MANITOBA PUBLIC INSURANCE

Transcription

1 MANITOBA PUBLIC INSURANCE SM.2 PROGRAM COSTS The costs associated with delivering the Basic program to Manitoba motorists fall into the following seven major categories, with claim settlement (incurred) being the largest category, followed by claim expenses (claim handling services). Claims Incurred Claims Expenses Operating Expenses Commissions Road Safety/Loss Prevention Premium Taxes Regulatory/Appeal Expenses SM.2.1 Claims Incurred Details of actual claim costs for years 2008/09 to 2010/11, and forecast/projection for 2011/12 to 2013/14 are included in TI.4 Basic Six Year Claims Incurred, Severity and Frequency Comparison. Operating results by insurance year extended to fiscal year 2012/13 are included in TI.15 Comparison of Operating Results by Insurance Year, Forecast and Projected. Details of actual claim costs (incurred), volume (covers) and severity (incurred/cover) for years 2006/07 to 2010/11, and forecast/projections for 2011/12 to 2013/14 are included in TI.17 Universal Compulsory Automobile Insurance (Basic Insurance) Claims Forecast Data Book. Page 1

2 SM.2.2 Comparative Claims Forecasts For rate setting purposes, the Corporation relies on rate indicators based on the financial forecast method. As well, additional indicators are prepared using exponential and linear assumptions for claim cost growth. The exponential cost growth assumes that costs will increase or decrease by a fixed percentage rather than a fixed amount each year. For example, assume that the cost in the base year is $1,000 and increases at an exponential rate of 5 percent per year. In the first year, the cost grows to $1,050, growing to $1,103 in the second year, and to $1,158 in the third year. By the tenth year, the cost will have grown to $1,629. A linear cost growth assumes that costs will increase or decrease by a fixed, constant absolute amount each year. As an illustration, assume the cost in the base year is $1,000 and the amount of increase per year is $50. In the first year, the cost will increase to $1,050, and then grow to $1,100 in the second year and $1,150 in the third year. By the tenth year, the cost would be $1,500. The financial forecast model allows cost growth to be more responsive to short and medium term trends that are emerging in the field. It is an inter-disciplinary consensus of the various resources within the Corporation. It considers pure trends in the claims cost data as well. Further details of these approaches are outlined in Section TI.19 Ratemaking Methodology. Since claims occurrences and costs are influenced by many circumstances that are uncertain, such as weather conditions, changing technologies and various economic factors, a degree of variability can be expected between forecasts and actual results. The latest five-year history of the Corporation s forecast of claims incurred for the rate setting process and actual experience is shown in the following tables. Page 2

3 2010/11 Initial Forecast 2009/10 Initial Forecast 2008/09 Initial Forecast FINANCIAL LINEAR EXPONENTIAL /08 Initial Forecast 2006/07 Initial Forecast 5-Year Average Forecast () FINANCIAL LINEAR EXPONENTIA L *The percent variance is measured as the actual minus the initial forecast expressed as a percentage of the forecast. For the latest five-year period, results of the financial forecast model have differed from actual results by percent. The projected claims incurred for 2012/2013 are based on the three forecasting methods summarized in the table below. FORECASTING METHOD INCURRED FINANCIAL LINEAR EXPONENTIAL Page 3

4 The above projections are the most plausible scenarios and reflect the cost savings initiatives and other countermeasures taken to moderate increasing claims costs. The projections assume no shocks such as a major hail event. If unexpected increases in covers or severity should be higher than projected, then the Corporation would expect significant variance in the actual experience from the projections presented. SM.2.3 Bodily Injury Cost Saving Initiatives The following cost-saving initiatives are currently underway in the Bodily Injury area: SM.2.3.A. Practitioner Education and Liaison The Health Care Services Team (HSCT) continues to be actively involved in practitioner education and liaison. These efforts, which can take the form of symposiums arranged by Manitoba Pubic Insurance and/or presentations to the community by HCST members, are designed to bring about better, more efficient health care for all Manitobans, by promoting resumption of normal activity, avoidance of chronicity, and close monitoring of recovery. To this end, the Corporation, in cooperation with the Workers Compensation Board of Manitoba, sponsored a symposium in November of The subject was Head or Neck, Which One Is It, featuring Dr. Don Murphy. Other symposiums are in the planning stages for Manitoba Public Insurance consultants recently held a course for the medical residents at the University of Manitoba on Muskolosketal Problems for the Primary Care Practitioner. SM.2.3.B Negotiated Fee Agreements The Corporation continues to maintain its policy of negotiated fee agreements with respect to a number of service providers. The three-year agreements between the Corporation and the Manitoba branch of the Canadian Physiotherapy Association (CPA) and the Manitoba Athletic Therapists Association (MATA) complement the two-year agreement finalized in April 2011 with Page 4

5 the Doctors of Manitoba. The agreement with the Manitoba Chiropractors Association (MCA) expired on December and negotiations are underway to effect a new agreement. SM.2.3.C. Business and Injury Improvement Initiative (BI3) BI 3 software was implemented on September 7, 2010 to provide a new vision for PIPP and how injury claims are managed at Manitoba Public Insurance. The new system provides staff with tools and resources to realize effective case management as well as an enhanced ability to administer the plan consistently and equitably. Key outcomes include reduction of disability durations and faster return to work, which translate into cost savings. In the near future we will be able to mine our data sources for insight and to facilitate us sharing experiences and best practices with similar organizations. A move to paperless files allows for immediate and concurrent file access. For further details on the BI 3 initiative and the associated business case, refer to AI.12 Preliminary Consolidated Post Implementation Review. SM.2.4 All Perils Claims Cost Saving Initiatives The following costs saving initiatives are currently underway in the physical damage area. SM.2.4.A Aftermarket and Recycled Parts Usage Aftermarket parts are new parts manufactured by someone other than the Original Equipment Manufacturer (OEM). Recycled parts are parts that have been reclaimed from vehicles which have been sold for parts. The Corporation has a policy of using quality aftermarket and recycled parts on vehicles older than current model year. During the 2010 calendar year, the Corporation had an estimated net saving of $13.9 million from use of aftermarket parts, down $2.8 million from the $16.7 million realized during the 2009 calendar year. This reduction was due to the Corporation s decision to suspend the use of aftermarket and remanufactured bumpers and face bars based on concerns expressed in the industry about the lack of comparability to the original equipment manufacturers replacement parts. For the fiscal year ending February 28, 2011, the Corporation had an estimated net Page 5

