2017 NSUARB 69
M07911
DECISION
NOVA SCOTIA UTILITY AND REVIEW BOARD
IN THE MATTER OF THE INSURANCE ACT
- and -
IN THE MATTER OF AN APPLICATION by CUMIS GENERAL INSURANCE
COMPANY for approval to modify its rates and risk-classification system for private
passenger vehicles
BEFORE:
Roberta J. Clarke, Q.C., Member
APPLICANT:
CUMIS GENERAL INSURANCE COMPANY
FINAL SUBMISSIONS:
April 28, 2017
DECISION DATE:
May 9, 2017
DECISION:
Application is approved
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I
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INTRODUCTION
[1]
CUMIS General Insurance Company (“CUMIS” or “Company”) filed
supporting documents and materials (“Application”) with the Nova Scotia Utility and
Review Board (“Board”) for approval to modify its rates and risk-classification system for
private passenger vehicles (“PPV”).
The Application, dated March 2, 2017, was filed
electronically on that date, and the original documents were received on March 3, 2017.
[2]
Information Requests (“IRs”) were sent to the Company on March 15, 2017,
and responses were received on April 12, 2017.
In response to IRs sent regarding a
sister company, COSECO Insurance Company (“COSECO”) on April 24, 2017,
information regarding CUMIS was provided on the same date.
[3]
As a result of a review by Board staff, a staff report dated April 24, 2017,
(“Staff Report”) was prepared. The Staff Report was provided to the Company for review
on April 24, 2017. The Company responded on April 28, 2017, indicating that it had
reviewed the Staff Report and had noted an omission of information regarding eligibility
for the New Business Discount. Board staff revised the Staff Report accordingly.
[4]
The Board did not deem it necessary to hold an oral hearing on the
Application.
II
ISSUE
[5]
The issue in this Application is whether the proposed rates and changes to
the risk-classification system are just and reasonable and in compliance with the
Insurance Act (“Act’) and its Regulations.
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III
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ANALYSIS
[6]
The Company sought approval to change its rates and its risk-classification
system for PPV. The Application was made in accordance with the Board’s Rate Filing
Requirements for Automobile Insurance - Section 155G Prior Approval {“Rate Filing
Requirements"). The Company’s mandatory filing date was April 1,2017.
[7]
The proposed effective date is September 1, 2017, for both new business
and renewal business.
Rate Level Changes
[8]
The Company proposed to change its base rates and risk-classification
system. The proposed change represents an overall rate level increase of 4%.
[9]
The proposed changes were based on indications for an all-coverages
combined ratio increase of 10.3%, which varied by coverage.
[10]
Changes to the risk-classification system included: adoption of the 2017
Canadian Loss Experience Automobile Rating (“CLEAR”) table; changes to differentials
for some rating variables; extension of rating variables to other coverages; introduction of
new territory definitions; introduction of a number of new discounts; and, changes to
existing discounts. CUMIS also proposed some changes to its rating rules.
[11]
In addition, CUMIS proposed the introduction of a premium dislocation cap
for both increases and decreases. The impact of such a cap was not taken into account
in the indications referred to above.
[12]
In considering the Company’s Application, Board staff reviewed all aspects
of the ratemaking procedure, including the following:
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•
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•
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Loss trends;
Impacts of 2010 Minor Injury Reform and 2012 Accident Benefit Reform;
Loss development;
Premium (rate group drift) trends;
Credibility standards procedures, and the complement of credibility;
Expense provisions, including unallocated loss adjustment expense provisions;
Experience period and weights;
Premium to surplus ratio; and
Profit provision and target and proposed return on equity (“ROE”).
[13]
Board staff reported that the only issues where the Board might wish to
consider alternate assumptions were the profit provision and the Health Services Levy.
All other issues were resolved satisfactorily through the IR process.
Return on Equity
[14]
In developing its indications, the Company used a target ROE of 12% and
a premium to surplus ratio of 1.85:1.
This resulted in a profit provision of 6.2% of
premiums.
[15]
Based on information in the General Insurance Statistical Agency (“GISA”)
Financial Information Reports for 2012 and 2013, the Board was concerned that industry
profits were at higher levels than the Board had considered it had approved. The Board
determined an acceptable range for target ROE from 10-12%. To address apparent over­
earning, the Board required companies to use the lower end of the range in their
indications.
[16]
The GISA reports for 2014 and 2015 show negative ROEs for PPV. The
Board has not attributed these results to a requirement to use the low end of the range; it
anticipates the results reflect a combination of companies choosing not to take the full
indicated rate changes, and some deteriorating experience due to weather conditions.
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Consequently, the Board has continued to order the use of the 10% target ROE unless a
company has been able to satisfy it that its results differ from industry.
