Overview of Standard Full Rates for Compulsory Automobile Liability Insurance

Transcription

1 Overview of Standard Full Rates for Compulsory Automobile Liability Insurance General Insurance Rating Organization of Japan (GIROJ) As of February

2 Introduction Automobile insurance is designed to pay insurance claims for the damage caused by automobile accidents. In Japan, automobile insurance is classified into two major types: Compulsory Automobile Liability Insurance (CALI), which every automobile is required by law to hold, and voluntary automobile insurance, which primarily car owners can purchase at their own discretion. CALI covers the liability for compensating the damage caused if the insured vehicle kills or injures a person in an automobile accident. It is intended to protect victims of automobile accidents, and all automobiles have obligation to be insured by CALI by law. Premium rates for CALI do not include any profit for insurance companies, and a system has been established that covers personal damage within the range of limits prescribed by law through low premium rates. (Compulsory Automobile Liability Mutual Aid operated by cooperatives serves a similar function to CALI, but it should be noted that this leaflet's explanations focus on CALI.) In today's car-dominated society, CALI is indispensable to our daily life from the viewpoint of protecting victims of automobile accidents and ensuring that those who cause an automobile accident have sufficient financial resources for compensation. In addition, it is vital that premium rates for CALI are appropriate and that insurance claims are paid fairly. In order to carry out our social mandate, we at the General Insurance Rating Organization of Japan (GIROJ) calculate standard full rates for CALI and file the calculated rates with the Commissioner of the Financial Services Agency (FSA). In calculating Standard Full Rates, we also utilize the data obtained through the CALI claim surveys, which we carry out from a fair and neutral standpoint. This leaflet is designed to give an overview of Standard Full Rates for CALI. We very much hope that it aids your better understanding of them. General Insurance Rating Organization of Japan (GIROJ) 2

3 Table of contents I. Compulsory Automobile Liability Insurance (CALI) 1. Characteristics of CALI 2. Relationships between CALI and Voluntary Automobile Insurance II. Standard Full Rates 1. Price of General Insurance (Premium) 2. Standard Full Rates for CALI 3. Structure of Standard Full Rates for CALI 4. Classification of Standard Full Rates for CALI III. Calculation and Filing of Standard Full Rates 1. Principles of Standard Full Rates for CALI 2. Concept for Calculating Standard Full Rates for CALI 3. Filing of Standard Full Rates for CALI 4. Ensuring the Transparency of Standard Full Rates for CALI 5. Verification and Revision of Standard Full Rates for CALI What is the General Insurance Rating Organization of Japan (GIROJ)? GIROJ is a general insurance rating organization (private non-profit corporation) established in accordance with the Act on Non-Life Insurance Rating Organizations, and its main operations are as follows: 1. Calculation and provision of Reference Loss Cost Rates and Standard Full Rates GIROJ calculates Reference Loss Cost Rates for voluntary automobile insurance, fire insurance, personal accident insurance, and nursing-care expenses insurance and Standard Full Rates for CALI and earthquake insurance. GIROJ provides the calculated rates to its member insurance companies. 2. Claim surveys for CALI GIROJ has set up CALI Claim Surveys Offices in major cities. At the request of insurance companies, it conducts surveys for CALI claims. The results of these surveys are utilized as important underlying data to calculate Standard Full Rates for CALI. 3. Databank functions GIROJ collects, analyzes, and researches various insurance data. It provides the results of analysis and study to member insurance companies and consumers. Act on Non-Life Insurance Rating Organizations The Act on Non-Life Insurance Rating Organizations was established to facilitate the sound development of the general insurance business and protect the interests of policyholders by ensuring the appropriate management of operations of rating organizations. 3

