I help set rates for a Major Canadian Insurance Company! Some thoughts . . . | GTAMotorcycle.com

I help set rates for a Major Canadian Insurance Company! Some thoughts . . .

VifferFun

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Hey Guys,

I just thought it was interesting how people are bashing the insurance companies for jacking up rates, and I can certainly sympathize since I am a rider too!

I am an Actuarial Analyst in the Pricing Department of a major Canadian insurer, and my job is to help set the overall rates within the company (i.e. rate increases or rate decreases). I'm sure people are wondering how they are getting some ridiculous quotes from some insurance companies, so allow me to explain in very basic Layman's terms the pricing methodology used within the insurance industry.

First, we look at historical claims data from the past 10 years or so, and determine trends to try and predict the claims experience for the upcoming year. I can assure you that the average cost per claim is increasing year over year at an exponential rate, not only for Motorcycles but cars as well.

Next, we determine the necessary rate increase/decrease such that the following equation holds true:

PREMIUMS = CLAIMS (~65%) + EXPENSES (~30%) + PROFIT (~5%)

It is a common misconception that Insurance Companies reap HUGE profits, which is simply not true. The overall profit of a company is usually within the range of -10% to 10%, depending on the performance of the specific insurance company's book of business. In fact, the government completely oversees the ratemaking process such that we are not even allowed to increase rates unless we ask for permission with supporting statistics.

So far I have only briefly described the process of determining rate increases/decreases, but thorough analysis is also performed to determine which classes of drivers should pay more/less premium. The experience of different groups distinguished by different variables (such as Age, Gender, Marital Status, Bike Class, Bike Displacement, etc.) are closely analyzed. Historical data would show that a 17-year-old rider with two convictions and an M2 riding a Gixxer is statistically MUCH MUCH MUCH more likely to get in an accident and cause damage than a 53-year-old driver with a clean record and full M riding a Goldwing. It doesn't take a background in Statistics to understand this.

So, why are the rates going up? The reason is the increasing cost of claims. Yeah, it certainly sucks, but no company in their right mind would charge you $500/yr to insure a bike with expected losses $1200/yr.

I frequently hear people complain by saying that the cost of a few years of insurance is equal to the cost of their bike. I can understand that this would upset you, but you need to ask yourself what the insurance is really covering. Only a small portion of the premium covers the motorcycle itself. The majority of the premium goes towards paying out claims where injuries are involved, which can easily run upwards of $2,000,000.



So, what can you do to lower you insurance premium? Here are a few suggestions:

1.) If you aren't an experienced rider, DON'T BUY A SUPERSPORT. Even if insurance were completely free, I still wouldn't suggest that a new rider purchase a sport bike. Buy a nice starter bike like a Ninja 250, Ninja 500, GS500, etc. instead, which is much easier on the wallet as far as insurance is concerned. Most companies surcharge sport bikes because of their nasty claims experience. Some companies even refuse to write them (aka blacklists).

2.) Be responsible. Don't do stupid things that would cause you to get tickets or accidents, since these will drastically increase your premiums.

3.) If your bike isn't worth that much and it wouldn't kill you financially if you had to write it off, opt out of Collision coverage. As long as the accident is not your fault and the other driver doesn't flee the scene, your bike will be repaired by insurance even if you don't have Collision (this is commonly misunderstood). Property Damage (a mandatory coverage with $0 deductible) covers your bike in accidents that ARE NOT your fault, and Collision covers your bike in accidents that ARE your fault. Just be sure that you don't cause any accidents!

4.) Shop around! Every company has its own niche market that it is targeting, and you may not fall within that specification. Some companies really do not want to write motorcycle insurance, but they offer it just so that they do not lose their existing Auto/Home policies. Some companies will offer bike insurance, but at a high rate to deter people. Don't get ****** off, but simply take your business elsewhere to a company that actually targets riders such as yourself.

5.) Bundle other insurance products to get a multi-line discount. Some companies will not write a standalone motorcycle unless you have a car or house with them as well. As much as you may not like this, it is completely the insurance company's decision and there is nothing illegal about it.

6.) Take a certified motorcycle training course if you are a new rider.

7.) Increase your Collision or Comprehensive deductibles.



Some things that are not really in your control that can affect your insurance premium, depending on your company:

1.) Gender: Some companies rate females cheaper when under 25yo

2.) Age: Your rates generally decrease at either age 25 or 30

3.) Location: Rural Areas may pay lower premiums than Metro Toronto

4.) Marital Status: Married people may pay lower premium than single people




That's about all I can think of right now. If you are going to respond, please keep civil; I'm a fellow rider and I'm not an evil person. I'm trying to educate everyone here about insurance, and I welcome any questions that you might have.