[17]
In response to IRs, CUMIS submitted its ROE is volatile, as it has only a
small volume of business in Nova Scotia. It suggested that its PPV business in Nova
Scotia is not profitable, and is subsidized by its business in other provinces and its other
lines of business.
CUMIS provided information on its loss ratios which support its
contention about its experience in Nova Scotia.
[18]
The Board is satisfied that the CUMIS experience is different from the
industry average in Nova Scotia and, as a result, the use of the 12% ROE in its indications
is acceptable.
Health Services Levy
[19]
The Health Services Levy is charged by the Province of Nova Scotia to
insurance companies to recover costs of health services provided as a result of
automobile accidents. The levy is charged per vehicle underwritten.
[20]
The Province recently conducted an actuarial assessment of the costs of
such health services. This resulted in an estimate of the 2017 levy at $33.09.
[21]
In its assumptions, CUMIS used a charge of $23.35 which is a significantly
lower amount.
[22]
Board staff.
The Company provided indications using the higher levy at the request of
The indications for Bodily Injury, Property Damage - Tort, and Direct
Compensation Property Damage (“DCPD”) were higher than the original indications, as
was the total for all coverages combined.
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[23]
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Board staff recommended that CUMIS be required to reflect the higher
Health Services Levy, noting that while this does not have a significant impact on this
Application, it will result in the Company using the appropriate indication in its complement
of credibility in its next filing,
[24]
The Board accepts this recommendation.
As a result, the CUMIS
indications, adjusted for the Health Services Levy, are those against which the Board
assesses the reasonableness of the proposed changes.
Rate Level Changes
[25]
The rate changes proposed by CUMIS follow the indicated changes in
direction, but differ in magnitude. In some cases, the difference is large, on a percentage
basis. The rates are, therefore, lower than indicated for all coverages, except SEF#44,
the Family Protection endorsement, where the Company proposes no change.
[26]
Board staff report that the difference between the current SEF#44 premium
charged by CUMIS and the indicated charge is less than $4.00.
Since CUMIS is
proposing to take much lower increases than indicated for other mandatory coverages,
Board staff do not consider requiring the Company to decrease the rate for SEF#44 is
warranted.
[27]
Board staff recommend the approval of the proposed rates. According to
Board staff, this will produce an ROE well below the range the Board has considered
reasonable. Board staff concluded that the proposed rates alone are unlikely, however,
to create any concerns about the solvency of CUMIS.
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The Company said in its Application and IR responses that it wishes to
. .move slowly towards rate level adequacy..It hopes to improve its business in Nova
Scotia, which the Board understands could help minimize the volatility which may be
inherent with a smaller portfolio of business.
[29]
The Board, therefore, approves the proposed rates, but reminds the
Company that it should continue, as it stated in response to IRs, to review its rates “to
stay up to date”. The Board is concerned that taking lower than indicated rates now, for
business reasons, might result in a request for large increases in a future application
resulting in “rate shock” for clients.
Territorial Differentials
[30]
CUMIS proposed to adopt the territory definitions approved for its sister
company, Cooperators General Insurance Company (“CGIC”) in its last approved
application. The number of territories will not change, but the allocation of postal codes
to each territory will be different than the current CUMIS allocations.
[31]
The Company determined indications for territorial differentials using the
combined data of CUMIS, COSECO and CGIC. It chose proposed differentials based on
the indications, but capped the changes at ± 10%.
[32]
The Company explained it did not adopt the CGIC differentials in order to
minimize further dislocation to it clients. Using CGIC differentials would have resulted in
much larger changes.
CUMIS off-balanced the impacts of the changes to territorial
differentials as part of off-balancing for all differential changes in order to be revenueneutral as a whole.
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[33]
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The Board approves the proposed changes to territories and the territorial
differentials.
Other Differentials
[34]
CUMIS undertook an analysis of a number of its rating variables: Use,
Exposure, Years Licensed/Gender, and Years Claims Free. It then proposed changes
based on indications which were capped, mainly at ± 10%.
[35]
The impacts of the changes were off-balanced for each coverage in order
to make them revenue-neutral.
[36]
The Board approves the proposed differential changes.
Other Changes
2017 CLEAR Table
[37]
CUMIS proposes to adopt the 2017 CLEAR (AB Alberta & Atlantic)
Collision, DCPDand Comprehensive Separated Table. Currently it uses the 2015 version
of the Table. The Board approved the 2017 version earlier this year.
[38]
CUMIS off-balanced any impact from the implementation of the new Table.
[39]
The Board approves the adoption of the 2017 CLEAR Table as proposed.
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Conviction Free Discount and Minor Conviction Surcharge
[40]
CUMIS proposes to introduce a 15% discount for clients who have had no
minor convictions in the past three years. It will apply to Third Party Liability and Collision
coverages, as well as Accident Benefits, Comprehensive and Specified Perils coverages.
