#1IBC BACI Insurance Bureau of Canada Bureau d'assurance du Canada AIRB 2017 Annual Review Bill Adams, Vice-President, Western Ryan Stein, Director of Policy August 15, 2017 ibc.ca#2Annual Review 2017 Agenda IBC BAC Overview of Alberta's auto insurance market Analysis of bodily injury claims Review of grid population's loss experience ibc.ca 2#3Overview of Auto Insurance Market (1/6) IBC BAC Vehicle Thefts Bodily Injury Claims Natural Catastrophes Health Levy Deteriorating auto insurance market ibc.ca 3#4Overview of Auto Insurance Market (2/6) 50% Percentage Change in Bodily Injury Loss Costs Since 2011 25% 35% 17% 0% Alberta Ontario (7%) Atlantic Canada -25% Source: IBC graph with data from Dr. Ron Miller for Alberta and from GISA for Ontario and Atlantic Canada. IBC BAC ibc.ca 4#5Overview of Auto Insurance Market (3/6) 120,000 Comprehensive Catastrophe Claims Between 2011 and 2015 110,819 80,000 40,000 0 Alberta Source: IBC graph with data from GISA. IBC BAC 29,983 5,854 Ontario Atlantic Canada ibc.ca 5#6Overview of Auto Insurance Market (4/6) 50% Percentage Change in Theft Claims Frequency Since 2011 25% 38% 0% Alberta Ontario Atlantic Canada -25% (28%) (21%) -50% Source: IBC graph with data from GISA. Based on claims at the six-month development level. IBC BAC ibc.ca 6#7Overview of Auto Insurance Market (5/6) Percentage Change in Health Levy Since 2011 100% 72% 75% 50% 25% 0% Alberta 33% 0% Ontario Atlantic Canada Source: IBC graph with data from Alberta government and GISA. IBC BAC ibc.ca 7#8Overview of Auto Insurance Market (6/6) 90% 80% 70% 60% Alberta Private Passenger Vehicle Loss Ratio 50% 2007 2008 2009 2010 2011 2012 2013 2014 Source: IBC graph with data from Dr. Ron Miller. Includes the health levy. IBC BAC 2015 2016 ibc.ca 8#9Analysis of Bodily Injury Claims (1/9) Bodily Injury Claims Experience by Accident Year Claims per 100 Vehicles Average Claim Cost Loss Cost 2011 0.60 $41,523 $250 2012 0.59 $46,856 $278 2013 0.59 $51,950 $306 2014 0.59 $57,376 $338 2015 0.57 $65,098 $372 2016 0.52 $64,387 $337 Annual Change (2.7%) 9.2% 6.2% Source: IBC table with data from Dr. Ron Miller. IBC BAC ibc.ca 9#10IBC Analysis of Bodily Injury Claims (2/9) Bodily Injury Claims Size Distribution by Accident Year Under $15,000 Over $15,000 100% 80% 16.5% 17.5% 19.0% 20.3% 19.8% 18.8% 20.4% 24.4% 26.4% 83.5% 82.5% 81.0% 60% 79.7% -80.2% 81.2% 79.6% 75.6% 73.6% 40% 2005 2006 2007 2008 2009 2010 2011 2012 2013 ו - - - Source: IBC graph with data from GISA. GISA does not develop the size of claim distribution exhibits to ultimate values. The estimates are based on claims at the most up to date three-year development level. BAC libc.ca 10#11Analysis of Bodily Injury Claims (3/9) Average Settlement for Claimants with Minor Physical Injuries Claimant Count Non-Pecuniary Total Settlement Minor Injury Only 1,210 $3,603 $5,419 Minor Injury with Ancillary Condition (capped) Minor Injury with Ancillary Condition (not capped) 24 24 $4,678 $8,439 186 $23,658 Source: IBC bodily injury closed claims study. All claimant files closed in early 2014 or late 2013. IBC BAC $42,432 ibc.ca 11#12Analysis of Bodily Injury Claims (4/9) Potential Factors IBC BAC Change in insurers' reserving practices Change in auto insurance liability limits Increase in health care costs and/or wages The effect of prejudgment interest Increase in legal costs ibc.ca 12#13Analysis of Bodily Injury Claims (5/9) Average Ratio of Outstanding Losses to Incurred Losses 6 Months 2007 to 2011 96.9% Since 2012 97.2% 12 Months 88.4% 88.7% 18 Months 80.2% 81.0% 24 Months 73.3% 36 Months 65.1% 73.0% 63.3% Source: IBC table with data from GISA. Percentages in column 2 are an average of the five-year period. Percentages in column 3 are an average of the applicable