6 saving of $16.4 million from use of quality recycled parts based on value of parts found. This is up $.8 million from the $15.6 million realized in the previous fiscal year. In addition, the Corporation has in place a multi-year agreement with the Recyclers Central Office, giving the Corporation proprietary rights to the existing computer system which administers location and supply of recycled parts. The agreement gives the Corporation the ability to develop new software which will make it easier for recycled parts suppliers to participate in supplying recycled parts for the repair process. SM.2.4.B Glass Claim Costs The Corporation has taken a proactive approach to cost containment on glass claims. The Corporation monitors glass pricing and discount trends in the industry on an ongoing basis, and negotiates discounts on windshields and tempered glass with the trade, which save the Corporation as much as $900,000 annually. Continuing in this tradition, the Corporation s most current agreement with the trade in southern Manitoba calls for a windshield discount of 10%, and a tempered glass discount of 10%. In August of 2010, the Corporation introduced a new glass claim process called eglass. With eglass customers report their claim directly to the repair facility rather than Manitoba Public Insurance. Enabled repair facilities can automatically validate coverage, prepare and submit invoices electronically and receive payment electronically. All participants have benefitted from this streamlined process. Customer service has been enhanced, repair facilities benefit from shorter payment cycle times and because approximately 80% of glass claims are now processed in eglass the number of glass claim calls to our Call Centre has been reduced significantly. This is the type of mutually advantageous processes that the Corporation will explore when looking at future changes to our business processes. This was, in some respects, a pilot for changes in the way that we work with industry in the future. Page 6

7 SM.2.4.C Labour and Materials Costs The Corporation has been proactive in negotiating its fee structure with various trade groups throughout the province. The goal of these negotiations is controlling labour, paint, and materials costs. Through these negotiated fee structures, the Corporation has been able to control labour rate increases. To this end, the Corporation has finalized negotiations with the Manitoba Motor Dealers Association (MMDA) and Automotive Trades Association (ATA) on a new fee agreement covering labour, paint, materials and glass in northern and southern Manitoba. The new agreement, which remains in effect until December 31, 2013, was arrived at based on recommendations contained in the Collision Repair Industry Study jointly commissioned by the Corporation and the trade to ensure a viable repair industry in Manitoba on a go-forward basis. SM.2.4.D Estimating Compliance Audit Product The Corporation has in place, an agreement with NuGen IT for use of their estimating compliance audit tool, data warehousing, and management reporting capabilities. The compliance product continues to produce savings of $1 million annually by ensuring consistency in the administration of estimating business rules, such as the application of betterment province-wide and use of alternate parts where they are best suited. The product also enables the Corporation to better manage estimator performance by providing robust data capture. In addition, with the enhanced level of detail and analytical capabilities, the NuGen data is utilized in the Corporation s annual forecasting exercise. SM.2.4.E Tire Savings In cooperation with the trade, a year ago the Corporation introduced a new formula for realizing savings on replacement tires, based on shop invoice cost plus 20%. The repair facility is free to obtain the tire from any supplier of their choice. The idea is to put the Corporation in the same position as any other customer when it comes to purchasing tires, while at the same time assuring a reasonable level of profit for both the tire supplier and the repair facility. Page 7

8 A recent review was completed that showed savings were consistent with what had been projected the previous year. Based on an average of 5,000 tires replaced by the Corporation each year in the vehicle repair process, we are seeing savings from this initiative of between $50,000 and $60,000 annually. SM.2.5 Expenses The costs associated with delivery of the Basic insurance program to Manitobans include the following six components: Commissions Premium taxes Claims expenses Operating expenses Road Safety/Loss Prevention programs, and Regulatory and Appeal expenses Commissions and premium taxes are calculated based on a percent of premiums. Commissions and premium taxes are calculated based on a percent of premiums. Effective November 1, 2011, commission on Basic will decrease from 4% to 3%, and November 1, 2012 will decrease from 3% to 2.5% as per Regulation 93/2009 under The Manitoba Public Insurance Corporation Act. The projected drop in commission expense is shown in TI.13. The Corporation allocates expenses between the major lines of business/divisions based on approved allocation formulas. In 2009, the Corporation, in consultation with Deloitte, developed a new cost allocation method and in 2010, after completing additional work and making modifications based on the Public Utilities Board s direction, filed the 2011 General Rate Application based on this new method. In Board Order 145/10, the Public Utilities Board endorsed the new allocation method, however disallowed its use for ratemaking purposes. As such, the Page 8

9 Corporation has used the previous methodology to allocate expenses for ratemaking purposes in the 2012 General Rate Application. The expense categories and associated costs relating to claims, operating, road safety, and regulatory expenses allocated to Basic have been included in TI.7 B - Basic Operating and Claims Expenses. costs for years 2009/10 to 2010/11, and forecast/projections for 2011/12 to 2013/14 have been provided in TI.7 A. Page 9