Study 7 Flashcards
Why does the insurance industry need to set the RIGHT RATES?
Too LOW? Insurers go broke. Too HIGH? Consumers get ripped off. Balance is key!
What happens if insurers set rates TOO LOW?
They won’t have enough money to pay CLAIMS—bad news for everyone!
What happens if insurers set rates TOO HIGH?
Consumers get OVERCHARGED, and nobody likes that.
What is the process of determining automobile INSURANCE RATES called?
RATEMAKING—aka the fine art of not going broke or making customers angry.
What does this study review about automobile insurance?
RATEMAKING, GOVERNMENT CONTROL, and the rise of new tech like TELEMATICS and AUTONOMOUS VEHICLES.
Who controls automobile insurance rates in Canada?
The GOVERNMENT plays a role in regulating rates—because chaos isn’t great for anyone.
What are some growing trends in automobile insurance?
USAGE-BASED INSURANCE, TELEMATICS, and AUTONOMOUS VEHICLES—aka ‘The Future is Now!’
What is USAGE-BASED INSURANCE?
Pay based on how and how much you DRIVE—good news for careful drivers, bad news for speed demons!
What is TELEMATICS in insurance?
Tech that tracks your DRIVING HABITS—Big Brother, but for DISCOUNTS!
How do AUTONOMOUS VEHICLES affect insurance?
They’re changing the game—who do you blame in a crash? The ‘driver’ or the AI?
What’s the BIG QUESTION in automobile rating?
How to make insurance AFFORDABLE, PROFITABLE, and FAIR—good luck with that!
Why is AUTO INSURANCE mandatory in Canada?
So people don’t go bankrupt after a fender-bender (and to keep the roads safer).
Who provides auto insurance in Canada—GOVERNMENT or PRIVATE companies?
It depends on the province! Some have GOVERNMENT plans, some use PRIVATE insurers, and Quebec mixes both.
What is RATEMAKING?
The art of figuring out how much to charge without making drivers angry or insurers broke.
What are some key RATING FACTORS in automobile insurance?
AGE, GENDER, DRIVING EXPERIENCE, DRIVING RECORD, VEHICLE USAGE, and more!
Why were age, gender, and marital status USED in rating?
Stats showed young, single males had the most accidents—aka ‘crash magnets.’
Why is using AGE, GENDER, and MARITAL STATUS controversial now?
Society changed, and some provinces say it’s DISCRIMINATORY (plus, stats are shifting).
Do all provinces still use AGE, GENDER, and MARITAL STATUS for rating?
Nope! Some provinces banned them, others still use them.
What does DRIVING EXPERIENCE mean?
How many YEARS you’ve been licensed. More experience = better rates (usually).
What can give NEW DRIVERS a head start on experience?
Completing an APPROVED DRIVER TRAINING course—fewer crashes, better rates!
What does your DRIVING RECORD include?
ACCIDENTS, TRAFFIC VIOLATIONS (except parking tickets), SUSPENSIONS, and past insurers.
How far back do insurers look at your DRIVING RECORD?
Usually 3-6 YEARS, depending on the province.
Why do insurance companies care about past traffic violations?
Because bad driving HABITS tend to continue—insurance companies aren’t big on second chances!
Why do insurers ask about OTHER PEOPLE driving your car?
More drivers = more use = more RISK.
If your buddy borrows your car and crashes it, who pays?
YOUR INSURANCE—choose your friends wisely!
How does where you live affect your insurance rate?
Big cities = more THEFT & FENDER-BENDERS. Highways = more HIGH-SPEED CRASHES. Country roads = WILDLIFE COLLISIONS.
Why are rural areas safer from car theft?
Because everyone KNOWS each other—’Hey, isn’t that Bob’s truck?’
What kind of driving is the most dangerous?
HIGHWAY DRIVING—because crashes happen at high speeds with major damage.
What’s a downside of RURAL driving?
More single-vehicle crashes, gravel damage, and you might hit a moose!
Why do city cars get stolen more often?
