. CANADIAN DIRECT INSURANCE Canadian Western Bank Group C10-3 Ms. June Elder Manager, Corporate Regulatory Affairs, Insurance Corporation of British Columbia, 151 West Esplanade, North Vancouver, BC V7M 3H9 October 21, 2014 Dear Ms. Elder: Re: Insurance Corporation of British Columbia 2014 Revenue Requirements Application Please find enclosed Canadian Direct's Information Request No.1 with respect to the proceedings for the Insurance Corporation of British Columbia's 2014 Revenue Requirement Application. Sincerely, 1ns-Lee Chief Underwriter Canadian Direct Insurance Inc. cc British Columbia Utilities Commission, Commission Secretary Registered Interveners Canadian Direct Insurance Incorporated Suite 600-750 Cambia St. Vancouver BC V6B OA2 Sales/Service: 1.888.225.5234 Fax: 1.877.515.4747 Claims: 1.888.261.8888 3200010 101/2013)
CANADIAN DIRECT INSURANCE INC. Information Request No. 1 to ICBC Insurance Corporation of British Columbia Application for Approval of Revenue Requirements for Universal Compulsory Automobile Insurance for the Policy Year Commencing November 1, 2014 1.0 Reference: Application Exhibit B-3, Chapter 1, p. iv, para. 11 Legislative Framework Applicable to Determination of Basic Insurance Rates and Capital On page iv, para. 11 a), reference is made to a government directive regarding the transfer of Optional capital. In the past, certain capital has been transferred from Optional to Basic insurance ($530M in October of 2005, $373M in 2012). Also in the past, Optional capital has been directed to be transferred to the provincial government for general revenue. Between fiscal 2009/10 and fiscal 2011/12, a total of $1.252 billion was transferred from ICBC to the provincial general revenue fund according to provincial budget documentation. An ICBC spokesman was quoted in the Vancouver Province on August 27, 2014 as stating that $237M was transferred to the provincial government in 2013. 1.1 In light of the February 12, 201 4 Government Directive entitled "Excess Optional Capital Transfer and Annual Basic Rate Filing Date", authorizing the transfer of 2013 excess capital from Optional to Basic capital accounts, was the $237M referred to above transferred to Basic rather than to the provincial government to be used for general revenue? 1.2 If such a transfer did not take place, then was there excess Optional capital beyond the $237M to which the Government Directive applied and if so, how much and was it transferred to Basic? 2.0 Reference: Application Exhibit 8-3, Chapter 1, p. iv, para. 11 Legislative Framework Applicable to Determination of Basic Insurance Rates and Capital In that same article referred to in 1.0, the ICBC spokesperson also stated that transferring excess Optional funds to Basic would have no impact on the Basic rate. It was indicated that even if the $237M transfer was not made to the government, it would have no impact on Basic rates. 2.1 Please explain why such a transfer would have no impact on Basic rates, given that Optional capital has in the past been transferred to Basic capital (2012) and it is assumed such amount formed part of the Basic capital released in order to smooth Basic rates for PY2013. (See Ex. B-3, Chapter 2, p. 2-4, para.11)
- 2-2.2 Please advise whether ICBC is required to seek the provincial government's approval in the form of a government directive in order to transfer Optional capital to Basic capital or whether it can do so on its own volition. 3.0 Reference Introduction and Executive Summary Exhibit B-3, Chapter 2, p. 2-3, Figure 2.1 and pp. 2-6 and 2.7, paras. 18 and 19; BCUC Panel Decision of May 14, 2014, p. 33- Re-exclusion Proposal Determination of Proposed Rate Change Figure 2.1 - In the indicated rate change for the 2014 policy year, ICBC applied the entire unfavourable variance of +6.6% from the PY2013 Loss Cost Forecast Variance to the components making up the indicated rate change of +5.2% for PY2014. At paragraph 18 at page 2-6, reference is made to the requirements of (A) and (B) of Section 3(1 )(C.2)(ii) of Special Direction IC2 with ICBC stating at paragraph 19 of Chapter 2 the following: "The Commission-approved Basic Capital Management Plan further provides that Requirement (A) will only be exercised where the loss cost forecast variance is unfavourable. That is a favourable loss cost forecast variance will be reflected as a favourable component of the indicated rate change." 3.1 Please indicate where the above provision can be found in the Basic Capital Management Plan approved by the Commission. 3.2. Does a favourable Loss Cost Forecast Variance for a policy year require that an entire unfavourable Loss Cost Forecast Variance from the prior year must be applied, as appears for PY2014, if the ensuing indicated rate change complies with the Rate Change Band per IC2? 3.3 Is there any ability to apply a lesser Loss Cost Forecast Variance amount from a prior year and carry the balance over to the following policy year to accommodate rate smoothing and conform to the observation by the 2014 Panel at page 33 of its decision of applying rate exclusions in a flexible manner? 4.0 Reference: Introduction and Executive Summary/Actuarial Rate Level Indication Analysis Exhibit 8-3, Chapter 2, p. 2-3, para. 8, Figure 2.1 and Chapter 3, p. 3-4, para. 11, Figure 3.2 PY2014 Rate Change Indication Calculation Figures 2.1 and 3.2 both deal with the indicated rate change for PY2014. However, there is a difference in each figure regarding the components and their impact on the indicated rate change. In Figure 2.1 "Other" shows as having a +0.3% impact while lines 6, 7 and 8 in Figure 3.2 have that same impact on rates.
