2019 Student Research Case Study Challenge Design an Autonomous Vehicle Insurance Policy

Transcription

1 475 N. Martingale Rad, Suite 600 Schaumburg, IL P F SOA.ORG 2019 Student Research Case Study Challenge Design an Autnmus Vehicle Insurance Plicy Client Overview Yu and yur team f actuarial cnsultants have been assigned t a new client prject. Sfia J. Fibnacci, FSA, chief actuary f the autmbile insurance cmpany Safelife, is preparing fr her presentatin t the Bard f Directrs n hw t design an autmbile insurance prduct fr autnmus vehicles, and she needs yur help. Safelife has an 82-year histry selling persnal and cmmercial autmbile insurance plicies in the cuntry f Carbia, a develped natin that has similar laws and regulatins t the majrity f states in the United States. At present, the tp five autmbile insurance cmpanies in Carbia cntrl abut 70 percent f the market. With a 34 percent market share, Safelife is in the lead. In 2018, Safelife paid claims f apprximately 4.5 billin Carbs (Ĉ 4.5 billin), the currency f Carbia. Hwever, Safelife anticipates that the current autmbile insurance market may eventually decrease with future public adptin f autnmus vehicles. Such a shift frm traditinal autmbile prducts t autnmus vehicle prducts is likely t usher in a new era f risk and liability cnsideratins that will demand big data capabilities and new actuarial mdels. At this time, n ther cmpany in Carbia has annunced plans t design an insurance plicy fr autnmus vehicle wners, leading Safelife t believe there is ptential fr a first-mver advantage. Accrdingly, Sfia has been assigned t lead the design and develpment f a new insurance plicy fr autnmus vehicles. Her current management gal, assuming the evlutin f autnmus vehicles grws as anticipated, is fr the new plicy t accunt fr 20 t 25 percent f Safelife s verall business by the year Prject Objectives Yur bjectives fr this prject are tw-fld: 1. Recmmend a design fr a new autnmus vehicle insurance plicy, and develp lss cst estimates, als knwn as pure premiums, fr the new plicy. Recmmend a launch date fr the plicy and prvide a ten-year frecast f pure premium frm the pint f launch. 2. Over this same time hrizn, frecast what Safelife s pure premium will be frm their traditinal plicies and the new autnmus vehicle plicy cmbined, assuming they chse t develp yur prpsed autnmus vehicle plicy. Als include a baseline frecast f pure premium assuming they d nt develp an autnmus vehicle plicy. In anticipatin f autnmus vehicles, the chief actuary and Bard f Directrs have kept a clse eye n federal effrts t create autnmus vehicle legislatin. In cmpleting these tw prject bjectives, they have asked yu t cnsider hw future legislatin may impact insurance and liability regulatins fr autnmus vehicles. The gvernment is currently develping autnmus vehicle and insurance regulatins that mirrr legislative effrts in the United States.

2 Deliverable Requirements The expected deliverable is an executive reprt, infrmed by yur research and analysis, summarizing yur team s recmmendatins and addressing each f the fllwing items in bld: Which risks shuld the new plicy cver and fr whm? Fr any party cvered by the plicy, please describe their relatinship t the vehicle and what the benefits f the plicy will be. Key cnsideratins: Wh is mst likely t adpt autnmus vehicles in Carbia, hw will they be used, and what new risks will emerge as a result? What is the anticipated timeline fr autnmus vehicle adptin? Which parties will face risk r liability expsure as a result f autnmus vehicle adptin, and what is their relatinship t the vehicle? T what extent shuld the new plicy include cmmercial and/r persnal cverage? Hw and t whm will liability be assigned in the event f a claim? Hw will current and anticipated regulatins impact yur plicy design? T what extent shuld the plicy cver traditinal autmbile insurance risks versus new risks expected t emerge with autnmus vehicle usage? At what level(s) shuld Safelife expect the new autnmus vehicle plicy s pure premiums? Key cnsideratins: What d yu expect the frequency and size f claims t be? What d yu expect the per-plicy pure premium t be? Hw culd the timing f market entrance impact pure premium? When shuld Safelife launch the plicy, and what are the anticipated pure premium prjectins based n anticipated sales? Please prvide a 10-year frecast f pure premium, starting at the launch date, t infrm yur recmmendatins. Key cnsideratins: Hw many autnmus vehicle plicies d yu expect Safelife t issue ver the 10-year time hrizn frm the pint f intrductin? Hw many traditinal vehicle plicies d yu expect Safelife t issue ver the 10-year time hrizn frm the pint f intrductin? Over the same time hrizn, prvide a baseline f Safelife s pure premium prjectins, assuming they chse nt t develp the new plicy. Key cnsideratin: hw will the intrductin f autnmus vehicles affect the frequency and size f claims ver time fr Safelife s traditinal persnal and cmmercial aut? 2019 Student Research Case Study Challenge 2 f 6

