MANITOBA PUBLIC INSURANCE

MANITOBA PUBLIC INSURANCE AI.5 VEHICLE CLASSIFICATION SYSTEM Standard insurance industry practice is to use a classification plan to assign risk categories to different insurance risks. The classifications are prescribed in Regulation under The Manitoba Public Insurance Corporation Act. A risk classification plan is needed because a meaningful statistical measure of risk cannot be derived on a per unit basis. It is necessary to combine units that are expected to have the same risk together, in order to derive a statistically valid measure of the risk, its cost, and subsequently the rate that should be charged. The same rate is then applied to all units of that group. In this manner, rates paid as a group accommodates costs incurred as a group. Classifications are designed based on a number of statistical, operational, social and legal criteria. Statistically, a classification system must be stable and allow for history to reflect expected costs. Operationally, classification must be practical and easily identifiable. For example, All Purpose insurance provides a simple definition of vehicles which are used to attend work, school or for business purposes. Pleasure insurance provides a simple definition of a different risk, where the vehicles are not used on a regular basis for these activities. Social and legal considerations may include a variety of factors, such as evolving legislation and human rights issues. For basic Autopac, the vehicle classification plan closely follows normal industry practice. The classification plan consists of four components; rating territories, insurance uses, vehicle rating factors and driving records. Page 1

AI.5.1 Rating Territories The province is divided into four geographical rating classes (territories) and an additional rating class based on the vehicle owner s status as a commuter living in Territory 2 and driving regularly into Territory 1 for work, school and some business uses. Each of these territories has distinctive rates which reflect differences in patterns of loss experience. This means motorists pay premiums which relate to the risk associated with insuring a vehicle in a particular geographic area of the province. There are no changes to the rating territories or their boundaries for 2013/14. The definitions of the rating territories are provided in Attachment 1 to this section. AI.5.2 Insurance Uses Motorists are required to insure their vehicles in various use categories. These categories take into consideration the varying degrees of risk associated with the different purposes for which vehicles are used. Insurance uses with high claims costs will be rated higher than uses experiencing lower claims costs. There are no changes to insurance uses for 2013/14. Insurance use definitions are located in Attachment 2 of this section and insurance uses by major class are located in Attachment 3. Page 2

AI.5.3 Vehicle Rating Factors AI.5.3.A Rate Groups The rate groups into which vehicles are assigned reflect such factors as the vehicle make, model, age, gross vehicle weight, engine size, declared value and Canadian Loss Experience Automobile Rating (CLEAR). These factors have a bearing on the cost of claims for particular types of vehicles. AI.5.3.A.1 Passenger Vehicles and Light Rated Trucks The Canadian Loss Experience Automobile Rating (CLEAR) system is used for the assignment of rate groups to passenger vehicles (cars, passenger vans and sport utility vehicles) and light trucks. The CLEAR system, produced by the Insurance Bureau of Canada (IBC), uses actual loss experience data from across Canada to determine relative loss cost indices for specific makes and models of vehicles. These indices take into account the varying costs of repairs, collision claims, comprehensive claims and injuries associated with different types of vehicles. These are used to establish rate groups on which vehicle premiums are based. The CLEAR system provides rewards, in the form of lower premiums, to consumers who purchase safer, less damage prone and more theft resistant vehicles. Increased consumer demand should encourage manufacturers to build such vehicles. The CLEAR system is thus a loss prevention initiative, as well as a method of achieving equity in the vehicle rating system. The adjustment to CLEAR based rate groups is undertaken based on the most recent recommendations available from IBC. CLEAR provides specific recommendations for each make and model year of vehicle for 16 model years. For 2013/14, the most recent table consists of vehicles for the 1998 to 2013 model years. Each year, the oldest model year is removed and the newest model year added. Page 3

