Automobile Insurance
`
`Actuarial Models
`
`Jean Lemaire
`
`ii‘
`
`Kluwer-Niihofi Publishing
`a member of the Kluwer Academic Publishers Group
`
`Boston/Dordrecht/Lancaster
`
`Liberty Mutual v. Progressive
`
`CBM20l2—0OOO3 Prog. EX. 2014
`
`CBM2013—OOOO4 Prog. Ex. 2018
`
`CBM2Ol3_O0o09 PrOg_ EX_ 2027
`
`

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`3 NORTH AMERICA
`
`United States (Mary Lou O'Neil)
`
`Regulation
`
`Background. Because regulation plays a prominent role in almost all
`aspects of the insurance business in the United States, we will discuss this
`subject first.
`______
`The first American regulatory insurance statutes date from the early
`1800s. The purposes of these laws were to (I) raise revenue through taxes,
`(2) protect domestic insurers against competition from foreign and alien
`insurers, and (3) protect the public against insolvency and inequitable
`treatment by insurers. This early regulation was almost exclusively at the
`state level. The growth of the insurance business paralleled the growth of
`other industries during the late nineteenth and early twentieth centuries.
`Due to a combination of greed, poor business judgment, and dishonesty,
`many insurance companies failed. This led to several court investigations
`and, subsequently, tighter regulation of both expenses and prices at the
`state level. The industrial revolution fostered the growth of large mono-
`polistic companies, which,
`in turn, fostered the enactment of several
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`AUTOMOBILE INSURANCE
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`federal antitrust laws and acts, which applied to businesses involved in
`interstate commerce. Because the insurance business was not considered to
`
`be interstate commerce, it was at first considered exempt from the federal
`antitrust laws. However, in 1942 the U.S. Justice Department indicted the
`South Eastern Underwriters Association, based on the federal antitrust
`laws, citing that the defendants had (1) conspired to fix rates, and (2)
`conspired to monopolize interstate commerce. In 1944,
`in a landmark
`decision, the U.S. Supreme Court reversed prior precedent and ruled that
`insurance is commerce and, therefore, subject to federal regulation. Because
`of the great change in the status of insurance regulation and the desire of
`the states (represented by the National Association of Insurance Commis-
`sioners [NAIC]) to retain the authority to regulate the insurance business,
`in 1945, Congress enacted the McCarran-Ferguson Act, which provided
`for (1) continued regulation and taxation by the states, (2) application of
`the antitrust laws to the extent the insurance business is not regulated by
`the states, and (3) continued application of certain federal laws. Hence, the
`insurance business in the United States is regulated at the state level. The
`extent of this regulation differs by line of business and by state.
`Generally, state insurance regulation is designed to control the activities
`of insurers who conduct insurance business within the state. In addition,
`there is also some regulation of agents, brokers, and others who market or
`service insurance products. Insurer regulation may be classified into three
`categories: (1) formation and licensing requirements, (2) supervision of
`operations, and (3) liquidation procedures. Specifically, regulation includes
`a purview of activities in the following areas: incorporation and licensing of
`domestic, foreign, and alien insurers; policy contract language; coverage to
`be offered; basis for selection of new business; basis for cancellation or
`nonrenewal of business; rates; claim handling practices; financial statement
`requirements (expenses, reserves for unearned premium and claims, asset
`and surplus valuation);
`investment portfolio composition restrictions;
`statistical data collection; agent licensing; countersignature requirements;
`unfair trade practices; taxation; liquidation; and suspension.
`Because of their significance to private passenger automobile insurance,
`the areas of rate regulation and financial responsibility laws are described in
`detail below.
`
`Rate regulation. To ensure that the insurance business is regulated by the
`states, and, therefore, exempt from the federal antitrust laws as provided by
`the McCarran-Ferguson Act, the NAIC, in 1945, sponsored the formation
`of an all industry committee, composed of representatives of 19 insurance
`trade organizations. The purpose of the committee, along with the federal
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`legislative committee of the NAIC, was to study state regulation to
`determine the changes in state laws necessary in order to avoid federal
`regulation.