3 Please include a sensitivity analysis n management s gal that the new plicy accunt fr 20 t 25 percent f verall business by the year Please make recmmendatins based n yur analysis. What are the range f ptential risks and rewards assciated with fllwing each f yur recmmendatins? Key cnsideratin: what is the impact n pure premium fr insurance plicies fr bth autnmus and traditinal vehicles. Identify the key assumptins underlying yur plicy design and pricing that Safelife will need t test in rder t bring yur prpsed plicy t market successfully. Sfia requests that yu include discussin f data limitatins where relevant thrughut yur executive reprt. Fr example, hw cmplete is the data underlying yur assumptins and cnclusins? What limitatins were invlved in cmpleting yur analysis? Autmbile Insurance Plicies Carbia is primarily an urban and suburban cuntry, with very little rural area. Carbian law currently requires that all autmbile wners purchase autmbile insurance. Because the law is strictly enfrced, all autmbiles registered in Carbia are insured. Refer t Case Study Appendix 1: Autmbile Insurance in CarbiaCase Study Appendix 1: Autmbile Insurance in Carbia fr mre infrmatin abut insurance plicies in Carbia. Safelife plicies reflect these requirements. Available Data Sfia has prvided yu with ten years f Safelife claims data histry fr existing persnal and cmmercial autmbile plicies. Please refer t Case Study Appendix 2: Histrical Claims Data fr mre infrmatin abut the data. Assume that the data is cmplete. In develping predictins relating t the new autnmus vehicle insurance plicy, yu may use the current Safelife data, build yur assumptins frm scratch based n external research, r use sme cmbinatin f these tw appraches. Reprt Specificatins and Evaluatin Criteria Sfia has explained that Safelife evaluates its cnsulting teams n their methdlgical sundness. Therefre, Safelife reviews deliverables fr the fllwing criteria: Organizatin, frm, clarity and chesiveness f the reprt Clear respnses t all questins, Thrugh analysis, Creative and strategic recmmendatins, Cnsideratin f secndary research including, as necessary, an appendix shwing a reference list f all surces cited thrughut the reprt, Cnsideratin f the prvided data, including dcumentatin f data limitatins, and Dcumentatin f assumptins, including currency assumptins. Yur reprt and any supprting calculatins and/r cde shuld be submitted in PDF and/r Excel frmat. T ensure every request is met, please carefully review the submissin requirements n the fllwing page Student Research Case Study Challenge 3 f 6

4 Submissin Requirements Yur team s submissin shuld cntain a written reprt and supprting calculatins that meet the criteria utlined belw. Please refer t the 2019 Student Research Case Study Challenge Official Rules fr further infrmatin. Written Reprt Submit a written executive reprt that meets the fllwing criteria. 1. Includes the team name, names f each team member and an address fr each team member 2. Addresses each item identified under Deliverable Requirements 3. Written in English 4. In PDF frmat (withut any passwrds) 5. Includes the team name and brief descriptin in the filename f submitted files fr quick identificatin 6. In 12-pint, duble-spaced fnt with standard margins 7. A maximum f 2,500 wrds, excluding the fllwing items, which d nt cunt tward the 2,500- wrd limit: a. Figures f graphs/charts with captins summarizing key findings b. Citatins f external research c. Reference list f cited surces at the end f yur reprt d. Supprting calculatins and/r cde 8. The reprt and supprting calculatins must be riginal wrk f the submitting team. Previusly published wrk shuld nt be repurpsed r submitted. Supprting Calculatins Submit an Excel and/r PDF file cntaining all calculatins, mdels and/r cde cmpleted during yur analysis. Include the team name and brief descriptin in the filename f submitted files fr quick identificatin. When and Where t Submit Final submissins must be sent t research@sa.rg by 11:59 pm Central Daylight Time, Friday, March 22, Imprtant Nte Please keep in mind the audiences wh will read yur reprt. While Safelife s chief actuary and her actuarial team will be interested in yur in-depth calculatins and analyses, crprate executives and the Bard f Directrs will nly have the time and expertise t read yur written narrative. Therefre, please be sure t include any cnclusins yu wish t highlight in the bdy f yur written reprt Student Research Case Study Challenge 4 f 6