4 I. Compulsory Automobile Liability Insurance (CALI) 1. Characteristics of CALI In 1955, the Automobile Liability Security Act was established mainly to protect victims of automobile accidents, and compulsory automobile liability insurance (CALI) was developed in accordance with the act. If an insured vehicle kills or injures a person in an automobile accident and is liable for compensation for damage under law, CALI indemnifies injury or death, including compensation for treatment expenses for victims of the accident and consolation money. The characteristics of CALI are: Compulsory insurance In order to operate an automobile (with the exception of some exempted vehicles but including vehicles such as motorcycles), every operator of a vehicle is required to carry a CALI policy. If a person operates an automobile without CALI, he or she will be criminally punished with imprisonment of up to one year or a fine of up to 500,000 and administratively punished with the suspension of his or her driver's license. Setting an upper limit to the amount of insurance claims by law The upper limit to the amount of insurance claims paid by insurance companies is set by law (see page 6). Principle of no loss and no profit Since CALI is compulsory insurance whose objective is to protect victims of automobile accidents, Article 25 of the Automobile Liability Security Act stipulates that Standard Full Rates for CALI (see page 8) shall be as low as possible within the range such reasonable costs of an insurance business under the efficient management can be compensated, and the Standard Full Rates are calculated so that there is no profit or loss. In general, this is called the "principle of no loss and no profit." Compulsory Automobile Liability Insurance Council (CALI Council) Important matters such as revision of the Standard Full Rates for CALI are discussed at the Compulsory Automobile Liability Insurance Council (CALI Council) set up in the FSA. Government's Automobile Liability Compensation Business The Government`s Automobile Liability Compensation Business indemnifies victims suffering bodily injury from hit-and-run accidents, which are not covered by CALI, or from accidents caused by vehicles that are operated without CALI. The upper limit to such compensation is the same as for CALI. 4

5 Characteristics of CALI Compulsory insurance Every operator of a motor vehicle is required to carry a CALI policy. Government's Automobile Liability Compensation Business Victims of hit-and-run accidents and accidents caused by uninsured vehicles can receive compensation under the Government s Automobile Liability Compensation Business. CALI Setting upper limits to the amount of insurance claims by law CALI Council The CALI Council deliberates on important matters such as revision of standard full rates for CALI. Principle of no loss and no profit Expense Loading (Miscellaneous Expenses) Standard Full Rates (Premiums) Pure Premium (Insurance Claims) Standard full rates are calculated so that there is no profit or loss. 5

6 2. Relationships between CALI and Voluntary Automobile Insurance There are two types of insurance to compensate for damage if a vehicle kills or injures a person in an automobile accident: CALI and bodily injury liability coverage of voluntary automobile insurance. Bodily injury liability coverage of voluntary automobile insurance is designed to cover the portion of compensation for damage that exceeds the amount covered by CALI..It acts as excess cover to CALI. In addition to bodily injury liability coverage, voluntary automobile insurance provides property damage liability coverage and damage to own vehicle coverage. Automobile operators can choose any of these types of coverage according to their needs. On the other hand, CALI does not cover property damage liability or damage to one's own vehicle. Upper limit to the amounts covered by CALI (applicable to accidents that occurred on April 1, 2002 or thereafter) Damage Damage due to injury Upper limit to the amount covered (per victim) Up to 1.2 million According to the degree of permanent disability Damage due to permanent disability 1st grade: up to 30 million - 14th grade: up to 0.75 million Leaving severe disabilities in the functions of nervous system, in mentality or of thorax and abdominal organs Nursing care is required at all times, Up to 40 million Nursing care is required as needed Up to 30 million Damage due to death Up to 30 million Damage due to injury resulting in death Up to 1.2 million Relationship between CALI and bodily injury liability coverage of voluntary automobile insurance Bodily injury liability coverage of voluntary automobile insurance (Excess coverage to CALI) Liability for compensation for bodily injury CALI 6

7 II. Standard Full Rates 1. Price of General Insurance (Premium) In general, the price of goods is determined by raw materials, personnel, and other miscellaneous costs. Therefore, usually, the price of the products is definitely determined before they are sold. Almost the same idea applies to general insurance, but one major difference is that the principal part of the price of general insurance is determined by the insurance claims that will be paid by insurance companies when accidents occur in the future. Furthermore, this portion is not yet definite at the time when insurance is sold. For this reason, the amount of insurance claims to be paid for future accidents is estimated by predicting the frequency of accidents in the future and the amount that will be paid for each insurance claim using past insurance and other data. Here lies the difficulty in calculating the price of general insurance, or premium, and this is where GIROJ fulfils its roles as a rating organization. The price thus determined, or the amount paid by policyholders for the insurance claim that may be paid to them by the insurance company, is called the "premium." Price of general insurance and that of general goods Price of general insurance CALI Price of general Insurance (Premium) Determined based on predictions Insurance claims? in the future Predicting the frequency of future accidents and the amount of insurance claims to be paid Price of general goods Price of goods Determined before sale Expenses, etc. Costs of raw materials 7

