Part A2 ACTEX Qs Flashcards
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
The filing guidelines published by FSCO require that a trend be determined for LALAE. Describe two other specific circumstances where guidelines sugges that trends should
- Premium trend for coverages with inflation-sensitive exposure bases or with a changing mix of exposures
- Exposure variable expense trend should be determined for expenses that vary with the number of units insured rather than with the premium volume.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to FSCO PPA Filing Guidelines - major, in the process of selecting the target ROE, what is the minimum an applicant has to disclose/support?
The payout pattern on losses and expenses
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to FSCO PPA Filing Guidelines - major, what is required from an applicant proposing rates different from those that are actuarially indicated based on the target ROE?
An estimate of the expected ROE and the expected underwriting margin underlying the proposed rates.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to FSCO PPA Filing Guidelines - major, what two coverage types require a detailed actuarial calculation even if a rate level change is not proposed for these coverages?
Collision and Comprehensive
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to FSCO PPA Filing Guidelines - major, all categories of automobile insurance for the Facility Association are subject to approval under section ____?
410
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines - Major, does section 410 apply to contracts insuring fleets?
No
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines - Major, a discount or a schedule of rates based on group membership could be based on two major factors. Identify and give an example of each of these two factors.
- Lower loss costs based on favourable experience, or risk management programs, or identifiable characteristics of a group that would result in a lower loss exposure.
- Lower expenses due to lower acquisition costs or lower administrative costs
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines - Major, should expected investment income be calculated on the basis of the new money rates only?
No, it should also take into consideration the insurer’s historical investment returns.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines - Major, should RSP expenses be added to the expense provision used in the calculation of the overall rate level indication?
No
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines - Major, under certain conditions the FSCO allows insurers to rely on outside data in the rate filing process. Describe fully these conditions.
- The source of the data must be identified
2. The applicability of the data must be explained
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the FSCO PPA Filing Guidelines, no element of a risk classification system shall use membership in an organized group unless the group meets certain criteria. Identify 4.
- a group of current employees of the same employer
- Members of a qualifying credit union
- A trade union
- a professional organization
- an occupational organization
- an alumni association
- a not-for-profit organization at least 2 years old
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Under Ontario regulation 664, what are insurers prohibited from using in their risk classification systems?
existence of medical, surgical, dental, hospitalization, income continuation benefit or sick leave plans
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
With an insurers major rate filing to FSCO, should direct losses be adjusted for all reinsurance transactions?
No
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
With an insurers major rate filing to FSCO, should direct losses exclude amounts incurred on Facility Association residual market business?
Yes
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
With an insurers major rate filing to FSCO, should direct losses be reduced for business transferred to the facility Association’s risk sharing pool?
No
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
In Ontario what type of rate regulation system exists?
Prior approval is required for Facility Association policies and PPA coverages
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the filing requirements of the Ontario Insurance Commission, list the circumstances for which you need to provide a certificate of the actuary
Filings that result in a rate level change, or filings for a category of automobile insurance previously not written by an insurer.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to the filing requirements of the FSCO, define investment income.
is income attributable to the investment of policyholder supplied funds and shareholder supplied funds and surplus, including realized capital gains and losses, net of investment expense.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Does FSCO require applicants to use a specific ratemaking methodology?
no
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Who’s certificate for automobile insurance rates in Ontario certifies that the proposed rates will not impair the solvency of the insurer?
Officer
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Based on FSCO’s PPA - Major for Proposed revisions to automobile Insurance Rates and Risk Classification Systems, identify the two elements an actuary must certify in the Certificate of the Actuary.
- The data is reliable and sufficient for the determination of the indicated rate changes.
- The indicated rate changes have been calculated in accordance with Accepted Actuarial Practice.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
An auto insurer may use the file and use rating system in Ontario when:
Other than PPA
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Is the insurer in compliance with the FSCO Regulation 664?
Insurer ABC applies a 25% surcharge on commercial taxicab policies where the driver is self-employed.
Yes
policies involving commercial or public vehicles or vehicles used in the course of carrying on a business, trade or profession are excluded from the prohibition against using employment status in a risk classification system.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Is the insurer in compliance with the FSCO Regulation 664?
Insurer DEF offers a 10% stability discount for auto insurance policyholders who have lived at their current address for five years or longer.
No
it cannot use residence history in a risk classification system
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Is the insurer in compliance with the FSCO Regulation 664?
Insurer GHI only accepts auto insurance premium payments made by credit card.
No
it cannot use credit card possession in a risk classification system
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to KPMG et al in “Motor Vehicle Insurance in BC at a Crossroads”, the terms fault and no-fault portray a simplistic version of reality that does not exist. Give three reasons of explanation.
- In most NF systems, fault is used in setting premiums.
- IN NF systems, fault is used as a criterion for criminal penalties.
- In NF systems, compensation may be reduced for certain at fault behaviours. ex. DUI
- In fault systems, insurance eliminates most of the consequences of causing an accident.