development months. IBC BAC ibc.ca 13#14Analysis of Bodily Injury Claims (6/9) Proportion of Earned Vehicles by Liability Limit Up to $500,000 100% 75% 50% 25% $500,000 to $1 million $1 million plus 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: IBC graph with data from GISA. IBC BAC ibc.ca 14#15Analysis of Bodily Injury Claims (7/9) Annual Increases in General Health Care Spending and Wages General Health Care Wages 6.0% 3.0% 1% 4% 4% 4% 3% 2% 2% 1% 1% 2% 0.0% 2011 2012 2013 2014 2015 2016 (0.3%) -3.0% Source: IBC graph with data from the Canadian Institute for Health Information and Statistics Canada. IBC BAC (2%)... ibc.ca 15#16Analysis of Bodily Injury Claims (8/9) Investment Rate and Prejudgment Interest Rate Investment Rate 5% 4% 3% 2% 1% Non-Pecuniary Damages Prejudgment Interest Rate 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IBC graph with data from the Bank of Canada. The investment rate is an average of 3-year and 5-year Government of Canada bonds. Values are annual averages of average monthly yields. IBC BAC ibc.ca 16#17Analysis of Bodily Injury Claims (9/9) Analysis Sparrowhawk v. Zapoltinsky decision caused the bodily injury claim cost trend to change IBC BAC Bodily injury claims costs are projected to continue increasing at a high rate Regulatory reform is needed to reduce and contain bodily injury claims costs ibc.ca 17#18Grid Loss Experience (1/8) Market Share of Grid Vehicle Population 10% 7.6% 8% 7.1% 6.6% 6.1% 5.5% 5% 3% 0% 2012 2013 2014 2015 2016 Source: IBC graph with data from Dr. Ron Miller. Based on car-years earned exposure. IBC BAC ibc.ca 18#19Grid Loss Experience (2/8) Loss Cost Movement for Basic Coverage, Indexed to 2012 140 130 120 110 100 2012 Grid Vehicles 2013 Non-Grid Vehicles 2014 Source: IBC graph with data from Dr. Ron Miller. Includes the health levy. IBC BAC Total Market 2015 2016 ibc.ca 19#20Grid Loss Experience (3/8) Loss Ratio for Basic Coverage Grid Vehicles 120% 100% 80% 60% 2012 2013 Non-Grid Vehicles 2014 Source: IBC graph with data from Dr. Ron Miller. Includes the health levy. IBC BAC Total Market 2015 2016 ibc.ca 20#21IBC Grid Loss Experience (4/8) Grid Underwriting Results for Basic Coverage ($ millions) $30 2012 2013 2014 2015 2016 ($29) יוו! $0 -$30 ($52) -$60 ($55) ($70) ($86) -$90 Source: IBC graph with data from Dr. Ron Miller. Includes the health levy. Operating expenses were estimated based on data from GISA and Dr. Miller. BAC ibc.ca 21#22Grid Loss Experience (5/8) Grid Basic Coverage Claim Frequency per 100 Vehicles 12 11 10 9 8 2012 2013 Source: IBC graph with data from Dr. Ron Miller. IBC BAC 2014 2015 2016 ibc.ca 22#23Grid Loss Experience (6/8) Future Loss Cost Trend Rates for Basic Coverage Oliver Wyman Dr. Ron Miller Bodily Injury +7.75% Difference +6.67% (1.08 p/p) Property Damage +1.50% +2.83% 1.33 p/p Med/Rehab +3.50 +4.32% 0.82 p/p Disability Income +4.50% +3.98% (0.52 p/p) Source: IBC table with data from Dr. Ron Miller. IBC BAC ibc.ca 23#24Grid Loss Experience (7/8) Changes in Basic Coverage Average Premium for Total Market 10% 8% 5% 3% 4.7% 4.1% 2.7% 6.6% 0% 2012 (0.7%) 2013 2014 2015 2016 -3% Source: IBC graph with data from Dr. Ron Miller. IBC BAC ibc.ca 24#25Grid Loss Experience (8/8) Analysis The low 2016 claim frequency rate is not indicative of a new trend IBC BAC Claims costs are increasing at a higher rate than in the past and premiums are rising An increase to the grid by a greater amount than the previous adjustment of 8% is warranted ibc.ca 25#26Conclusion Overview The auto insurance market continues to deteriorate IBC BAC No indication of government reforms to reduce and contain bodily injury claims costs Difficult decisions on the grid and insurer rating programs have become the norm ibc.ca 26