More places to HIDE, and thieves love a good challenge.
Who pays more—someone who drives for FUN or WORK?
WORK drivers (like salespeople) because they’re on the road more = more RISK.
Why are TAXIS expensive to insure?
They drive ALL DAY in HEAVY TRAFFIC and carry PASSENGERS (who love to sue).
Why are COMMERCIAL TRUCKS risky for insurers?
They don’t get damaged easily, but when they do, they take out EVERYTHING around them!
What details about your CAR matter for insurance?
YEAR, MAKE, MODEL, VIN, SAFETY FEATURES, and even the SIZE OF THE ENGINE.
Why do HIGH-VALUE CARS cost more to insure?
Because they’re EXPENSIVE to REPAIR, and their owners are picky about every scratch!
How do new cars sometimes get LOWER rates?
SAFETY FEATURES like auto-braking and lane assist = fewer crashes.
What affects the TOTAL COST of your insurance?
The TYPE OF COVERAGE and DEDUCTIBLE you choose.
What happens if you choose a LOW DEDUCTIBLE?
Your insurance pays more if you crash, so YOU pay more in PREMIUMS!
What’s the trade-off with a HIGH DEDUCTIBLE?
LOWER PREMIUMS but a BIGGER BILL if you ever need to make a claim.
More coverage means…?
HIGHER PREMIUMS—but better protection when things go wrong!
How is INSURANCE RATEMAKING different from regular retail pricing?
You set the price BEFORE knowing all the costs—like guessing the bill at a fancy restaurant before you order!
How can insurers predict ACCIDENTS before they happen?
By using the LAW OF LARGE NUMBERS—past trends help predict future risks.
Who turns raw data into insurance rates?
STATISTICIANS and ACTUARIES—aka the number wizards of the insurance world.
What factors influence the FINAL PREMIUM beyond stats?
COMPETITION, MARKET TRENDS, and even POLITICS—because numbers alone don’t sell policies!
What are the TWO MAIN components of an insurance rate?
PURE PREMIUM (for expected losses) + EXPENSE LOADING (for everything else).
What costs are included in EXPENSE LOADING?
Acquisition Costs (sales & commissions), Processing Costs (admin), Taxes, Contingencies, and Profit.
Do direct insurers save money by skipping agent commissions?
Yes, but they SPEND IT on advertising—billboards aren’t cheap!
Who collects insurance data in Canada?
GISA (General Insurance Statistical Agency) and GAA (Groupement des assureurs automobiles) for Quebec.
What does GISA do?
It collects, analyzes, and reports insurance data for most provinces and territories.
What is the QUEBEC equivalent of GISA?
GAA—they handle Quebec’s Automobile Statistical Plan (aka the ‘Grey Book,’ now digital-only).
What’s the difference between ACCIDENT YEAR and CALENDAR YEAR?
Accident Year = when the claim HAPPENED. Calendar Year = when it was REPORTED.
If a policy starts Dec 2023 but a claim happens in Jan 2024, which year does it count for?
2024, because that’s when the claim occurred.
Why do insurers prefer ACCIDENT YEAR data?
It better matches PREMIUMS with LOSSES—no surprises later!
What are the three main types of LOSS COSTS?
PAID LOSSES (already paid), OUTSTANDING LOSSES (owed but unpaid), and IBNR (not yet reported).
What does IBNR stand for?
Incurred But Not Reported—aka the ‘Oh no, we forgot about this one’ fund.
Why do late-reported claims mess up loss cost calculations?
Because they pop up unexpectedly and change the financial picture.
What is the EARNED LOSS RATIO?
The ratio of LOSS COSTS to EARNED PREMIUMS—aka ‘Did we charge enough to cover claims?’
What is TRENDING in insurance ratemaking?
Forecasting how future loss costs will change—like predicting the stock market, but for crashes.
Why do regulators sometimes ignore outside trends (inflation, labour costs, etc.)?
They wait until those trends show up in actual LOSS COSTS before allowing rate increases.
