COPE Update The Pricing Journey Supporting 2014 Strategy through the Transformation Program Kellee...

COPE Update The Pricing JourneySupporting 2014 Strategy through the Transformation Program

Kellee Irwin- VP Underwriting

October 22, 2010

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1. Introduction2. Objectives of Today3. ICBC’s Pricing Strategy- Why are we changing?4. Pricing – What are we doing?

a) New Pricing Model for replacement of CRS

b) Improvements to Fleet c) Enablers for New Pricing Models

5. Insurance Purchase Experience

2

Today’s Agenda

• In today’s session we hope to give you a better understanding of the following:– ICBC’s current insurance model– Why we need to change it– What the future model might look like – What our customers and employees have to

say about where we are going– How we want to enhance the Insurance

Purchase Experience

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Today’s Meeting Objectives

1. Recap2. Objectives of Today3. ICBC’s Pricing Strategy- Why are we changing?4. Pricing – What are we doing?




4

Agenda

2014 Strategy

5

Improving pricing and purchase of insurance “moment of truth” will help

improve customer perception.

Why Change: Customer’s Current Perception of Price/Value

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CRS Discount Distribution

0%

10%

20%

30%

40%

50%

60%

70%

80%

RoadStar -8 -7 -6 -5 -4 -3 -2 -1 Base Surcharge

CRS Level

CRS does not adequately differentiate

and recognize safe driving records

Confidential Strategic Policy Advice

Why Change: Need for a New Model

• Case for Change Discussion

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Discussion Exercise – Why Replace CRS





9

Agenda

10

Insurance Purchase ExperiencePricing

ICBC’s Pricing Portfolio

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Overall:• # of Policies – 3.5 million• Premiums earned - $3.6 billion• Transactions Processed – 6.5 millionPersonal:• # of polices – 2.8 million• Premiums earned - $3.1 billionCommercial (CRS & Fleet):• # of polices – 650,000• Premiums earned -$528 million

ICBC’s 2008 Insurance Book of Business

Personal Customer(CRS)

Non-Fleet(CRS)

Fleet

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Pricing: ICBC’s Book of Business

Commercial

1313

Goals for 2014

• Implement pricing model acceptable to customers

• Improved customer price value perception

• Rates become more reflective of driver (vs. vehicle) risk to increase fairness of rates

Priorities for 2014

• Personal Pricing: build and implement new pricing model

• Commercial Pricing: implement foundational changes for improved pricing

Key Initiatives

• Personal Pricing:

•DRM (Driving Record Model)• Evolution of DRP (Driver Risk Premium)

• Commercial Pricing:

•Fleet

ICBC’s Approach to Pricing Changes

1414

• Easy to understand• Easy to administer • Rate stability and predictability• Respect our historical mandate - universality and

accessibility• Respect social and legislative/regulatory

framework• Customer feels model acknowledges their past

Guiding Principles





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Agenda


Non-Fleet Commercial

(CRS)

Fleet

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New Pricing Model – CRS Replacement

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What it is:

• New driver based insurance rating model to replace Claims Rated Scale (CRS)

• Incorporates key elements that customers can control• Addresses both insurance premium on vehicle and

driver’s licence

Driving Record Model (DRM)

• Rating Variable Exercise

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Table Exercise – CRS Replacement

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What it is:Incorporates key elements that customers can control:

1. At-fault crashes


2020


2. Driver Experience


2121


3. Driving Convictions


2222

What it is:Post 2014

• Evolutionary Approach – continue to evolve after implementation

• Fine tune variables

• Additional variables will be considered


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Key Differences between CRS & DRM

Current/CRS DRM

Rating Focus Vehicle’s history Driver’s history

Rating Variables

• At-fault crashes and Driving Experience

• At-fault crashes• Driving

Experience• Driving

Convictions

Who is included?