Cheers!
 
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Thanks for that. Very informative!

Now for some snide anger:

Can I ask someone who works at a Michigan insurance company what makes their motorcycle rates about 80% lower than in Ontario? Filip pays $260/yr for his BMW 1200 .. what's with that?

Is it the "at-fault" insurance scam, or the access to minor tickets? Or shared liability between products, rather than paying for the same thing twice .. or three times?

I'm glad that State Farm dummied their rates and made the executive decision to support (create?) the industry, rather than just profit off it.
 
Thanks for that. Very informative!

Now for some snide anger:

Can I ask someone who works at a Michigan insurance company what makes their motorcycle rates about 80% lower than in Ontario? Filip pays $260/yr for his BMW 1200 .. what's with that?

Is it the "at-fault" insurance scam, or the access to minor tickets? Or shared liability between products, rather than paying for the same thing twice .. or three times?

I'm glad that State Farm dummied their rates and made the executive decision to support (create?) the industry, rather than just profit off it.

A bit of anger is OK and completely understandable :)

Rates are VERY different depending on the region where you are being insured because the claims experience can be very different. One fairly extreme (but 100% REAL) example is that it statistically takes people in Ontario THIRTEEN TIMES longer to heal from an injury than someone in British Columbia. Do you think Ontarians REALLY need all this extra time to heal, or do you think Ontarians just take advantage of the insurance more? You tell me. The more people claim, the more everyone has to pay in their rates.

I am no expert on the American side of insurance, but I do know that the mandatory minimum level of insurance varies A GREAT DEAL from state to state. I believe the minimum amount of liability coverage in Michigan is only about $40,000! That is just ridiculous. I would not be on the road if I only had $40,000 coverage . . . that wouldn't even cover legal fees! I think it is more common for our American friends to have LOW near-minimum liability limits, which would significantly reduce their premiums because the exposure to the insurer is much lower. This is like comparing someone with a $250,000 Life insurance policy to someone with a $25,000 Life Insurance Policy. I suggest you start by asking Filip what his Liability Limit is on his bike policy.

This website will show you the minimum liability limits by province/state:
http://www.auto-insurance-knowledge.com/auto-insurance-liability.html

In Ontario, the minimum liability limit is $200,000, but even that is much too low. Most brokers won't quote you at any level less than $1,000,000. Could you imagine the negative PR if you got in an accident, only had $200,000 coverage, incurred $2,000,000 in damages, and the "Evil Insurance Company" wouldn't pay for the additional $1,800,000?

By the way, I whole-heartedly recommend increasing your limit to the full $2,000,000. It doesn't cost much extra to go from $1,000,000 to $2,000,000 and it is well worth it! It takes nothing to get over a $1,000,000 claim these days.

Cheers!
 
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Can I ask someone who works at a Michigan insurance company what makes their motorcycle rates about 80% lower than in Ontario? Filip pays $260/yr for his BMW 1200 .. what's with that?
yank insurance ist a totally different ball gome.
 
i ahve a questions about two or more bikes and one rider

Why do i ahve to pay as if i only had one bike?
i can only ride one at time.
Would it not make sense to pay the liability on the most expensive bike, and the other bike should be covered. Just pay extra if you wanted fire/theft/collison on the second, third, foruth ect.. bike

And don;t give me the BS about someone else riding one bike, while you are on another. Thats a big asssssumption, and it would be simple enough to deny a claim if two bikes where out at once.
Hell have a person sign somthing saying nobody else is insured on this bike.
 
i ahve a questions about two or more bikes and one rider

Why do i ahve to pay as if i only had one bike?
i can only ride one at time.
Would it not make sense to pay the liability on the most expensive bike, and the other bike should be covered. Just pay extra if you wanted fire/theft/collison on the second, third, foruth ect.. bike

And don;t give me the BS about someone else riding one bike, while you are on another. Thats a big asssssumption, and it would be simple enough to deny a claim if two bikes where out at once.
Hell have a person sign somthing saying nobody else is insured on this bike.