8 2. Standard Full Rates for CALI The Standard Full Rates for CALI represent the premium rates for CALI calculated by GIROJ, and the member insurance companies of GIROJ can use them as their own premium rates. What are the premium rates? In general, the premium rates refer to the proportion of premium to insured amount (the maximum claim that could be paid or the amount covered) in general insurance, and this rate provides the basis for calculation of premiums. 3. Structure of the Standard Full Rates for CALI The Standard Full Rates for CALI consist of the pure premium rates and expense loading. The pure premium rates are used for covering insurance claims paid by the insurance company when an accident occurs. The pure premiums include the pure levies, which is used for compensation money paid through the Government's Compensation Business. Expense loading consists of operating expenses defrayed for claim surveys, administrative work for contracts, etc. and agency commissions paid by insurance companies to agencies that provide the service of contracting insurance policies on behalf of insurance companies. Operating expenses include additional levies, which are used to cover operating and other expenses at insurance companies which the Government's Compensation Business is outsourced. Structure of the Standard Full Rates for CALI Pure levy Additional levy Pure premium rate Expense loading For insurance claims For Operating expenses and Loss adjustment expenses For agency commission 8

9 4. Classification of Standard Full Rates for CALI Region Divided into four regions: Japan mainland, Okinawa island, Japan proper's isolated islands, and Okinawa's isolated islands. Vehicle type Vehicles are classified according to the usage and types of automobiles as well as to whether they are used for private or business. Usage of automobiles Types of automobiles Purpose of use passengers, freight, shared use, etc. standard-size, small-size, light automobiles, etc. private use, commercial use Period of insurance The Automobile Liability Security Act stipulates that the period of CALI must cover the term of validity of the vehicle inspection certificate. The period of insurance is divided as specified below according to the term of validity of the vehicle inspection certificate. Automobiles whose vehicle inspection certificate is valid for 1 year 13 categories from 1 month to 13 months Automobiles whose vehicle inspection certificate is valid for 2 years 25 categories from 1 month to 25 months Automobiles whose vehicle inspection certificate is valid for three 3 years 37 categories from 1 month to 37 months For motorcycles, which do not require vehicle inspection, the period of insurance is divided into 5 categories: 12, 24, 36, 48, and 60 months. 9

10 III. Calculation and Filing of Standard Full Rates 1. Principles of Standard Full Rates for CALI Article 8 of the Act on Non-Life Insurance Rating Organizations stipulates that Standard Full Rates shall be reasonable and adequate, and shall not be unfairly discriminatory. These requirements are known as the "three principles of premium rates." What does the word "reasonable" mean? It means that the insurance statistics and other data underlying the calculation of Standard Full Rates are objective and accurate, that the quantity of the data is sufficient, and that the calculation adopts a scientific approach based on actuarial science. Three principles of insurance premium rates What does the word "adequate" mean? It means that the level of Standard Full Rates is affordable for insurance applicants and allows the insurance companies that use the rates to maintain sound operations. What does the phrase "not unfairly discriminatory" mean? It means that the risk classification and level for Standard Full Rates are set appropriately based on the gap in actual risks and expected expenses between the classes. In addition, as described earlier, the Automobile Liability Security Act stipulates that Standard Full Rates shall be as low as possible within the range of compensating reasonable costs of insurance business under the efficient management ("principle of no loss and no profit"). In accordance with these principles, GIROJ calculates the Standard Full Rates based on the law of large numbers. What is the law of large numbers? For example, if one increases the number of times one rolls a dice, say, to thousands or tens of thousands of times, the probability of getting one of the six numbers approaches 1/6. As mentioned above, by collecting large amounts of data, one finds that even apparently chance happenings are taking place according to a certain patterns. This is called the "law of large numbers." In order to ensure that the law of large numbers functions well, GIROJ collects large amounts of highly accurate data from insurance companies and other organizations. In calculating Standard Full Rates, GIROJ makes predictions such as the probability of accidents occurring based on this law. 10