• Owner• Primary Driver

• Owner• Primary Driver

• Comprehensive consultation strategy• Customer, employee, & broker input critical • Learning from the past• Early consultation results – we are on the right

track

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Key to DRM Success - Consultation

Customer Employee

April Survey

June Focus Groups Focus Group

July Survey

August Focus Group

DRM Consultation Completed to-date

Customers…

• are used to CRS but have many misconceptions• view insurance as rewards and penalties not an assessment of

future risk

• have no common definition of a high and low risk driver• support the idea of shifting some of the insurance impact of

unlisted operator crashes away from the vehicle owner toward the driver who had the crash – but the degree of the shift depends on whether the driver has

a vehicle of their own

Customer Focus Group (June) Key Findings

• Insights from the focus groups were used to develop a survey

• Methodology– Online survey– Sample size = 808– Representative of BC population

Customer Survey Approach (July)

More customers believe ICBC sets rates to recover the cost of past claims than basing them on risk.

Customer beliefs about how ICBC determines premiums

72%

72%24%

20%

Drivers with recent multiplemoderate traffic convictionsare more likely to have an at-fault crash over the next year

Drivers with recent serioustraffic convictions are more

likely to have an at-faultcrash over the next year

Agree strongly Agree somewhat

Customers believe there is a connection between convictions and the risk of having a crash.

Convictions and Risk

13%

16%

17%

15%69%

70%

Traffic convictions couldtrigger an additionalcharge on a driver’s

license that is beyondthe regular renewal fee.

Traffic convictions couldimpact the cost of

vehicle insurance/causea driver’s auto insurance

cost to go up.

True False Don't know

7 out of 10 customers believe convictions could impact their vehicle insurance today.

Convictions and Premium

• Customers were first shown a list of more than 30 traffic convictions that are in DRP/DPP. They were then asked about the fairness of considering additional traffic violations (also shown) for the purpose of a conviction-free discount.

75% of customers believe it’s fair that a driver must be free of all the traffic convictions listed in order to receive a conviction-free discount

Conviction Free Discount – Convictions List

Most customers said it would be fair if Joe pays more for the insurance on his own vehicle and Mary’s insurance is unaffected.

• Customers were told to imagine a scenario in which Joe (a licensed driver with a vehicle of his own) has an at-fault crash in his wife Mary’s vehicle..

90%

38%

12%4%

11%

57%Option B (change to current rules): Mary’s insurance is

unaffected, but Joe pays more for his insurance thenext time he renews insurance for his vehicle.

Option C (change to current rules): Mary is subject to amodest one-time insurance increase on her vehicle,

and Joe pays more for his insurance the next time herenews insurance for his vehicle.

Option A (current rules): Mary is liable for the at-faultcrash and Joe’s insurance on his own vehicle is

unaffected by the at-fault crash.

Very fair Somewhat fair

Unlisted Operator Crashes

In this scenario, most customers support a modest charge on Mary’s vehicle insurance.

• Customers were told to imagine the same scenario but this time Joe did not have a vehicle of his own.

72%

20%4%

28%

Option B (change to current rules): Mary is subject to amodest one-time insurance increase on her vehicle,

and Joe will be impacted by the at-fault crashwhenever he insures a vehicle in the future.

Option A (current rules): Mary is liable for the at-faultcrash and Joe is unaffected by the at-fault crash.

Very fair Somewhat fair

Unlisted Operator Crashes Continued

Weighting of Crashes

• 8 out of 10 customers believe at-fault crashes should have different effect on their insurance—the older the crash, the less impact it should have on their insurance

Rating Based on RO and PO

• 7 out of 10 customers think it would be fair for ICBC to consider the driving history of both the RO and PO in determining their insurance cost

Customer Survey – Other Key Findings

Employee Panel:

• Total of eleven participants from both bargaining unit and non-bargaining unit staff

• Representing Claims, IT, Broker Enquiry Unit, Customer Contact, Training, Driver Licensing, Customer Relations and Collections