Agree.
For instance, if I have 2 exact same cars insured by the same insurance company, shouldn't the second car cost ~80% less (liability) than the first one? Why do I get only 10%-15% off on the second car? Why do I have to pay liability twice? Isn't it a pure fraud?
 
i ahve a questions about two or more bikes and one rider

Why do i ahve to pay as if i only had one bike?
i can only ride one at time.
Would it not make sense to pay the liability on the most expensive bike, and the other bike should be covered. Just pay extra if you wanted fire/theft/collison on the second, third, foruth ect.. bike

And don;t give me the BS about someone else riding one bike, while you are on another. Thats a big asssssumption, and it would be simple enough to deny a claim if two bikes where out at once.
Hell have a person sign somthing saying nobody else is insured on this bike.

This one drives me nuts
 
Don't forget supply demand affect price. In province's/states where insurance is not a requirement, the pricing is actually quite reasonable/affordable because the insurance company needs to price lower in order to continue to attract business.

In areas where insurance is mandated by law (IE: Ontario), but the pricing is not regulated, the Insurance companies can gouge much more deeply. This is why they are posting record profits in 2003, 2005, and so on.

Here is the hard numbers:

$154.8 million - The Co-operators Group Ltd - PROFIT
$63.1 million - Industrial Alliance Insurance and Financial Services Inc. (IAG) - PROFIT
-$103.5 million - Kingsway Financial Services Inc. - LOSS
$35.1 Million - SGI Canada (coachman) - PROFIT

So briefly examining the situation, it is pretty clear the insurance companies are making money, with the exception of Kingsway. This is based off end of 2007 fiscal financial statements off the TSE, so there can be no dispute... they are hard numbers.

Statefarm is a US based company, and don't trade in Canada, but they posted a net profit of $5.46 billion for their USA business. This includes profits made in Canada.

Anyone who says they don't make money is lying.

Nites
 
Question. Why can't we cancel our insurance without penelty during the winter months?

There are two reasons for this.

1. People would insure their bike for the summer, but use the slip and ride in the off season when the weather suited them. Because of the amount of uninsured riders running around in November months, they made it mandatory for year round insurance.

2. The insurance companies want to make more money that way. Insurance pay outs drop drastically in the winter, yet the reap all the profits in monthly premium;s.

Nites
 
How about it Vitter, care to share what you ride and what your premiums cost?

Stop the presses, dog bites man.
I get a lot of free pop and philly cheese steaks at the bar.
Police officers don't get speeding tickets very often.

Why the ad-hominem?!
 
Stop the presses, dog bites man.
I get a lot of free pop and philly cheese steaks at the bar.
Police officers don't get speeding tickets very often.

Why the ad-hominem?!


Not intended to sound attacking. Just meant to point out that he is not necessarily lying, but simply cannot remain objective. After all we are discussing an industry that puts food on his table and a roof over his head. Can one really remain objective under those circumstances? For someone to try to justify inflated insurance premiums based on expected loss is all fine and dandy, but let's face it, here in Ontario we let our insurance companies get away with robbery.

As already mentioned, the insurance companies do not allow you to cancel Bike premiums during winter months without a stiff penalty. What do you suppose the expected loss to an insurance company is for an uninsured bike? It is exactly $0.00. So why not allow us to insure only during riding season?

Vitter has provided some good info and hopefully it can help at least one person out there get cheaper rates, but the bottom line is Insurance companies are turning huge profits, and they are doing so, by sticking it to their customers. Try making a claim and see what happens to your rates.
 
And don;t give me the BS about someone else riding one bike, while you are on another. Thats a big asssssumption, and it would be simple enough to deny a claim if two bikes where out at once.
Hell have a person sign somthing saying nobody else is insured on this bike.

Call it BS if you want, but you licensed the bike for a year, and it needs to be insured as such. Furthermore, the bike is licensed to be used by any licensed individual.

Having people sign waivers doesn't do much with a good lawyer, so the insurance companies have taken the stance that if it's licensed for the year, it's insured for the year. Simple.
 
Those are some good questions guys! I will let you know first off that I am not trying to defend the insurance industry in any way. If it were an evil money-grabbing corporation that I worked for, I would quit because that doesn’t coincide with my values. I will be the first person to let you know if something the Insurance Industry is doing is unfair. I may work for insurance, but I am a policyholder just like you! I decided to post so that you guys can ask these pressing questions that you always wanted to know the answer to, and I promise I am giving the most honest answer I possibly can to each one. I have nothing to gain by defending the insurance industry on a GTA motorcycling forum . . . I’m just trying to do the community a service. I will address each of your questions below:


TWO BIKES AND ONE RIDER

First, I will address the question of two bikes and one rider. I can understand where you are coming from, and personally I wouldn’t mind doing the same thing myself if it were possible. It would be pretty nice to have two cars, such as a sporty two-seater convertible and a family sedan, and pay only half the premium. Likewise, it would be nice to have two bikes for whatever reason and pay half the premium.