11 2. Concept for Calculating Standard Full Rates for CALI Standard Full Rates for CALI are calculated according to the "principle of no loss and no profit." In calculating Standard Full Rates, therefore, GIROJ makes it a rule to include only pure premium rates, which correspond to insurance claims paid by insurance companies, and expense loading, which corresponds to necessary miscellaneous expenses. GIROJ also takes into consideration the cumulative underwriting balance, which represents the cumulative balance between income and expenditure in past insurance contracts, and the cumulative investment income, which denotes the cumulative interest earned during the period from the initial receipt of insurance premiums to the payment of insurance claims. Thus, GIROJ calculates Standard Full Rates so that there is no profit or loss. Concept for Calculating Standard Full Rates for CALI Standard Full Rates =. Pure premium rate + Expense loading - Cumulative underwriting balance + Cumulative investment income 11

12 Calculation of pure premium rates Data on premiums paid by policyholders and data on insurance claims paid by insurance companies is submitted by insurance companies to GIROJ. Based on this contract data and payment data as well as data on claim surveys collected by CALI Claim Surveys Offices, GIROJ predicts the frequency of accidents and the average amount of damage per accident in the future in order to calculate pure premium rates In calculating pure premium rates, GIROJ also refers to statistics on traffic accidents, wages, prices, and so forth. Frequency of accidents = Number of accidents that occurred Number of insured automobiles Average amount of damage per accident = Total amount of claims Number of accidents that occurred Pure premium rates = Frequency of accidents Average amount of damage per accident Calculation of expense loading Based on the principle of no loss and no profit, GIROJ calculates expense loading referring to the financial statements insurance companies, statistics of wages and consumer prices, and other data. Calculation of pure levee and additional levee GIROJ calculates the amount of pure levees and additional levees using the formula stipulated by a government ordinance that prescribes the amount of levees for the Government's Automobile Liability Compensation Business, etc. How to calculate pure premium rates for CALI (Note 1) (Note 2) Insurance companies, etc. Contract data (insurance premiums and the content of contracts) Report Claim data (insurance claims paid and the circumstances of accidents) Requests for claim surveys Report on the results of claim surveys Head office Data obtained from claim surveys CALI Claim Surveys Offices Data aggregation Analysis and review Reference: Statistics on traffic accidents Statistics on wages Statistics on consumer prices, etc. General Insurance Rating Organization of Japan (GIROJ) Prediction of the frequency of accidents Prediction of the average amount of damage per accident Calculation of pure premium rates (Note 1) Contract and claim data are submitted by all underwriters of CALI policies. (Note 2) Zenrosai (national federation of workers' insurance cooperatives), Zenjikyo (National Federation of Motor Insurance Cooperatives) and its member cooperatives, and Kokyoren (National Mutual Insurance Federation of Truck Transport Co-operatives) and its member cooperatives also request to conduct claim surveys and to submit the results of such surveys. 12

13 3. Filing of Standard Full Rates for CALI GIROJ files the Standard Full Rates for CALI to the Commissioner of the FSA. The Commissioner of the FSA examines the Standard Full Rates filed by GIROJ to determine whether they conform to the three principles of insurance premium rates and the principle of no loss and no profit (see page 10). In examining the rates, the Commissioner obtains the consent of the Minister of Land, Infrastructure, Transport and Tourism, seeks opinions from the CALI Council, and receives a report from the CALI Council after its deliberation. If, after the Standard Full Rates filed by GIROJ are examined, member insurance companies of GIROJ file the Commissioner notifying that they will use the rates, they can use the rates as their own premium rates. Filing of Standard Full Rates for CALI Minister of Land, Infrastructure, Transport and Tourism CALI Council Consent Seeking opinions Report Commissioner of the FSA Examination Filing by way of Notification of using the Standard Full Rates Filing General Insurance Rating Organization of Japan (GIROJ) Filing by way of Notification of using the Standard Full Rates XXX Fire Insurance XXX Marine Insurance XXX Non-life Insurance Standard Full Rates Notice of filing Notice of filing 13

