference: Analysis of ICBC s Financial Allocation Methodology Table 3-Impact of Revising Claims Services Allocators page 8 10.1 Why are the ratios in the table inconsistent with the ratios in the text? 10.2 How is the ratio of 59.4% / 40.6% calculated? 11.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 8 At page 8 of the Analysis it states Based on the limited information available, it appears to me that the split derived from the Customer Service (Call Centre) is a more reasonable allocation of costs. Please provide details of all information that was available to Ms. Addie at the time of preparing her Analysis, and was used by Ms. Addie in arriving at the conclusion that the split derived from the Customer Service (Call Centre) is a more reasonable allocation of costs. 12.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 8 In the paragraph below Table 3 on page 8 of the Analysis it refers to the costs of setting up a claim file and completing the initial investigation of the potential claim. 12.1 Please provide details of all elements of the activities that Ms. Addie understands would be involved in setting up a claim file and completing the initial investigation of the potential claim. 12.2 Please also provide Ms. Addie s estimate of the cost (in dollars) that would be typical in setting up a claim file and completing the initial investigation of the potential claim for (a) a claim under Basic Insurance coverage and (b) a claim under an Optional Insurance coverage. 13.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 9 In section 4.2.3, at page 9 of the Analysis, there is a reference to excluding windshield claims. How many windshield claims were excluded in the allocation of Road Safety and Loss Management Services? 14.0 Reference: Analysis of ICBC s Financial Allocation Methodology Table 5 on page 10 Please provide the details of the calculations used to derive Table 5. ICBC Information Requests to Insurance Bureau of Canada Page 3 of 8
15.0 Reference: Analysis of ICBC s Financial Allocation Methodology page 13 At page 13 of the Analysis it says that the Optional Coverages generate more claims (referring to Table 1) and then goes on to say This, in my opinion, would generate increased costs. Please provide details of all elements of the activities, and costs thereof (in dollars), that are directly related to the number of claims. 16.0 Reference: Commentary on Use of Age, Sex, and Marital Status in Alberta Automobile Insurance Rating - Ronald R. Miller page 13 Paragraph 1 indicates the report was commissioned by Insurance Bureau of Canada and its counsel to provide commentary about the current situation in Alberta. Please provide the engagement letter, retainer letter, or other document that sets out the terms of the retainer or engagement of Mr. Miller or Exactor Insurance Services Inc. If the terms of the retainer or engagement are not described in a document, please provide a complete description of the terms of the retainer or engagement. 17.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia A Point-of-View on the nature, definition, and value to the corporation of its advertising, promotion and communication activities page 1 Please provide the engagement letter, retainer letter or other document by which Fletcher Weir Consulting's point of view was retained. If the terms of the retainer or engagement are not fully described in a document, please provide a complete description of the terms of the retainer or engagement. 18.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 2 In the fourth paragraph under Background on page 2 of the point-of-view it says Based on an examination of recent activity. Please provide a full description of each recent activity that was examined prior to the preparation of the point-of-view. 19.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 4 The first paragraph under Executive Summary on page 4 of the point-of-view states On review of its programs and practices. Please provide a full description of each program and practice that was reviewed prior to the preparation of the point-of-view. ICBC Information Requests to Insurance Bureau of Canada Page 4 of 8
20.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 5 In the sixth paragraph under the heading Specific Points of View: The Issues on page 5 it refers to the highlighted programs. Please provide a description of each highlighted program that was reviewed prior to the preparation of the point-of-view. 21.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 8 In the first paragraph of section 5 it says Given the years that ICBC has operated prior to the introduction of the new, competitive tier. Which new, competitive products tier is being referenced in that statement? 22.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 11 The glossary attached to the point-of-view describes Commercial Value as Commercial value refers to the measurable [usually economic] benefits accruing to a marketer usually as the result of successful marketing activity. Has (a) Fletcher Weir Consulting measured a benefit that has accrued to ICBC as a result of ICBC s advertising, promotion and communication activities? (b) If the answer to (a) is yes, please provide the calculation by which Fletcher Weir Consulting derived the measured amount. 23.0 Reference: Fletcher Weir Consulting The Insurance Corporation of British Columbia page 11 The point-of-view of Fletcher Weir Consulting uses throughout terms such as our opinion, our conclusions and our view. Please identify the individual or individuals whose opinion, conclusion or view are expressed in the document dated September 16, 2004. 24.0 Reference: KPMG Observations Regarding ICBC's Approach to Cost Allocation page 2 At page 2 of the report it says that activity-based costing has been recognized in the literature. Please provide details of the literature to which that statement is referring. ICBC Information Requests to Insurance Bureau of Canada Page 5 of 8