You already explained the main reason yourself; it is quite likely that a person with two cars or two bikes would simply be trying to hide a second principle driver. You could try contacting your insurance company to see if they would allow you to be the one and only person insured to drive either of the two bikes, with all other people being excluded (meaning, anyone else riding your bikes would be dong so uninsured and illegally). I doubt that an insurance company would allow this though, because it isn’t a common practice. In order to allow you such a hefty discount on the liability and accident benefits portions, the insurance company would have to conduct an Actuarial Analysis and also file the change in rating methodology with the Financial Services Commission of Ontario for approval. To be completely honest with you, it just isn’t worth the headache as far as the insurance company is concerned. I agree with you that it isn’t totally fair, but this is the status quo.

With all that being said, if you were to insure two bikes, you could possibly get a multi-vehicle discount in the range of 10% to 20% on both bikes, depending on the insurance company’s rating rules.



EARLY CANCELLATION IN THE WINTER MONTHS

Next, I will explain the early cancellation in the Winter months. Although you pay insurance for a full year and are covered for a full year, the insurance company understands that the majority of your riding (and the exposure to the company) will take place in the months of April to September. You can consider the premium you pay is more like a 6-month policy that covers you during the riding months, with the added benefit that you are also covered in the Winter months just in case we get a random nice riding day in December (which has happened before). You are allowed to cancel the policy during the winter months, but by that time you have pretty much “used up” all of your six riding months, so most of the premium has already been earned by the company and you won’t receive much premium back. An insurance company earns a motorcycle policy according to a schedule similar to the one below (which is based on when the motorcycle accidents actually occur):

Jan - 0%
Feb – 0%
Mar – 5%
Apr – 10%
May – 10%
Jun – 20%
Jul – 20%
Aug – 20%
Sep – 10%
Oct – 5%
Nov – 0%
Dec – 0%

If you were allowed to cancel in October and get a full 50% of your premium back (rather than only 5%), then EVERYBODY would be doing this and the insurance companies wouldn’t be receiving enough premium in the riding months to cover losses in the riding months. It comes back to the equation I explained in my first post:

Premium(100%) = Incurred Losses (~65%) + Expenses (~28%) + Profit (~7%)

Suppose we allowed people to cancel as you said, then we would only be receiving 50% of the premiums. Since our losses and expenses remain constant, the only way we can balance the equation is by either doubling the premiums, or taking a corporate loss of 43%:

A.)2 * (0.5 * Premium) = Incurred Losses (~65%) + Expenses (~28%) + Profit (~7%)
B.)0.5 * Premium = Incurred Losses (~65%) + Expenses (~28%) + LOSS (~43%)

Since insurance companies aren’t in the business of giving money away (because they would go bankrupt VERY quickly!), they would be forced to double premiums with the understanding that people would cancel in the winter months. Financially, you would be in the exact same position that you are right now, because paying double the premium for six months and cancelling is the same as paying the regular premium for 12 months:

$200 * 6 months = $100 * 12 Months = $1200

Really, you shouldn’t be complaining, because by using the existing method of paying over all 12 months, you are paying the same amount of money but have the added benefits of:

a.) being able to ride on a warm December afternoon, and
b.) not having to worry about cancelling and re-opening your policy every year


RECORD PROFITS 2005 - 2008

Next, I will address the record profits for 2005 to 2008. You are correct, the Property and Casualty Insurance Industry as a whole has had an excellent run for the last few years, but this is an exception to the norm. You may have noticed that the insurance rates have been decreasing over the same time period (not necessarily for motorcycles) and you can see the rate increases/decreases by company by visiting the Financial Services Commission of Ontario website: http://www.fsco.gov.on.ca/english/insurance/auto/rates/default.asp

In general, the rates were declining in 2005 to 2006, and then slightly increasing (at maybe 0.5%) in 2007. Even though the rates are increasing a bit, it is still much lower than the rate of inflation which is around 3%.

It comes down to the fact that we just got lucky in these years. Insurance is very difficult to price because it is one of the only products that you sell BEFORE knowing the costs associated with the product. It just so happened that the weather has been favourable in the last few years and the accident frequency has been lower, thus causing profits to increase. The insurance industry tends to fluctuate in cycles where there are periods of good profit and periods of poor profit (or loss). The last few years we were in a period of good profit, but this year we are once again heading into a period of poor profit. If you were to look at the financial results at this time next year, you will be looking at a much different picture.