14 4. Ensuring the Transparency of Standard Full Rates for CALI The transparency of Standard Full Rates for CALI is ensured as described below. (1) Filing When GIROJ files the Standard Full Rates with the Commissioner of the FSA, it makes them known to policyholders and society in general by publicly announcing them in official gazettes and national daily newspapers. GIROJ posts details of the filing on its website. GIROJ keeps the table of Standard Full Rates and the underlying data for calculation and makes them available at its head office for perusal, and all interested parties can view details of them. (2) After the period of examination has passed After the period of examination has passed, the Commissioner of the FSA notifies the public of the Standard Full Rates filed by GIROJ in official gazettes. Even after the period of examination has passed, GIROJ keeps the table of Standard Full Rates and the underlying data used for calculation and makes them available at its head office for perusal, and all interested parties can view details of them. Ensuring the transparency of Standard Full Rates for CALI Filing (1) (a) Public announcement: Publicly announcing the rates in official gazettes and the national daily newspapers in order to make them known to policyholders and society in general (b) Provision of information: Posting details of the filing on GIROJ's website (c) Public perusal: All interested parties can view the table of Standard Full Rates and the underlying data used for calculation After the period of examination has passed (2) (a) Notification: The Commissioner of the FSA notifies the rates in official gazettes after the period of examination has passed. (b) Public perusal: All interested parties can view the table of Standard Full Rates and the underlying data used for calculation 14

15 5. Verification and revision of Standard Full Rates for CALI Verification of the Standard Full Rates for CALI As explained earlier, since Standard Full Rates for CALI are calculated by predicting the frequency of accidents and the average amount of damage per accident in the future, there may be excessive or insufficient underwriting income or expenditure depending on factors such as the incidence of traffic accidents and changes in economic conditions. Therefore, it is necessary to periodically check whether the Standard Full Rates are maintained at reasonable levels. GIROJ verifies the adequacy of the Standard Full Rates each year and reports the results of the verification to the Commissioner of the FSA. The Commissioner reports the results of the verification submitted by GIROJ to the CALI Council. Revision of the Standard Full Rates for CALI If, as a result of verification, it determines that the Standard Full Rates for CALI are not adequate (need revision), GIROJ immediately calculates new Standard Full Rates and files them with the Commissioner of the FSA. Verification and revision of Standard Full Rates for CALI Calculation of Standard Full Rates Filing of the rates with the Commissioner of the FSA CALI Council Examination by the Commissioner Consent of the Minister of Land, Infrastructure, Transport and Tourism Use of the Standard Full Rates by member insurance companies Verification of the Standard Full Rates (each year) Report to the Commissioner CALI Council Revisions are needed Determining whether the Standard Full Rates are adequate or not Revision is needed Revision is not needed 15

16 For commercial use For private use Material 1: Example of Standard Full Rates for CALI (for Japan Proper) Vehicle type Bus and Towed passenger automobile Period of insurance For commercial use 60 months 48 months 37 months 36 months 25 months 24 months 13 months JPY JPY JPY JPY JPY JPY JPY 67, months JPY 62,450 For private use 17,380 16,420 A 149, ,760 Passenger automobile for commercial use B 118, ,980 C 89,810 83,370 D 40,310 37,610 Passenger automobile for private use 40,040 39,120 28,780 27,840 17,310 16,350 Maximum load: over 2 tons 97,930 94,300 53,600 49,900 Standard freight automobile and Towed standard freight automobile Maximum load: 2 tons or less Maximum load: over 2 tons 66,500 64,100 37,110 34,650 68,720 66,220 38,270 35,730 Maximum load: 2 tons or less 44,640 43,090 25,630 24,040 Small-size freight automobile and Small-size towed freight automobile For commercial use 56,760 54,730 31,990 29,920 For private use 30,690 29,680 18,310 17,270 Small-size two-wheeled automobile 18,380 18,020 14,010 13,640 9,550 9,180 Light automobile Requiring vehicle inspection Not requiring vehicle inspection 37,780 36,920 27,240 26,370 16,500 15,600 28,060 23,560 18,970 14,290 9,510 Motorcycle 17,330 14,890 12,410 9,870 7,280 (Note 1) These are examples of Standard Full Rates that apply to contracts whose period of insurance began on April 1, 2013 or thereafter. (Note 2) Passenger automobiles for commercial use are divided into four vehicle types (A, B, C, and D) as follows: A: Taxis mainly based in Tokyo's special wards, Osaka City, Nagoya City, Kyoto City, Yokohama City, Kobe City, or Kawasaki City and passenger automobiles for commercial use mainly based in Sapporo City, Kitakyushu City, or Fukuoka City (excluding owner-driver taxis) B: Passenger automobiles for commercial use excluding those in A, C, and D C: hired Cars mainly based in Tokyo's special wards, Musashino City, Mitaka City, Osaka's urban areas, Nagoya City, Kyoto City, Yokohama City, Kobe's urban areas, or Kawasaki City D: Owner-driver taxis 16