CLEAR provides separate rate group recommendations for collision, comprehensive and injury. Since the basic Autopac product combines these coverages, the CLEAR recommendations are weighted to obtain the rate group applicable in Manitoba. For collision and comprehensive, the CLEAR recommendations range from a rating of 1 to 99. The Corporation has assigned a weighting allocation of 80% to the collision recommendation and 20% to the comprehensive recommendation based on the ratio of collision to comprehensive claims costs in Manitoba. For injury rating recommendations, in 2010/11, IBC began a gradual shift towards injury rating recommendations of 1 to 50 with the first phase being recommendations ranging from 27 to 40. For 2013/14, IBC is implementing the second phase, with recommendations ranging from 24 to 43. The Corporation assigns an injury rating of 1 to 5 based on the IBC injury rating. For 2013/14, the injury rating matrix was adjusted to accommodate the expansion of the IBC injury ratings. IBC AB Rating MPI AB Rating for 2012 RG MPI AB Rating for 2013 RG 24 to 26 n/a 1 27 1 1 28 1 2 29 to 31 2 2 32 to 33 3 3 34 4 3 35 4 3 36 to 37 4 4 38 5 4 39 5 4 40 5 5 41 to 43 n/a 5 For 2013/14, as a result of the change to the injury rating matrix, 86.3% of CLEAR rated vehicles experience no change in rate group. 1.2% move to a higher rate group and 12.5% move to a lower rate group. However, since CLEAR adjustments are offset to be revenue neutral there is no overall revenue impact. Page 4

IBC annually updates rate groups to account for changes in loss costs for vehicles. Generally three factors cause the CLEAR recommendation to be adjusted: Actual experience for new vehicles is developed Loss costs for repair decrease as vehicles age; and, New trends emerge such as higher theft rates for a particular make and model. Rate group adjustment rules for passenger vehicles and light trucks are as follows: If the existing rate group is higher than the recommendation, the rate group is adjusted down to the recommended rate group. If the existing rate group is lower than the recommendation, the rate group is adjusted up to the recommendation, to a maximum of one rate group. To achieve rate group consistency between the passenger vehicle and light truck tables, passenger vehicles and light trucks that have the same IBC vehicle information code will be adjusted as per the foregoing rules. New vehicles are assigned rate groups as they enter the local market. The rate groups are based on CLEAR recommendations, as they become available. Rate groups assigned to passenger vehicles for 2013/14 are contained in Section AI.6, Parts 1A and 1C. The rate groups assigned to light trucks for 2013/14 are contained in Section AI.6, Parts 2A and 2C. The Heavy Truck Rated as Light Truck Rate Group Table, contained in Section AI.6 Part 3, is used to rate farm and fishing trucks with a gross vehicle weight (GVW) in excess of 4,540 kg and with a body style of chassis mounted camper, crewcab, crewcab service truck, extended cab, extended cab service truck, light delivery, light pickup, panel van, service truck or sport utility vehicle. Since 2004/05, the rate Page 5

groups in this table have been determined based on the average light truck rate group for each model year in the current heavy rated as light truck population. Changes to rate group assignments by CLEAR result in revenue changes. Offset adjustments are applied to ensure revenue neutrality. Two offsets are calculated for CLEAR rated vehicles, one for passenger vehicles and one for light trucks. Each of the two offsets are calculated based on the corresponding percentage change in revenue and are then applied to the rate for each rate group. Rate group offsets are applied to all insurance uses for passenger vehicles and light trucks which are not flat rated. The offset adjustments are shown in AP.3. For 2013/14, as a result of CLEAR rate group reassignments to passenger vehicles, light trucks and heavy trucks rated as light trucks, after the application of the offsets: 32.3% (237,878 vehicles) receive lower rates 61.4% (451,757 vehicles) receive higher rates 6.3% (46,426 vehicles) remain unchanged Of those increasing in rate: 72.8% (329,242 vehicles) increase by less than $20 27.0% (122,041 vehicles) increase by $20 to $50 Less than 1% (473 vehicles) increase by $50 to $100 1 vehicle increases between $100 and $150 AI.5.3.A.2 Heavy Trucks Heavy trucks are trucks with a GVW of more than 4,540 kg (with the exception of farm and fishing trucks with a body style of chassis mounted camper, crewcab, crewcab service truck, extended cab, extended cab service truck, light delivery, light pickup, panel van, service truck or sport utility vehicle which are considered light trucks, regardless of GVW). Page 6