What are RELATIVITIES in ratemaking?
Adjustments based on different risk factors—like age, location, and coverage limits.
How are rate groups chosen?
The category with the MOST INSUREDS is the BASE RATE, and others are adjusted relative to it.
What factors determine a vehicle’s RATE GROUP?
BODY STYLE, HORSEPOWER, REPAIR COSTS, CLAIM HISTORY, and even THEFT RATES.
Why isn’t a CHEAPER CAR always cheaper to insure?
Because repair costs, safety ratings, and theft risk matter more than the price tag.
What is the CLEAR system?
Canadian Loss Experience Automobile Rating—it assigns rate groups based on real claim data, not just MSRP.
Why might an expensive sedan have a LOWER accident benefits rate than a tiny subcompact?
Bigger, SAFER CARS = less chance of injury.
What are the last steps before setting FINAL PREMIUMS?
Senior Management Review, Market Adjustments, and Political Considerations.
How do insurers use INVESTMENT INCOME to keep rates stable?
They invest collected premiums, and the returns help offset costs.
Who watches how insurers use investment income?
Regulators & Shareholders—nobody wants them playing the stock market with policyholders’ money!
Why do governments care about AUTO INSURANCE RATES?
Because insurance is MANDATORY, and people need cars to LIVE & WORK—so affordability is a big deal!
True or False: AUTO INSURANCE RATES have never been a political issue.
FALSE! They’ve been debated, studied, and fought over more times than a bad parking ticket.
What is a RATE BOARD?
A government or regulatory body that CONTROLS AUTO INSURANCE RATES in some provinces.
Name THREE provinces with RATE BOARDS.
Alberta, Ontario, British Columbia (but there are more!)
Who controls BASIC auto insurance rates in BRITISH COLUMBIA?
The British Columbia Utilities Commission (BCUC).
Who controls OPTIONAL coverage rates in BC?
ICBC—they set their own rates, but BCUC can give ‘friendly advice.’
What does ICBC have to submit to BCUC every year?
A GENERAL RATE CHANGE APPLICATION—so BCUC can approve or reject changes.
How much can BCICB rates change year-over-year without extra approval?
1.5 percentage points—not a penny more!
What are the FOUR ways insurance rates can be controlled?
Prior Approval, File and Use, Adjudication Period, and Benchmark Rates.
What is PRIOR APPROVAL?
Insurers MUST WAIT for APPROVAL before using new rates.
What is FILE AND USE?
Insurers can USE NEW RATES IMMEDIATELY but risk being questioned later.
What happens in FILE AND USE WITH ADJUDICATION?
Insurers file rates, and the board has 30-60 DAYS to challenge them.
What is a BENCHMARK RATE SYSTEM?
The board sets a STANDARD RATE, and insurers can adjust slightly or request a public hearing for bigger changes.
Name a province with NO RATE BOARD because the government runs auto insurance.
Saskatchewan (Public system = No need for a rate board!)
Name TWO territories without rate boards.
Northwest Territories & Yukon.
Which province requires insurers to submit A LOT of extra data?
Quebec—they love paperwork!
What does UBI stand for in auto insurance?
USAGE-BASED INSURANCE—where your driving habits determine your premium!
How big is the global UBI market expected to be by 2031?
$150 BILLION! That’s a lot of data tracking!
What is the main GOAL of UBI for insurers?
To REFINE PRICING based on actual DRIVING BEHAVIOR instead of just historical data.
How does TRADITIONAL AUTO INSURANCE determine rates?
Using HISTORICAL DATA—like age, gender, location, and past accidents.
How does UBI determine rates?
By tracking REAL-TIME driving habits like MILEAGE, SPEED, BRAKING, and TIME OF DAY.
What’s the biggest advantage of UBI over traditional rating?
MORE ACCURATE PRICING—safer drivers PAY LESS!
What does telematics do in UBI?
It TRACKS driving habits using a DONGLE or SMARTPHONE APP.