- 3-4.1 In Figure 2.1, for the +2.2% impact on the "Other" component for PY2013, what was included in that particular component? 4.2 In Figure 3.2, line 8 shows "Other" at -0.1%. Please advise what that component represents. 4.3 Please explain why Figures 2.1 and 3.2 differ in their makeup for the indicated rate change of +5.2% for PY2014. 5.0 Reference: Actuarial Rate Level Indication Analysis Exhibit 8-3, Chapter 3, p. 3-10, para. 31, Figure 3.3 8.2 PY2013 Loss Cost Forecast Variance Figure 3.3 - Basic Loss Cost. In projections for PY2013 (2013 application) and PY2013 (current application), the loss level has been restated which ICBC describes as being "due to unusual weather patterns". It then notes at p. 3-11: "ICBC does not expect the unusual weather pattern in 2013 to continue". 5.1 Is Figure 3.3 showing a loss cost increase for PY2014 of approximately $25 (from $750 to $775) a projection based on weather patterns expected to be back at normal for the calculation of basic loss cost for PY2014? 5.2 Figure 3.3 shows the actual loss cost for this application at just over $700, but with the projection for PY2014 showing an increase close to $775. Please explain the basis for this projection. 6.0 Reference: Actuarial Rate Level Indication Analysis Exhibit 8-3, Chapter 3, p. 3-18, paras. 44 and 45 8.2 PY2013 Loss Cost Forecast Variance In Bl frequency for accident year 2013 emerging at a lower level than previously forecast, ICBC indicated that an analysis was undertaken to see if this was just a one time item or if it was a shift in frequency which would need to have a forward projection made. While ICBC acknowledges the dry weather had a significant impact on frequency, it concludes this trend was not expected to continue. 5.1 Given the precipitation level shown at Figure 3.10 at p. 3-19, where 2013 precipitation levels stood in the chart of overall precipitation levels in the last 30 years and with 2014 levels of precipitation, which are tracking approximately 200 mm below those of 2013 as at September 30, 2014, does this not indicate that a shift in Bl frequency should be considered going forward and should be so projected?
-4-7.0 Reference: Actuarial Rate Level Indication Analysis Exhibit 8-3, Chapter 3, pp. 3-13 to 3-18, paras. 38 to 43 8.2 PY 2013 Loss Cost Forecast Variance Besides weather, ICBC states that other influences having a favourable impact on frequency are safer roads and vehicles, drivers in their safer driving years and declining usage per vehicle. The one influence cited by ICBC having a negative factor on and exerting pressure on frequency is distracted driving and the proliferation of personal electronic devices ("PEDs"). 7.1 Can ICBC quantify, in terms of percentage, the impact this negative factor had on the PY2013 Loss Cost Forecast Variance? 8.0 Reference: Actuarial Rate Level Indication Analysis Exhibit 8-3, Chapter 3, p. 3-8, paras. 21 and 22 A.2 Overview of.py2014 Rate Indication Calculation Line 7- Change in Average Premium In 2007, the provincial government, in a policy direction to ICBC regarding its Basic Insurance rate design (OIC 039, Approved and Ordered February 2, 2007), directed that for 2008 and future years, a key component in that rate design was the seniors discount rate classes and their current method of calculation. That rate applied to the pleasure use of vehicles and entitled drivers 65 years and over to.a discount of up to 25% on Basic Insurance premiums. 8.1 Can ICBC confirm that this component of the rate design remains in effect? 8.2 Can ICBC confirm that it does not have any plans to make a reduction in the seniors' premium discount rates for future policy years in the foreseeable future? 9.0 Reference: Claims Cost Management Exhibit 8-3, Chapter 6, p. 6-14, para. 48 (See also Chapter 3, Exhibit E.O, 82 Changes to Legislated Discount Rates and Exhibit E.3) C.3.2.2 Statutory Discount Rate In this section, ICBC refers to the decrease in the Statutory Discount Rate for future care and future wage loss by regulation change dated April 30, 2014. The rates of each decrease from the current rates for future care of 3.5% and for future wage loss of 2.5% to discount rates of 2.0% and 1.5%, respectively. ICBC indicates this is a new cost pressure which will have an unfavourable effect on the rest of Bl claims and that such effect "has been included as a prospective adjustment for PY2014" (ch. 3, pp. 3-22 and 3-23, para. 53). ICBC estimates this will increase the cost of claims by some $17.7M.
- 5-9.1 Given that discount rates referred to above apply only to future care and future wage loss - components of Optional insurance coverage - please advise what impact ICBC attributes to the discount rate change on the cost of Bl claims.