There are three broad classes of heavy trucks that have different physical damage requirements: Trucks (including farm and fishing trucks with body styles other than chassis mounted camper, crewcab, crewcab service truck, extended cab, extended cab service truck, light delivery, light pickup, panel van, service truck or sport utility vehicle) weighing between 4,541 kg and 16,330 kg GVW, which carry physical damage coverage. Trucks (excluding farm and fishing trucks) weighing more than 16,330 kg GVW, which do not carry physical damage coverage. Farm and fishing trucks with body styles other than chassis mounted camper, crewcab, crewcab service truck, extended cab, extended cab service truck, light delivery, light pickup, panel van, service truck or sport utility vehicle weighing more than 16,330 kg GVW, which carry physical damage coverage. As in previous years, heavy truck rate groups are being adjusted down one rate group per model year. This allows for new model year vehicles to be assigned the highest rate group and vintages other model year vehicles. The structure of the Heavy Truck Rate Group Table for 2013/14 and 2012/13 is as follows: Page 7

Model Year 2013/14 2012/13 2014 and later 17 2013 16 17 2012 15 16 2011 14 15 2010 13 14 2009 12 13 2008 11 12 2007 10 11 2006 9 10 2005 8 9 2004 7 8 2003 6 7 2002 5 6 2001 4 5 2000 3 4 1999 2 3 1998 1 2 1997 and prior 1 1 The annual vintaging of the heavy truck rate groups results in a change in revenue. A rate group offset is applied to ensure revenue neutrality. Heavy trucks which do not carry physical damage coverage are flat rated and therefore unaffected by rate group changes. For 2013/14, of heavy trucks with physical damage coverage receiving rate group adjustments: 42.1% (10,406 vehicles) decrease in rate 57.9% (14,333 vehicles) increase in rate Of those increasing: 99.8% (14,316 vehicles) increase by less than $20 17 vehicles increase by $20 to $29 Page 8

AI.5.3.A.3 Buses Buses are assigned rate groups based on the value declared by the owner, up to $50,000. There are no changes to the rate group structure for buses. The rate groups assigned to buses are shown in AI.6 Part 4. AI.5.3.A.4 Motorcycles Motorcycles, mopeds and mobility vehicles are currently assigned rate groups 0 to 9 based on owner declared values from $1,000 or less to $50,000. There are no changes to the rate group structure for motorcycles, mopeds and mobility vehicles. The rate groups assigned to motorcycles are shown in AI.6 Part 4. AI.5.3.A.5 Motorhomes Motorhomes are assigned rate groups based on the value declared by the owner, up to $50,000. There are no changes to the rate groups assigned to motorhomes. The rate groups assigned to motorhomes are shown in AI.6 Part 4. AI.5.3.A.6 Trailers (excluding semi-trailers) Trailers are divided into two categories: those with a declared value of $2,500 and lower; and those with declared values between $2,501 and $50,000. Trailers valued over $2,500 are assigned rate groups based on owner declared value. There are no changes to the rate groups assigned to trailers. The rate groups assigned to trailers are shown in AI.6 Part 4. Page 9

AI.5.3.B Rate Line While the individual rate group assigned is an important factor in the premium paid, an equally important factor is how rate groups relate to one another and to the underlying costs of providing the basic Autopac coverage. Rate line adjustments are applied to passenger vehicles and light trucks, heavy trucks, motorcycles, motorhomes and trailers with declared values between $2,501 and $50,000. These adjustments modify the relative difference between rates charged across the rate group spectrum. Historical loss data is used to produce relativities representing the relative loss cost for each rate group. Further details on the development of rate line relativities and the relativities used for rate line adjustments for 2013/14 can be found in TI.1. Rate line adjustments are applied on a revenue neutral basis. The offset adjustments applied to achieve revenue neutrality are shown in AP.3. AI.5.3.B.1 Passenger Vehicles and Light Trucks All insurance uses for passenger vehicles, light trucks and heavy as light trucks, excluding Police/Emergency trucks which are flat rated, receive rate line adjustments. For 2013/14, due to rate line adjustments: 59.6% (438,752 vehicles) receive a rate decrease 37.8% (278,015 vehicles) receive a rate increase 2.6% (19,294 vehicles) are unchanged Of those receiving an increase: 73.5% (204,609 vehicles) receive an increase of less than $20 26.0% (72,537 vehicles) increase between $20 and $50 Less than 1% (869 vehicles) receive an increase of $50 to $79 Page 10