17 Date of revision December 1, 1955 August 1, 1959 September 1, 1960 August 1, 1962 February 1, 1964 July 1, 1966 August 1, 1966 August 1, 1967 November 1, 1969 Material 2: Changes in Standard Full Rates for CALI The premium rates are authorized. The premiums rates are revised due to increased loss ratios. Summary The premium rates are revised due to the revision of the insured amount. The premium rates are revised due to higher operation costs. The premium rates are revised due to the revision of the insured amount New premium rates for isolated islands are established. The premium rates are revised due to the revision of the insured amount. New premium rates for motorcycles are established. The premium rates are revised due to the revision of the amount of insured amount. The premium rates are revised due to the revision of the insured amount and rises in loss ratio. (The maximum rate of increase is set for 2.5 times.) November 1, 1970 The premium rates are revised due to the abolition of the cap on increase in rates established in November January 1, 1971 May 15, 1972 October 1, 1972 October 1, 1973 December 1, 1973 February 1, 1974 November 1, 1974 October 1, 1975 November 1, 1975 January 20, 1977 July 1, 1978 March 1, 1983 July 1, 1983 April 15, 1985 April 1, 1991 April 1, 1993 January 1, 1995 April 1, 1995 May 1, 1997 May 1, 2000 April 1, 2002 April 1, 2005 May 25, 2005 April 1, 2007 April 1, 2008 April 1, 2011 April 1, 2013 Premium rates for driving schools' automobiles are newly established. The premium rates for standard freight automobiles are classified according to load capacity (over 2 tons and 2 tons or less) Premium rates for Okinawa are newly established (separate rates for the main island of Okinawa and ones for isolated islands of Okinawa). The premium rates for passenger automobiles for commercial use are revised. The premium rates for light automobiles are divided into two categories: light automobiles requiring vehicle inspection and those which do not require vehicle inspection. The premium rates are revised due to the revision of the insured amount. Premium rates for two- and three-year contracts are newly established for motorcycles and light automobiles requiring no vehicle inspections. The premium rates for passenger automobiles for commercial use are revised. The premium rates for light automobiles are revised. The premium rates for passenger automobiles for commercial use are revised. The premium rates for passenger automobiles for commercial use are revised. The premium rates are revised due to the revision of the insured amount. Premium rates for two month contracts are established for product automobiles. Premium rates for there year contracts are newly established for passenger automobiles for private use (including light automobiles requiring vehicle inspection). The premium rates are revised due to the revision of the insured amount and rises in loss ratio. The premium rates are revised due to the revision of the insured amount and the improvement of the loss ratio. The premium rates are revised due to the improvement of the loss ratio and the return of cumulative profits. Premium rates for four- to six-month contracts are established for product automobiles. Premium rates for four- and five-year contracts are newly established for motorcycles and light automobiles requiring no vehicle inspections. The premium rates are revised due to the improvement of the loss ratio and the return of cumulative profits. Premium rates for two-year contracts are newly established for standard freight automobiles and small-size freight automobiles. The premium rates are revised due to the abolition of the government re-insurance system, write-offs of the portion of cumulative losses which corresponds to the mutual pool, and the revision of the insured amount. The premium rates are revised due to reduction in subsidies appropriated to insurance premiums, etc. and the effective use of cumulative investment incomes. Premium rates for seven- to twelve-month contracts are newly established for product automobiles. Premium rates for three-year contracts are newly established for small-size two-wheeled automobiles, emergency automobiles, and small-size two-wheeled automobiles for special uses. The premium rates are revised due to the discontinuation of subsidies appropriated to insurance premiums, etc., the improvement of the loss ratio, and the return of cumulative profits. The premiums rates are revised due to increased loss ratios. The premiums rates are revised due to the expiration of the period of return of cumulative profits as revised in April