Name FOUR driving habits that telematics tracks.
HARD BRAKING, RAPID ACCELERATION, CORNERING, and TIME OF DAY.
What additional data can UBI devices collect?
GPS LOCATION, AIRBAG DEPLOYMENT, and SPEED AT IMPACT.
What are the TWO main types of UBI hardware?
Plug-in DONGLES and SMARTPHONE APPS.
Why might an insurer prefer a DONGLE over a phone app?
It collects MORE DETAILED & ACCURATE vehicle data.
Why might a phone app be preferred?
Cheaper, easier to use, and no hardware distribution hassle.
What can UBI devices collect?
GPS LOCATION, AIRBAG DEPLOYMENT, and SPEED AT IMPACT.
What do you typically need to do to get a UBI discount?
Drive SAFELY, rack up ENOUGH KILOMETERS, and keep SENDING DATA.
True or False: Some insurers give discounts just for INSTALLING the app or dongle.
TRUE! They want you hooked on tracking your driving.
When is a UBI discount usually applied?
At renewal, after enough driving data has been collected.
How can UBI programs help society beyond cheaper insurance?
FEWER ACCIDENTS, LOWER EMISSIONS, LESS FRAUD, and BETTER EMERGENCY RESPONSE.
How can UBI reduce insurance fraud?
If the telematics shows a minor bump but the claimant says they got whiplash, the fraud is BUSTED!
What did ICBC introduce in June 2023 for UBI?
A DISTANCE-BASED DISCOUNT for BC drivers who travel LESS THAN 10,000 KM/YEAR.
Why are some people AGAINST UBI?
PRIVACY CONCERNS—nobody wants their driving habits sold to third parties.
What law governs the use of personal data in UBI?
PIPEDA (Personal Information Protection and Electronic Documents Act).
What extra risk do insurers face with UBI data?
DATA BREACHES—hackers love juicy driving records!
True or False: In government-run insurance systems, UBI could be mandatory.
TRUE! Since everyone has to participate, there’s no “opting out.”
Will UBI become standard in the future?
YES! As technology improves and costs drop, it’s here to stay.
What’s the biggest advantage of UBI for insurers?
MORE PROFITABLE PRICING—better risk selection, fewer bad drivers in the pool.
What is the main cause of most COLLISIONS today?
DRIVER ERROR—humans are the problem!
What could replace human drivers in the next 40-50 years?
SELF-DRIVING VEHICLES—no more bad parallel parking!
True or False: If self-driving cars take over, PERSONAL AUTO INSURANCE may disappear.
TRUE! If cars drive themselves, who needs driver insurance?
What is the BIGGEST societal benefit of autonomous vehicles?
FEWER ACCIDENTS & TRAFFIC FATALITIES—robots don’t get road rage!
What NEW DRIVING TECH is making cars SAFER?
FORWARD-COLLISION AVOIDANCE, AUTOMATIC PARKING, and LANE-KEEPING.
What’s the downside of these high-tech car features?
EXPENSIVE REPAIRS—a fender bender could cost a fortune!
What do SEMI-AUTONOMOUS vehicles require?
A HUMAN DRIVER to monitor & take over if needed.
What is VEHICLE TELEOPERATION?
Remote control of a car—like a real-life RC car but more expensive!
When will FULLY AUTONOMOUS vehicles likely hit the roads?
20+ years from now, but semi-autonomous cars are already here.
Who is currently responsible for car accidents?
HUMAN DRIVERS.
As vehicles become autonomous, who will insurers hold responsible?
CAR MAKERS, SOFTWARE DEVELOPERS, and SENSOR PROVIDERS.
What will the insurance focus shift toward in self-driving cars?
PRODUCT LIABILITY INSURANCE instead of personal auto insurance.
What does SAE stand for?
Society of Automotive Engineers—the folks who define automation levels.
What is LEVEL 0 automation?
NO driving automation—just your regular human-driven car.
What is LEVEL 1 automation?
DRIVER ASSISTANCE—one automated feature like adaptive cruise control.
