KPMG.RevOv

Question 1

Describe the continuum of rate regulation approaches

Answer 1

Active regulation:
- Government Mandated
- Prior Approval

Moderate Rate Regulation:
- File & Use
- Use & File
- Flex Rating

Competitive:
- File Only
- Open Competition

Question 2

Describe the rate regulation approach: GOVERNMENT MANDATED and give an example(s)

Answer 2

Government sets:
- Rates
- Rate changes
- Risk Classification

Examples are:
- Alberta GRID
- BC

Question 3

Describe the rate regulation approach: PRIOR APPROVAL and give an example(s)

Answer 3

Regulator approves the following before they can be used:
- Rates
- Rate changes
- Risk classification

Examples are:
- Ontario Major filings
- Nova Scotia

Question 4

Describe the rate regulation approach: FILE AND USE and give an example(s)

Answer 4

Insurer files the following before use:
- Rates
- Rate changes
- Risk classification
Regulators have a set period to approve/disapprove otherwise rates can be used (within 30-90 days)
Filings docs are simpler than prior approval

Examples are:
- PEI

Question 5

Describe the rate regulation approach: USE AND FILE and give an example(s)

Answer 5

Insurer uses:
- Rates
- Rate changes
- Risk Classification
and files with regulators. Regulators can then retroactively change rates within a certain period

Examples are:
- Quebec

Question 6

Describe the rate regulation approach: FLEX RATING and give an example(s)

Answer 6

Insurer uses
- Rates
- Rate changes
- Risk classification
provided rate changes are WITHIN a certain range

Examples are:
- NOT USED IN CANADA

Question 7

Describe the rate regulation approach: FILE ONLY and give an example(s)

Answer 7

Insurer files:
- Rates
- Rate changes
- Risk classification
but NO review or approval is required

Examples are:
- No example in text

Question 8

Describe the rate regulation approach: OPEN COMPETITION and give an example(s)

Answer 8

No filing required

Examples are:
- Nunavut, Yukon, Northwest Territories

Question 9

Identify the main regulatory concerns for auto insurance (2)

Answer 9

Availability & affordability

Question 10

Do rate regulation mechanisms vary by province?

Answer 10

Yes

Question 11

Which provinces/territories use 1 approach for all required vehicles (5)

Answer 11

• NS (Prior approval)
• PEI (file & use)
• YK, NV, NT (Open competition)

Question 12

Identify external considerations affecting Rate Regulation

Answer 12

• Market cycle
• Economic conditons
• Politics

Question 13

Consistent with provincial regs? BC private insurer files Coll and Comp changes and waits for approval before using rates

Answer 13

No - Coll & Comp are optional coverages and optional coverages are governed by OPEN COMPETITION

Question 14

Consistent with provincial regs? NS must file rates with NC Utility & Review Board within specified period after using rates

Answer 14

No - NS uses the prior approval and therefore cannot start using rates until they are approved by regulators

Question 15

Consistent with provincial regs? QC private insurer uses property damage rates before submitting filing

Answer 15

Yes - QC uses USE & FILE

Question 16

Consistent with provincial regs? AB Government acts as a monopoly in providing insurance for TNCs

Answer 16

No - Private insurers provide insurance for TNCs through the SPF9

Question 17

Name 6 benefits to policyholders of switching from Prior Approval to Use & File

Answer 17

1. Less rate volatility (faster rate updates, lower price swings)
2. Lower rates (due to lower filing costs because filings are less complicated)
3. Use & file systems have smaller residual markets than prior approval states
4. Will likely lead to a large number of insurers therefore providing more choices to consumers
5. More refined classification or rating algorithm or innovation
6. Regulators have more time to focus on solvency or market conduct

Question 18

Identify advantages to flex rating

Answer 18

• Less volatility in rates (rate changes must be within a specific range)
• Lower expenses (vs prior approval since prior approval is more expensive than other rate regulatory approaches)

Question 19

Which is faster, file & use vs prior approval

Answer 19

File & use, since regulators have a specific timeframe that they need to give their approval/disapproval until insurers can start using the filed rates. This is not the case for prior approval

Question 20

Which is faster, Open Competition vs Prior Approval

Answer 20

Open competiton - no need to file rates therefore can implement new rates directly whenever. Vs prior approval where rates need to be approved by regulators which takes much longer

Question 21

Which is faster, Use & File or File & Use

Answer 21

Under file & use, insurers will submit their rates for approval to regulators and regulators will have a set period of time (usually between 30 and 90 days) to approve/disprove until insurers can start using the rates automatically.

Under use & file, insurers can start using the rates directly and will submit the changes to regulators. Regulators can then retroactively change the rates that were implemented by the insurer.

Because the use & file system allows insurers to use the rates from day 1 whereas this is not the case for the file & use system, we must conclude that the use & file system is faster.