AI.5.3.B.2 Heavy Trucks Rate line differentials were applied for all heavy truck insurance uses that are not flat rated. For 2013/14, of heavy trucks receiving rate line changes: 42.1% (10,406 vehicles) decrease in rate 57.9% (14,333 vehicles) increase in rate Of those increasing: 99.8% (14,316 vehicles) increase by less than $20 17 vehicles increase by between $20 and $29. AI.5.3.B.3 Motorcycles, Mopeds and Mobility Vehicles Unlike other vehicle types, the vast majority of motorcycle claims costs are injury costs and these costs do not vary greatly relative to the value of the motorcycle. As a result the rate line for motorcycles is much flatter in comparison to most other types of vehicles. Rate line adjustments are applied to all vehicles in the motorcycle major class. For 2013/14, as a result of rate line adjustments: 83.9% (11,035 vehicles) decrease in rate 16.1% (2,129 vehicles) increase in rate 5 vehicles remain unchanged Of those increasing: 54.2% (1,154 vehicles) increase by less than $20 45.8% (975 vehicles) increase by between $20 and $79 The following table shows the rate changes by rate group for vehicles in the motorcycle major class. Page 11

Rate Group Motorcycle Major Class Average Rate Change % Motorcycles Mopeds 0 4.6 2.0 23.3 1 7.8 1.0 24.2 2 2.8 0.3 6.9 3-1.1-1.0-1.2 4-0.4-0.4-0.4 5-0.4-0.4 *n/a 6-0.3-0.3 *n/a 7-0.5-0.5 *n/a 8-0.7-0.7 *n/a 9-0.2-0.2 *n/a No units in the rate model AI.5.3.B.4 Motorhomes For 2013/14, as a result of rate line changes: 63.1% (3,389 vehicles) decrease in rate 28.1% (1,515 vehicles) increase in rate 8.8% (470 vehicles) remain unchanged Of those receiving rate increases, all increase by less than $20. AI.5.3.B.5 Trailers Rate line adjustments were applied to trailers with a declared value between $2,501 and $50,000. For 2013/14, as a result of rate line changes: 50.1% (33,170 vehicles) decrease in rate 49.9% (33,068 vehicles) increase in rate. Of those receiving rate increases: All increase by less than $10 Page 12

AI.5.3.C Combined Effect of Vehicle Rate Group and Rate Line Changes As was the practice in previous years, combined offset adjustments have been applied equal to the amount of the respective revenue changes for rate group and rate line changes. Combined offsets for rate group and rate line adjustments are listed in Section AP.3. For 2013/14, as a result of combined rate group and rate line changes: 37.8% (385,427 vehicles) decrease in rate 44.5% (453,508 vehicles) increase in rate 17.7% (180,272 vehicles) are unchanged Of those increasing: 66.4% (301,192 vehicles) increase by less than $20 27.6% (125,323 vehicles) increase by between $20 and $50 5.8% (26,481 vehicles) increase by between $50 and $100 512 vehicles increase by between $100 and $149 On a percentage increase basis, of those increasing: 92.5% (419,220 vehicles) increase by less than 5 percent 7.4% (33,415 vehicles) increase by between 5 and 8 percent 5 vehicles increase by between 14 and 20 percent 868 vehicles increase by more than 20 percent All of those increasing more than 20% are mopeds and motorscooters less than 500 cc. AI.5.3.D Other Vehicle Rating Factors In addition to rate groups, some vehicle types are also rated using other vehicle rating factors. Vehicle rating factors group together vehicles with similar risks. Trucks are classified into three gross vehicle weight (GVW) categories: Page 13