What is LEVEL 2 automation?
PARTIAL AUTOMATION—the car controls steering + acceleration, but the driver must watch the road.
What is LEVEL 3 automation?
CONDITIONAL AUTOMATION—the car makes some driving decisions, but the driver must take over in emergencies.
What is LEVEL 4 automation?
HIGH AUTOMATION—fully self-driving in some conditions (like robo-taxis in geo-fenced areas).
What is LEVEL 5 automation?
FULL AUTOMATION—the car drives everywhere, all the time, no human needed!
What BIG issue do insurers face with semi-autonomous vehicles?
How to assign blame—was it the driver or the AI at fault?
What solution has the INSURANCE BUREAU OF CANADA (IBC) proposed for autonomous car insurance?
A SINGLE POLICY that covers both DRIVER NEGLIGENCE & AUTOMATED TECH FAILURES.
True or False: INSURANCE LAWS in Canada are FULLY READY for self-driving cars.
FALSE! The legal system is WAY behind the technology.
Why might Canada end up with a patchwork of AV insurance laws?
Each province controls its own auto insurance laws, so no national standard exists.
What might insurers need to start offering instead of personal auto insurance?
PRODUCT LIABILITY INSURANCE for vehicle manufacturers.
What new driving data might insurers want access to?
“BLACK BOX” data that records when driving-assist features are used.
What new vehicle ownership models could affect insurance?
CARSHARING, RIDE-HAILING, and ROBO-TAXIS.
What will determine how AVs are insured in the future?
Regulations, manufacturer decisions, and how soon the tech is adopted.
How soon might robo-taxis hit the road?
As early as 2026, according to industry analysts.
What’s the biggest risk of having AV tech before laws are ready?
Insurance gaps, regulatory chaos, and legal nightmares.
Will AVs reduce accidents or just change the types of accidents we see?
TBD! They may lower crashes, but software failures could introduce new risks.
What are the MAIN FACTORS used in automobile insurance RATEMAKING?
AGE, GENDER, MARITAL STATUS, DRIVING RECORD, EXPERIENCE, OTHER DRIVERS, TERRITORY, DISTANCE, USAGE, and VEHICLE TYPE.
Why do insurance PREMIUMS vary widely?
Because there are SO MANY FACTORS affecting risk—no two drivers are the same!
What principle do insurers use to predict future LOSSES?
The LAW OF LARGE NUMBERS—more data = better predictions.
What TWO MAIN COMPONENTS make up an insurance rate?
PURE PREMIUM (for expected losses) + EXPENSE LOADINGS (for admin, taxes, profit).
Who collects and analyzes auto insurance LOSS DATA in Canada?
GISA (General Insurance Statistical Agency).
Why do governments CARE about insurance rates?
Because insurance is mandatory and pricing affects millions of people.
What are the FOUR ways RATE BOARDS control insurance pricing?
PRIOR APPROVAL, FILE & USE, ADJUDICATION PERIOD, and BENCHMARK RATES.
Who approves BASIC insurance rates in BC?
BCUC (British Columbia Utilities Commission).
What does UBI use to track driving habits?
SMARTPHONE APPS and TELEMATICS DEVICES.
What’s the BIGGEST advantage of UBI?
More personalized pricing—good drivers pay LESS!
What’s the downside of UBI for insurers?
High costs for data collection & analysis—but worth it in the long run.
What is the biggest SAFETY BENEFIT of self-driving cars?
Fewer traffic fatalities & serious injuries.
How will accident responsibility SHIFT with autonomous vehicles?
From HUMAN DRIVERS to AUTOMAKERS & SOFTWARE DEVELOPERS.
Why will insurers face CHALLENGES with autonomous vehicles?
New liability issues, lack of historical data, and high repair costs.
How long could the transition to SELF-DRIVING CARS take?
Several decades—or sooner if the tech advances quickly!
What is a TOTAL LOSS?
A situation where the cost to repair a vehicle exceeds its value—so it’s not worth fixing.
