1. The Canadian Loss Experience Automobile Rating Henning Norup Vice President, Information Research and Analysis Insurance Bureau of Canada 2004 Ratemaking Seminar Philadelphia - March 11-12, 2004

2. Low relationship between price and theft frequency Subaru Impreza WRX MSRP $35,000 Volkswagen Jetta GLX MSRP $34,000 Relative Frequency = 451Relative Frequency = 80 CLEAR Why it was developed Presentation to 2004 Ratemaking Seminar March 11, 2004

3. Isuzu Rodeo 4DR 4WD MSRP = $32,000 Relative Loss Cost = 148 MSRP = $31,000 Relative Loss Cost = 33 Buick Rendezvous 4DR 2WD Low relationship between price and collision repair cost CLEAR Why it was developed Presentation to 2004 Ratemaking Seminar March 11, 2004

4. Under a price-based rating system, the added cost of features designed to reduce insurance claims could result in a higher premium. Traction Control ABS Seat Belt Pretensioners Theft Deterrent Systems Airbag Restraint Systems CLEAR Why it was developed Presentation to 2004 Ratemaking Seminar March 11, 2004

5. Low relationship between price and replacement costs CLEAR Why it was developed Presentation to 2004 Ratemaking Seminar March 11, 2004

6. Low relationship between price and replacement costs CLEAR Why it was developed Presentation to 2004 Ratemaking Seminar March 11, 2004

7. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

8. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

9. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

10. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

11. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

12. CLEAR - How it works Statistical models to estimate claim frequency and severity TF=INT + BBS + WB1*w + WB2 * w**2 + WB3 * w**3 + A1 *a + A2 * a**2 + A3 * a**3 + A1H1 * h * a + H1 * h + P1 * p + P2 * p**2 + P1A2 * a**2 * p + DDT + TDS INT= intercept BBS= vehicle body styles WB1= wheel base WB2= wheel base 2 WB3= wheel base 3 A1= vehicle age A2= vehicle age 2 A3= vehicle age 3 H1= power ratio A1H1= age and power ratio interaction P1= price P2= price 2 P1A2= age 2 and price interaction DDT= drive train TDS= theft deterrent system a= age * 0.1 h= exp[(weight/power)*(-0.001)] w= wheel base p= ln(price*0.001) TF= 20 * sqrt(frequency) Presentation to 2004 Ratemaking Seminar March 11, 2004

13. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

14. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

15. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

16. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

17. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

18. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

19. CLEAR - How it works Presentation to 2004 Ratemaking Seminar March 11, 2004

20. CLEAR - How it works 1. Maintain vehicle characteristics db 2. Develop statistical models 3. Obtain national claims’ data 4. Develop and apply normalization models 5. Estimate loss costs 6. Adjust estimates 7. Calculate relativities 8. Establish rate groups 9. Balance table Presentation to 2004 Ratemaking Seminar March 11, 2004

21. CLEAR - How it works Loss Cost Data Modelling Vehicle Characteristics Formulae Recent Claims Experience Loss Cost Estimates Experience Adjustment Final Adjustments and Balancing NVAP Results Vehicle Characteristics Rate Group Table + VINLink Presentation to 2004 Ratemaking Seminar March 11, 2004

22. Presentation to 2004 Ratemaking Seminar March 11, 2004

23. Presentation to 2004 Ratemaking Seminar March 11, 2004

24. Presentation to 2004 Ratemaking Seminar March 11, 2004

25. Presentation to 2004 Ratemaking Seminar March 11, 2004

26. Presentation to 2004 Ratemaking Seminar March 11, 2004