[41 ]
The Company also proposes to increase its current 10% surcharge for each
minor conviction after the first to 20%. This surcharge currently applies to Third Party
Liability and Collisions coverages only, and this will continue.
[42]
In both cases, the impact of the changes has been off-balanced to make
them revenue-neutral. Further, both changes were approved in the last application for
CGIC. The Board approves both proposed changes.
Short Commute Discount
[43]
The Company proposes the introduction of a 5% discount where the vehicle
has a commute of 8 km or less. It would apply when the principal operator has been
licensed for at least 9 years and applies to Bodily Injury, Property Damage - Tort, DCPD
and Collision coverages.
[44]
CUMIS combined its data with that of COSECO to support the proposal,
and off-balanced the impact of the change.
[45]
The Board approves the discount as proposed.
Occupational Discount
[46]
CUMIS proposes to introduce an occupational discount. CGIC currently
has such a discount and the Company said its competitors offer similar discounts. It also
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noted that eligible occupations often have group benefits through employers, making
them less likely to claim under the insurance policy for losses which are covered under
those benefits.
[47]
The Company proposed to introduce the discount at 5%. It would apply to
Bodily
Injury,
Property
Damage
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Tort,
DCPD,
Accident
Benefits,
Collision,
Comprehensive, Specified Perils and All Perils coverages.
[48]
The Board approves the introduction of the proposed discount.
New Business and Renewal Discount
[49]
Currently, CUMIS offers a Loyalty Discount at 5% to all clients who have
coverage for three years with their current insurer or CUMIS.
It applies to principal
operator premiums for all coverages.
[50]
The Company proposed to remove the Loyalty Discount and replace it with
the Renewal Discount which was recently approved for CGIC.
Clients insured with
CUMIS for the past five years would receive a 5% discount.
[51]
CUMIS proposed the introduction of a New Business Discount.
To be
eligible:
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the vehicle is not currently insured by CUMIS;
the client has been continuously insured with same company for five years or
more;
the client has had no minor, major, or serious/Criminal Code convictions in the
past three years;
the client has been licensed for nine years or more;
the client has been claims free for six or more years; and
the vehicle has full coverage (Third Party Liability, Accident Benefits, DCPD,
Collision, Comprehensive and either Specified Perils or All Perils Coverages).
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[52]
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CUMIS proposed the discount would start at 10% and, providing the client
remains qualified, it will reduce to 7.5% in the second year, and 5% in the third, fourth
and fifth years. Thereafter, the Renewal Discount would apply.
[53]
The proposed changes will harmonize with discounts offered by CGIC.
[54]
The Board approves the removal of the Loyalty Discount and the
introduction of the Renewal and New Business Discounts.
Premium Dislocation Cap
[55]
The changes proposed in the Application will, despite taking lower than
indicated increases, result in significant dislocation for some clients of CUMIS.
The
Company proposes to mitigate the impact by capping increases at 15%.
[56]
In order to mitigate the loss of revenue, CUMIS proposed a negative cap of
5% on decreases.
It indicated, that on average, the caps would be expected to be in
place only for a single renewal.
[57]
The Board has permitted a negative cap in similar situations, subject to the
extra premium collected under the negative cap not exceeding the foregone premium. In
this Application, CUMIS has provided information to satisfy this condition.
[58]
As a result, the Board approves the proposed premium dislocation caps.
Rate Manual Review
[59]
Board staff have reviewed the Rate Manual on file and found no instances
where the Company is in violation of the Regulations.
The Company proposes to
introduce a maximum value for vehicles covered under the endorsement NSEF#3 - Drive
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Government Automobile in the manual.
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It also proposes to clarify that endorsement
NSEF#13C - Comprehensive Cover-Deletion of Glass applies only to PPV.
The
Company proposed no further changes to its Rate Manual other than those necessary to
effect the changes noted in this Decision.
IV
FINDINGS
[60]
The Board finds that the Application complies with the Act and Regulations,
as well as the Rate Filing Requirements.
[61]
The financial information submitted by the Company satisfies the Board,
pursuant to Section 1551(1 )(c) of the Act, that the proposed changes are unlikely to impair
the solvency of the Company.
[62]
The Board finds the proposed rates are just and reasonable.
[63]
The Application included full actuarial indications and the required territorial
analysis; therefore, it qualifies to set the new mandatory filing date for PPV for the
Company to March 1,2019.
[64]
The Board approves the effective date of September 1, 2017, for both new
business and renewal business.
[65]
The Company is required to file an electronic version of its updated Rate
Manual within 30 days of the issuance of the Order in this matter.
[66]
An Order will issue accordingly.
DATED at Halifax, Nova Scotia, this 9th day of May, 2017.
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