Example: After a bad crash, Emma’s car was declared a total loss, and her insurer paid out its value instead of repairing it.
What is the LAW OF LARGE NUMBERS?
A principle stating that the more data you have, the more accurate your predictions will be.
Example: Insurers use the law of large numbers to predict accident trends and set fair rates.
What is PURE PREMIUM?
The portion of the premium needed to cover expected future losses (excluding admin costs).
Example: If an insurer expects $1M in claims but has 10,000 policies, the pure premium is $100 per policy.
What is EXPENSE LOADING?
The part of the premium that covers admin costs, taxes, and profit.
Example: Insurers add expense loading to cover commissions, underwriting, and office coffee.
What is an ACQUISITION COST?
The cost of getting new customers, including marketing and agent commissions.
Example: Running an ad campaign for car insurance adds to the acquisition cost per policy.
What is a COMMISSION?
The percentage of a policy premium paid to an insurance agent or broker.
Example: Sarah, an insurance broker, earned a commission when she sold a new auto policy.
What is REINSURANCE?
When an insurer buys insurance for itself to spread risk.
Example: After a massive hailstorm, the insurer’s reinsurance helped cover the huge claims payout.
What is the AUTOMOBILE STATISTICAL PLAN (ASP)?
A system that collects and analyzes auto insurance data for rate-making.
Example: The insurer submits claims data to the ASP to help regulators track loss trends.
What is a FLEET POLICY?
A single insurance policy covering multiple vehicles owned by one entity.
Example: A delivery company insures all 20 of its vans under a fleet policy instead of separate policies.
What is a PRIVATE PASSENGER VEHICLE?
A vehicle used for personal, non-commercial purposes.
Example: Lisa’s sedan is a private passenger vehicle, while a taxi would not be.
What are PAID LOSSES?
The claims an insurer has already paid out.
Example: After reimbursing a driver for car repairs, the insurer records the cost under paid losses.
What are OUTSTANDING LOSSES?
Claims that have been reported but not yet paid.
Example: Mike’s accident claim is under outstanding losses until the insurer settles it.
What are INCURRED BUT NOT REPORTED (IBNR) LOSSES?
Losses that have happened but haven’t been reported yet.
Example: A minor accident that a driver delays reporting adds to the insurer’s IBNR losses.
What are LOSS COSTS?
The sum of paid, outstanding, and IBNR losses—used to calculate rates.
Example: An insurer adjusts rates based on rising loss costs in a certain region.
What are INCURRED LOSSES?
Total losses from paid claims + outstanding claims + IBNR claims.
Example: The insurer’s incurred losses spiked after a series of winter crashes.
What is an ACTUARY?
A data expert who calculates insurance risks and pricing.
Example: The actuary used accident trends to predict next year’s claim costs.
What is TRENDING?
The process of analyzing past data to predict future losses.
Example: Insurers use trending to adjust rates based on rising repair costs.
What is the CANADIAN LOSS EXPERIENCE AUTOMOBILE RATING (CLEAR)?
A system that assigns risk ratings to vehicles based on real claims data.
Example: A sports car may have a higher CLEAR rating due to expensive repairs.
What is the INSURANCE BUREAU OF CANADA (IBC)?
A national organization that represents private insurance companies in Canada.
Example: The IBC lobbies for fair auto insurance regulations.
What is THIRD-PARTY LIABILITY?
Coverage that pays for damage or injury caused to others in an accident.
Example: If John rear-ends another car, his third-party liability covers the other driver’s costs.
What is ADVERSE SELECTION?
When high-risk drivers buy more insurance than low-risk drivers, increasing costs for insurers.
Example: If only bad drivers buy full coverage, insurers face adverse selection and must raise rates.
What is the PERSONAL INFORMATION PROTECTION AND ELECTRONIC DOCUMENTS ACT (PIPEDA)?
A Canadian law that protects individuals’ personal data.
Example: Insurers must follow PIPEDA when collecting telematics data from drivers.