• Participants were asked to provide feedback from both an employee perspective and from the perspective of the customers they interact with

Employee Focus Group

• Employees largely receptive to the case for change and the general direction but cautioned that…

– Change should not be too dramatic

– Make DRM simpler than CRS to explain– Ensure tools developed to explain DRM available to

customer-facing employees across the company – particularly Claims

– Make link for customers between behaviour and premium – Need to look at rewarding good driving behaviour

Employee Focus Group (June) – Case for Change

• All supported the movement towards driver-based– Current vehicle based system is very confusing

– Cautioned about the impact on multiple vehicle owners and how they are transitioned

• Employees’ views are similar to customers regarding treatment of unlisted operator crashes:– The driver should bear all responsibility for an at-fault crash if he has a

vehicle of his own

Employee Focus Group (August) – DRM Components

• Employees’ views are similar to customers regarding treatment of unlisted operator crashes (cont.):– If the driver doesn’t have his own vehicle, the RO should pay a modest

one-time insurance surcharge on vehicle involved in crash, while the driver’s insurance will be impacted the next time he insures a vehicle.

– Concerned about consistency re: impacts to RO in different scenarios- getting too complicated

• Other panel comments: – Needs to be easily explainable, less complicated than CRS– Balance between consistency, accountability and perceived fairness – Transition gradually

Employee Focus Group (August) – DRM Components

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• Broker/customer/employee consultation – 2010 2011• Finalize high-level DRM model and pricing changes – 2011• High-level internal DRM communication – ongoing• BCUC review and approval of DRM – 2011 – 2012• Broker and employee training happening 2013/2014• DRM Implementation – 2014

DRM Next Steps





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Agenda


Non-Fleet(CRS)

Fleet

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Improvements to Fleet

Commercial

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• Need to increase fairness in our pricing for fleets• Make rates more reflective of the risk of each

fleet• Fleetplan changes being implemented Jan 2011• Changes ongoing/evolve after implementation

Improvements to Fleet





43

Agenda

Why:• Current system is 30+ years old• Updates and changes cumbersome• Needed for DRM• Flexible technology • More responsive to customer needs What it is:• Calculates customer premiums• Uses rates, rating variables and rules and the

customer’s risk profile

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Enablers: New Rating & Underwriting Engine (NRUE)





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Agenda

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Insurance Purchase ExperiencePricing

ICBC’s Pricing Portfolio

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Delivering on Customer Expectations:• Move from transaction focused to customer

focused experience• Help brokers deliver customized products and

experience to customers• Allow more timely changes/new products• Address legacy systems• Supporting delivery of new pricing model

Making it Happen at the Insurance Purchase

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• Short Term Changes- Rate Quote• Longer Terms Changes - Insurance Sales

Administration Systems

Insurance Purchase Experience Projects

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Why:• Current system end of life

• Needed to support implementation of DRM

• 2nd most used system next to ADC

What it is:• Important tool brokers use to provide customers with

quotes

• Tool for manual transactions when point-of-sale system is unavailable

• Launch in November 2010

Streamline Online Rate Quote

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Why:• Customer Perception

– To improve the customer experience and maintain our competitiveness

– Offer choice, convenience & service while reinforcing value

• Employee Experience– Employees and brokers need better work tools to improve their

experience and the customer’s experience

• Financial Stability– Other insurers improving POS– Need to be able to bring new products & changes to customers

faster

Insurance Sales & Administration Systems

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What it is:

• ISAS project will modernize the current sales and admin systems

–Address aging ADC system–A new Point of Sale (POS)–A new Policy Admin System (PAS)–Enhancements to existing systems

• ISAS is an essential cornerstone of TP tied to ICBC’s revenue stream

Insurance Sales & Administration Systems

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• Project scoping phase – 2010 - 2011• Future phases will be determined as part of

project scoping phase• Consultation with brokers & impacted

stakeholders starting in 2011

Next Steps - Insurance Sales & Administration Systems

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Questions?

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