One other thing that needs to be mentioned: these huge profits that you see are NOT pure profit from policyholders! Most of the insurance company’s profit actually comes from investment income. Insurance companies frequently operate at an underwriting loss, but are able to be profitable because of wise investing of premium dollars.

I never said that insurance doesn’t make money . . . if it didn’t make money, then insurance would cease to exist. If you really want to complain about profits, I would look to the banks . . . they KNOW how much their products cost and they keep charging more and more . . . but I don’t want to bash banks in this thread either.


INSURANCE IN CANADA ISN’T REGULATED?!

Someone mentioned that insurance in Canada isn’t regulated, and that insurers can gouge and charge whatever they want. This is completely false! In fact, the Canadian insurance industry is HIGHLY regulated! We can hardly sneeze without explaining it to the Financial Services Commission of Ontario. Every time we want to increase rates, decrease rates, change underwriting criteria, blacklist a vehicle, etc. we must first ask permission from the Financial Services Commission of Ontario (or similar for another province) and it is completely up to them whether or not they accept our proposal.

Certain provincial governments have also made it illegal for us to rate based on Gender, Age, etc. (particularly in the maritimes). This doesn’t really affect our bottom line, but it does mean that in order for the profit equation to hold true, we would have to collect more premium from the good drivers to compensate for the bad drivers. If you are in a poor insurance category you will think this is GREAT, but if you are 55, married, with a clean record, you will be pretty ****** off.



YOU WORK FOR INSURANCE SO YOU GET REALLY CHEAP BIKE RATES, RIGHT?

Chintoe wanted to know what I drive and how much I pay for my bike insurance, and I have nothing to hide. I am 25, male, riding since I was 19, full M license, and riding a 1996 Honda VFR750F (sport touring). I am covered for $2M liability, have Comprehensive coverage with a $500 deductible, and opted out of Collision coverage. My policy is bundled with my car and life insurance (but not home), so I get multi-vehicle and multi-line discounts. I am paying roughly $850/yr for this coverage through State Farm. It’s a great rate!

So, do I work for State Farm? Would I get a discount if I were insured through my own company? Yes, I would receive about a 10% discount. . . a small employee “perk”, but still State Farm is much cheaper. I am not in my company’s target market, so I purchase my insurance elsewhere, which is no big deal.


I welcome any other questions you might have.

Cheers!
 
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Call it BS if you want, but you licensed the bike for a year, and it needs to be insured as such. Furthermore, the bike is licensed to be used by any licensed individual.

Having people sign waivers doesn't do much with a good lawyer, so the insurance companies have taken the stance that if it's licensed for the year, it's insured for the year. Simple.


simple and unfair. I have no problem paying extra for fire/theft/collision for a second bike, but i have a problem paying for liability twice. i can only be liable for one accident a time lol

My brother has a horrible driving record. My parents insurance came up for renawl and becuase of him they where going to be dropped. All that had to be done was TD sent over some forums saying he was not insured if he drove any car on the policy.

Do the same for the bike. Send me the same forum saying the bike is insured for you only, and at no time shall both bikes be operated on the road at the same time (that sounds funny)

I know, US different system, but they can add second bikes this way for like $20/year (no papers to sign just common sense)

vifferfun, thanks for the input. But same general comments to your post as well :)
 
simple and unfair. I have no problem paying extra for fire/theft/collision for a second bike, but i have a problem paying for liability twice. i can only be liable for one accident a time lol

My brother has a horrible driving record. My parents insurance came up for renawl and becuase of him they where going to be dropped. All that had to be done was TD sent over some forums saying he was not insured if he drove any car on the policy.

Do the same for the bike. Send me the same forum saying the bike is insured for you only, and at no time shall both bikes be operated on the road at the same time (that sounds funny)

I know, US different system, but they can add second bikes this way for like $20/year (no papers to sign just common sense)

vifferfun, thanks for the input. But same general comments to your post as well :)

I know what you mean, and I am asking a Product Specialist at my company why we don't insure two bikes in such a way. I will let you all know if I can get any more details.

As someone already pointed out, lawyers can cause a problem when it comes to exclusions. Excluding a specific driver with a poor record is common practice, but exluding ALL other drivers is not something I have ever heard of before.

To be brutally honest, I think for the majority of companies it just isn't worth the headache of filing rates for this multi-bike situation with FSCO where the financial benefit in doing so is well below the associated costs.

Cheers!
 

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