- In fault systems, the ineligibility of at-fault drivers for compensation of their own injuries applies regardless of the extent of their fault.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to KPMG et al in “Motor Vehicle Insurance in BC at a Crossroads”, the terms fault and no-fault portray a simplistic version of reality that does not exist. What is the preferred label?
Liability - Fault
Injury - No Fault
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Identify and describe 3 ways in which a no-fault system maintains accountability for drivers causing automobile accidents.
- Fault is retained as a basis of setting premiums
- Criminal sanctions remain in place if drivers commit criminal acts
- Compensation may be reduced for individual who caused their own injury in the course of committing a particularly invidious kind of fault
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Briefly describe one strength and one weakness for each insurance system in terms of its ability to prevent fraud.
NF: compensation is paid for non-economic losses, regardless of fault. Since pain and suffering not compensated, there is no incentive for fraudulent claims of that type. Since compensation for non-econmic losses is limited, there is less incentive for insurers to investigate claims.
F: Under a tort system, compensation is possible for pain and suffering and thus fraudulent claims of that type are possible. Since some cases do enter the justice system, such cases are subject to an adversarial investigation that could uncover fraudulent claims.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
As discussed in KPMG et al., compare and contrast the treatment of collateral benefits under fault systems and no-fault systems.
Liability: injured parties can collect under both auto insurance and a collateral source, making overcompensation possible.
Injury: Insurer can specify whether it is the 1st or 2nd payer.
1. as 1st payer, insurer pays regardless of whether insured has other coverage (double dipping possible)
2. as 2nd payer, compensation is provided only if the injured person has no other collateral source or if losses exceed what the other sources could provide (no double dipping)
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Give two disadvantages to an insurer of being designated as 2nd payer of benefits in a injury system
- It limits the insurers ability to manage medical care and rehabilitation and promote recovery
- It makes collection of data on disability cases difficult
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Compare and Contrast the bases of income replacement benefits under liability and injury system.
Under liability system, compensation for wage loss is usually based on 100% of total gross earnings.
Under an injury system, compensation is based on 80 to 90% gross loss. Deduction from net losses reflects the absence of expenses incurred in holding a job.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
According to KPMG et al in “Motor Vehicle Insurance in BC at a Crossroads”, list the basic design requirements of a motor vehicle insurance system.
- Equitable and fair benefits should be provided
- Coverage should be affordable and sustainable
- Personal responsibility should be emphasized
- Benefits should be adequate
- Wellness should be promoted
- Consumer service should be given attention
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Provide two arguments for a province that currently has a liability system, to implement a combined system.
- it offers a compromise, making the introduction of injury insurance more palatable by retaining a measure of liability access.
- It is more affordable as transaction costs are reduced
- It produces saving as noneconomic damages are eliminated for small claims, making more money available for more sever injuries
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Briefly explain which type of threshold definition has been more successfully used in North America.
Descriptive thresholds work better then monetary ones, which tend to encourage inflation in awards over time so that liability action can be pursued.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Which two Canadian provinces have a pure no-fault program?
Manitoba & Quebec
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
What are the three types of combined liability and injury systems?
- Choice plans where policyholders can choose to purchase primarily a liability based plan or an injury based one
- Plans where the bulk of compensation is provided based on liability with limited add-on injury benefits provided regardless of fault.
- Threshold systems, which compensate the great majority of cases on an injury basis without regard to fault, but allow those whose losses exceed a specified threshold (and aren’t responsible) to file claims and take legal action against the wrongdoer.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Discuss two disadvantages of the tort liability process with regard to restoring an accident victim to full health under the wellness model.
- it often tends to discourage rehabilitation because of delayed resolution
- There is a natural inclination to focus on the loss and develop a credible case for a higher settlement or award.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Provide an argument for using credit based insurance scores according to Actuarial Standard of Practice.
Clear evidence that claims experience of insurers can be predicted using credit rating.
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Provide an argument against the fact that credit score has been proven to predict losses.
- Evidence of claims experience is only for claims free, but severity of claims is similar for all credit scores.
- Evidence that it just may be that higher credit scored insureds pay out some claims themselves
- Credit reports contain many errors, so using these reports would not produce fair rates
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Briefly describe two guidelines the IBC provides in its code of conduct for insurers use of credit information
- Credit scores must be up to date
- Consider special life circumstances
- If insured thinks they are punished for credit information they can write to insurer and insurer obligated to consider
- Confidentiality
- Get informed consent from customers before using credit score in underwriting or rating
FSCO Private Auto, FSCO Reg 664, KPMG et al (no Q’s on rest)
Explain how changes made in 2010 by FSCO addressed credit based risk rating in auto insurance.
- Officially defined credit info
- Made it illegal for insurers to refuse to quote, bind or renew only on terms of credit info
- Insureds must give permission for insurers to use their credit info, and insurers can’t refuse to quote, bind or renew if this permission is denied