4,540 kg or less 4,541 to 16, 330 kg 16,331 kg or more Buses are classified by seating capacity: 20 seats or less 21 to 35 seats 36 to 50 seats 51 seats or more Motorcycles are classified into three engine size categories: 500cc or less 501 to 1,000 cc 1,001 cc or more Motorcycles are also classified by bodystyle. Bodystyles are grouped into five bodystyle rating categories for rating purposes: Touring Rating: includes bodystyles Touring, Trike, 3-Wheel Motorcycle and Standard Sidecar. Sport Rating: includes bodystyles Sport and Naked Sport Sport Touring Rating: includes bodystyles Sport Touring and Adventure Motorscooter Rating: includes bodystyles Motorscooter and 3-Wheel Scooter. Other Rating: includes bodystyles Cruiser, Dual Purpose, Motard, Enduro, Other and Standard. Motorcycle bodystyle definitions can be found in Attachment 4 to this section. There are no changes to vehicle rating factors for 2013/14; however, for 2013/14, the Corporation continued to adjust the relationship between rates for the three GVW ranges to better reflect the loss experience. Rates for the GVW ranges were adjusted for the Commercial and Public Major Classes as follows: Page 14

GVW Range Adjustment 0 to 4,540 kg -4.02% 4,541 to 16,330 kg (10,981 to 16,330 kg for Sand/Gravel & Cement/Brick/Exploration) -1.29% Over 16,330 kg +1.63% These adjustments were derived based on a review of the relativities between GVW ranges. A single offset adjustment was applied equal to the amount of the respective revenue change. The offset for truck GVW relativities is listed in Section AP.3. For 2013/14, as a result of GVW relativity adjustments: 49.4% (17,807 vehicles) decrease in rate 50.6% (18,275 vehicles) increase in rate Of those receiving rate increases: 97.4% (17,808 vehicles) increase by between $1 and $29 2.6% (467 vehicles) increase by between $40 and $49 AI.5.3.E Experience Adjustments Classification changes are applied on a revenue neutral basis. In order to achieve the overall required rate change, as determined by the results of the claims forecast, experience adjustments are developed for the following rating variables: Insurance use Territory Gross vehicle weight Commercial and Public major classes only Bodystyle and engine displacement Motorcycle major class only Experience rate adjustments to be applied to each risk classification are presented Page 15

in AP.2. Further details on the development of experience adjustments can be found in TI.19 Ratemaking Methodology. AI.5.3.F Special Rate Adjustments The Corporation uses relative ranking rules to ensure that less restrictive rating categories do not have lower rates than more restrictive ones, resulting in special rate adjustments. These adjustments are made to the rates after all classification and experience adjustments completed. For 2013/14, the following insurance uses received such adjustments affecting 492 vehicles: Pleasure Motorcycle; Touring Rated; 500 cc or less; Territory 1 rates decreased $8 to $12 to equal to All Purpose Motorcycle rates (8 vehicles) Pleasure Motorcycle; Sport Rated; over 1,000 cc; Territory 3 rates decreased $47 to $68 to equal All Purpose Motorcycle rates (2 vehicles) Farm All Purpose Truck; 4,540 Kg or less; Commuter Territory rates increased $1 to $2 to equal Territory 2 rates (410 vehicles) All Purpose Motorcycle; Motorscooter Rated; 501 cc 1,000 cc; Commuter Territory rates increased $35 to $63 to equal Territory 2 rates (1 vehicle) All Purpose Motorcycle; Touring Rated; 500 cc or less, 501cc 1,000 cc and 1,000 or more cc; Commuter Territory rates increased $40 to $294 to equal Territory 2 rates (66 vehicles) All Purpose Motorcycle; Sport Touring Rated; over 1,000 cc; Commuter Territory - rates increased$51 to $74 (5 vehicles) AI.5.3.G Overall Revenue Adjustment Impact The impact of all change in rates, including adjustments for rate group, rate line, truck gross vehicle weight relativities, experience adjustments and special rate adjustments, are shown in SM.3 and TI.3. Page 16