5 Case Study Appendix 1: Autmbile Insurance in Carbia Carbian law requires that all autmbile wners purchase autmbile insurance. Befre autmbile wnership may be transferred legally, the new wner must prvide prf f insurance that includes each f the fllwing cverages. Safelife plicies reflect these requirements. Bdily Injury Liability: Safelife pays fr reasnable expenses fr necessary medical and funeral services fr thers wh are injured r die in an autmbile accident when the insured is driving, regardless f fault. Safelife als pays fr injury t thers, including death, when an insured is legally liable fr damages. If an insured is sued, Safelife prvides legal representatin. The maximum amunt payable t a single persn is Ĉ150,000 and the maximum amunt payable per accident is Ĉ300,000. Persnal Injury: Safelife pays the insured's necessary and reasnable medical expenses that are nt cvered by medical insurance and have been incurred as a result f an autmbile accident, regardless f wh caused the accident. The maximum amunt payable t a single claimant is Ĉ30,000. Prperty Damage: Safelife pays fr physical damage t, r destructin f, tangible prperty f anther, including lss f use, fr which an insured is legally liable. If an insured is sued, Safelife prvides legal representatin. The maximum amunt payable t a single claimant is Ĉ150,000. Cllisin: Safelife pays fr repair r cash value f the insured's vehicle if it cllides with anther vehicle, flips ver, r crashes int an bject (except animals), regardless f wh caused the accident. The plicyhlder is respnsible fr the first Ĉ3,000 f cst, and the maximum amunt that Safelife will pay in a single incident is the cash value f the vehicle less Ĉ3,000. Cmprehensive: Safelife pays fr repair r cash value f a vehicle frm incidents ther than a cllisin including: fire, theft, windstrm, vandalism, fld, damage frm falling bjects r hitting an animal. The plicyhlder is respnsible fr the first Ĉ3,000 f cst, and the maximum amunt that Safelife will pay in a single incident is the cash value f the vehicle less Ĉ3, Student Research Case Study Challenge 5 f 6

6 Case Study Appendix 2: Histrical Claims Data Safelife has prvided yu with ten years f histrical claims data frm their persnal and cmmercial autmbile plicies. Assume that the data is cmplete. This data can be used t frecast what the future might lk like based n hw the business lks tday. T make predictins abut hw the future will lk after the launch f a new autnmus vehicle insurance plicy, yu may adapt the current-state data r, alternatively, build yur assumptins frm scratch based n yur research. The data shw the fllwing items fr each calendar quarter frm 2009 thrugh 2018: Calendar year and quarter Risk Class: Safelife classifies risks accrding t three categries, each with three classificatins, fr a ttal f 27 risk classes. The classes are cded by the first letter f the classificatins within each categry, in the fllwing rder: Vehicle Size Driver Age Driver Risk Small Yung Lw Medium Middle Average Large Senir High Fr example, a plicy that cvers a large car with a primary driver wh is middle-aged and has a driving recrd that indicates a higher likelihd f future claims-causing incidents wuld shw a risk class cde f LMH. Plicy type - Persnal: plicies wned by individuals fr their autmbiles that are primarily fr nncmmercial use. - Cmmercial: plicies wned by businesses fr autmbiles that are used primarily fr business purpses. Number f car years f expsure: the annual equivalent f the number f insured vehicles in the quarter. A single vehicle cvered fr a full quarter is ¼ f a car year f expsure. Number f Claims Incurred: the number f claims that ccurred in the quarter. Amunt f Claims Incurred: the ttal amunt paid fr claims that ccurred in the quarter, including payments that were made in subsequent quarters. Once a claim is received, Safelife pays it in full and clses the case; n further payments will be made. 1 Amunts are in Carbs (Ĉ) and are net f deductibles and cpayments. Safelife uses neither reinsurance nr cinsurance. 1 Clsing claims cases upn payment is a simplified apprach adpted fr the Student Research Case Study Challenge. In reality, cases may be repened fr supplemental claims many mnths r years later Student Research Case Study Challenge 6 f 6