25.0 Reference: KPMG Observations Regarding ICBC s Approach to Cost Allocation page 2 25.1 What are the key reasons for why full activity-based costing is not widely used in practice? 25.2 What percentage of P&C insurance companies use full activity-based costing? 26.0 Reference: An Overview of Supervision and Regulation - Ronald R. Miller page 1 Paragraph 1 indicates the report was commissioned by Insurance Bureau of Canada and its counsel to provide an overview of the supervision and regulation of private sector Property and Casualty Insurance Companies in Canada. Please provide the engagement letter, retainer letter, or other document that sets out the terms of the retainer or engagement of Mr. Miller or Exactor Insurance Services Inc. If the terms of the retainer or engagement are not described in a document, please provide a complete description of the terms of the retainer or engagement. 27.0 Reference: An Overview of Supervision and Regulation - Ronald R. Miller 27.1 Please explain the subrogation process auto insurers follow in Ontario? 27.2 Why has the Ontario auto insurance industry adopted this process? 27.3 Please provide a copy of any guidelines, procedures, instructions, and agreements relating to this process. 28.0 Reference: An Overview of Supervision and Regulation - Ronald R. Miller page 1 28.1 Please provide a list of each and every engagement or retainer of Exactor Insurance Services Inc. (or any of its employees) by the Insurance Bureau of Canada during the last five years. 28.2 Please include a brief description of the subject matter of each such engagement or retainer. 29.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies Ronald R. Miller, Exactor Please describe in detail the regulatory model for private auto insurers operating in British Columbia. ICBC Information Requests to Insurance Bureau of Canada Page 6 of 8
30.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies Please describe in detail the rate information currently filed by private auto insurers selling auto insurance in BC that is required by the provincial regulator for rate approval. 31.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies Please describe the process the BC regulator of private auto insurers use to approve rates. 32.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 2 Please describe the information available in an annual P&C 1. Please provide the annual P&C 1 for the four private insurers who sell the most auto insurance in BC. 33.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 3 The paragraph on page 3 commencing with A number of insurance groups refers to sister companies sometimes sharing infrastructure and goes on to refer to the need for an allocation exercise for some administrative expenses. The final sentence of that paragraph says the allocation issue is somewhat similar to that for ICBC in splitting things between its compulsory and optional insurance books of business, but is relatively simpler, because, unlike in the case of ICBC, each of the companies has its own assets, so items like investment income do not need to be allocated. 33.1 Does Mr. Miller agree that when infrastructure costs must be shared between sister companies in an insurance group that the costs are generally allocated between the sister companies on a pro-rata basis? 33.2 Does Mr. Miller agree that when an insurance company sells more than one line of business (e.g. home owners insurance and auto insurance) that costs must be allocated between the lines of business? 33.3 Does Mr. Miller agree that when an insurance company sells more than one line of business (e.g. home owners insurance and auto insurance) that costs are generally allocated between the lines of business on a pro-rata basis? 33.4 Does Mr. Miller agree that when an insurance company sells more than one line of business (e.g. home insurance and auto insurance) that investment income must be allocated between the lines of business? ICBC Information Requests to Insurance Bureau of Canada Page 7 of 8
34.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 3 34.1 Please provide examples of shared infrastructure referred to on page 3. 34.2 Please explain why several insurance groups that operate as one insurance company would share this infrastructure. 35.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 3 Please provide a sample of the underwriting rules filed with FSCO. 36.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 4 Please provide a copy of an auto insurance rate filing made in the past 2 years with the Financial Services Commission of Ontario. Is this filing available publicly? If not, why not? 37.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 4 Does the FSCO rate review process for auto insurance including public hearings, crossexamination, public and intervenor participation, and written and oral testimony? 38.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies page 5 Of the bulleted list on page 5, please identify which sections are applicable to a revenue requirement application (i.e. a change in the general level of rates) and which are applicable to a rate design application. 39.0 Reference: Overview of Supervision and Regulation of Private Sector Property Casualty Insurance Companies Please provide a copy of the IBC's press release entitled "IBC presents case for confidentiality of proprietary information to Nova Scotia Insurance Review Board" dated August 26, 2004. ICBC Information Requests to Insurance Bureau of Canada Page 8 of 8