AI.5.4 Driving Record The driving record component of the classification plan is designed to adjust rates based on the driving convictions and claims history of the customer. Customers with a prior history of claims or poor driving records are a higher risk and consequently pay higher rates. The driving record portion of the vehicle classification plan has two components: Vehicle Premium Discount Fleet Safety Program AI.5.4.A Vehicle Premium Discount The Corporation implemented the Driver Safety Rating (DSR) program, as prescribed in legislation, on March 1, 2010. Currently the DSR Scale ranges from a high of 15 merits to a low of 20 demerits. In order to receive a vehicle merit discount, the vehicle must be insured in one of the following use categories: All Purpose Mobility Vehicle All Purpose Moped Pleasure Moped All Purpose Motorcycle (all vehicle types) Pleasure Motorcycle (all vehicle types) All Purpose Motorhome Pleasure Motorhome All Purpose Passenger Vehicle Pleasure Passenger Vehicle Farm Passenger Vehicle Common Carrier Local Passenger Vehicle Common Carrier Passenger Vehicle within 161 km in Manitoba All Purpose Truck Pleasure Truck Artisan Truck (GVW less than 16,331 kg) Farm or Fishing All Purpose Truck (GVW less than 4,541 kg or a body style of chassis mounted camper, crewcab, crewcab service truck, extended cab, Page 17

extended cab service truck, light delivery, light pickup, panel van, service truck or sport utility vehicle) Common Carrier Truck within city or municipality Common Carrier Truck within 161 km in Manitoba The current vehicle premium discount scale is shown in the following table. There are no proposed changes for 2013/14. DSR Level 2013 Vehicle Premium Discount 15 33% 14 30% 13 29% 12 28% 11 27% 10 26% 9 25% 8 25% 7 25% 6 20% 5 15% 4 15% 3 10% 2 10% 1 5% 0 to -20 0% Further information on the DSR program can be found in AI.4. Page 18

AI.5.4.B Fleet Rebates and Surcharges The Corporation s fleet rebate/surcharge program applies where an owner has 10 or more vehicles registered on the first day of any customer month and the number of days the fleet vehicles are insured meets or exceeds the minimum number of days. All vehicles are included in a fleet except: Insurance exempt vehicles Taxis Liveries Motorcycles, Mopeds, and Mobility Vehicles Trailers Vehicles with PIPP coverage only Off-road vehicles Fleet rebates and surcharges are determined by the loss experience of the fleet. Loss experience is the ratio between all losses paid by Manitoba Public Insurance and the fleet premiums paid to Manitoba Public Insurance. Except for comprehensive claims, which are fully included in the calculation of the loss ratio, claims are included according to the degree of responsibility. For example, if the fleet vehicle is held 40 percent responsible for a claim, only 40 percent of the cost of the claim (including all costs for which the fleet driver is responsible) is assessed to the fleet. The maximum amount used for any one loss is $25,000. Fleet assessments may be adjusted based on increases or decreases to claims amounts which were not included in the previous year s fleet assessment. Fleet rebates and surcharges vary, depending on the loss ratio. The current fleet rebate scale ranges from a 1 percent rebate (69 percent loss ratio) to a maximum 33 percent rebate (37 percent or lower loss ratio), and the fleet surcharge scale ranges from a 1 percent surcharge (80 percent loss ratio) to a maximum 50 percent surcharge (129 percent or more loss ratio). Page 19

The fleet rebate scale is shown in the following table. There are no changes proposed for 2013/14. Loss Ratio (%) Fleet Rebate (%) Loss Ratio (%) Fleet Rebate (%) 37% or lower 33 54 16 38 32 55 15 39 31 56 14 40 30 57 13 41 29 58 12 42 28 59 11 43 27 60 10 44 26 61 9 45 25 62 8 46 24 63 7 47 23 64 6 48 22 65 5 49 21 66 4 50 20 67 3 51 19 68 2 52 18 69 1 53 17 Page 20

The Fleet Surcharge Table is shown in the following table; there are no changes proposed for 2013/14. Loss Ratio (%) Fleet Surcharge (%) Loss Ratio (%) Fleet Surcharge (%) 70-79 Nil 105 26 80 1 106 27 81 2 107 28 82 3 108 29 83 4 109 30 84 5 110 31 85 6 111 32 86 7 112 33 87 8 113 34 88 9 114 35 89 10 115 36 90 11 116 37 91 12 117 38 92 13 118 39 93 14 119 40 94 15 120 41 95 16 121 42 96 17 122 43 97 18 123 44 98 19 124 45 99 20 125 46 100 21 126 47 101 22 127 48 102 23 128 49 103 24 129 or more 50 104 25 Page 21