`The result of the committee’s work was the “all industry” bills, adopted
`by the NAIC as model
`legislation for the guidance of the states in
`complying with the requirements of the federal act. The major substantive
`rate standard recommended to the states in the all industry bills were: (1)
`that rates be reasonable and adequate for the class of risks to which they
`apply; (2) that no rate discriminate unfairly between risks involving
`essentially the same hazards and expense elements; (3) that consideration
`be given to past and prospective loss experience (including catastrophe
`hazards,
`if any) and to a reasonable underwriting profit. Rates are
`considered reasonable (not too high) and adequate (not too low) when they
`produce sufficient revenue to pay all losses and expenses of doing business,
`and in addition produce a reasonable profit.
`Within this framework, the all industry committee sought to provide for
`as much price competition as possible but at the same time to protect the
`industry practice of bureau ratemaking because unrestricted competition
`had resulted in too many insurer insolvencies. Rating bureaus (associa-
`tions of insurers whose purpose is to set rates) combine the premium, claim,
`and expense experience of member companies to determine rates. There are
`only a few rating bureaus; the largest for private passenger automobile
`insurance is the Insurance Services Office (ISO).
`The final results of the all industry committee’s work resulted in the
`enactment of six broad categories of rate regulatory laws in the various
`states.
`
`1. State-made rates laws. Rates are set by the state with strict adherence
`by all insurers. Insurers are permitted to pay dividends to policy-
`holders. Only a few states have enacted this type of law.
`2. Mandatory bureau membership laws. Rates are made by rating
`bureaus to which all companies must belong. Companies may deviate
`from bureau rates only with specific approval of the state insurance
`department. Dividends may be paid to policyholders. Only a few states
`have enacted this type of law.
`3. Prior approval laws. Rates must be approved by the state insurance
`department before they can be used. Bureau membership generally is
`permitted but not required. Insurers may also file their own rates
`independently. The majority of states have enacted this type of law.
`4. Modified prior approval laws (use andfile). Prior approval of rates is
`not required. However, rates must be filed with the state insurance
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`AUTOMOBILE INSURANCE
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`department before they can be used. The state insurance department
`retains the right to subsequently disapprove rates.
`5. File and use. Rates may be used and then filed with the state insurance
`department, which retains the right to subsequently disapprove rates.
`6. No file. A few states do not require any rate filings.
`
`Where a rate filing is required, generally every insurer must file (1) a manual
`of classifications; (2) the rates applicable thereto; (3) the coverage to be
`provided; (4) the underwriting rules to be followed in classifying and rating
`risks in accordance with the classification schedules and rates; (5) the unit
`of exposure or premium base applicable; and (6) all rating plans for
`adjusting classification rates in recognition of variations in hazard for
`individual insureds. In addition, supporting information is filed, which
`usually includes: (1) the experience or judgment of the insurer making the
`filing; (2) the insurer’s interpretation of any statistical data that it relies
`upon; (3) the experience of other insurers or organizations; and (4) any
`other relevant factors.
`
`responsibility/Mandatory insurance laws. The concept of
`Financial
`liability or responsibility for one’s actions developed centuries ago as part
`of the common law. With the invention of the automobile, this theory of
`responsibility was extended to include liability for injury to both persons
`and property caused by an automobile. Also, as the number of vehicles on
`the road increased, the social/economic problems of the innocent injured
`party became more evident. Often the negligent party was not fmancially
`responsible, i.e., not able to pay for injuries caused to another. In an effort
`to protect these victims, all states enacted financial responsibility laws,
`beginning with Connecticut in 1926. These laws were intended to: (1)
`protect the injured party with a legal claim; (2) encourage or compel those
`using the highway to provide a degree of financial responsibility for the
`injury they may cause; and, (3) encourage safer driving. They require
`drivers to furnish evidence of financial responsibility in varying amounts—
`generally, $10,000 for injury to any one person in an accident, and $5,000
`for damage to property. The required limits vary by state.
`At the time of the accident, evidence of financial responsibility generally
`can be demonstrated in any one of several ways:
`(1) an insurer’s
`certification; (2) posting of a bond; or, (3) cash deposit. The insurer’s
`certification is the predominant means used to demonstrate financial
`responsibility.
`Experience showed, however, that the financial responsibility laws did
`not satisfactorily meet the intended purpose of compensating the innocent
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`victim. This failure arose basically because of the “first bite” problem, i.e.,
`financial responsibility did not have to be demonstrated until after the first
`accident. Thus, many victims continued to be uncompensated.
`In an effort to close the resultant gap in compensation to victims, states
`enacted compulsory financial responsibility laws. Under these laws, every
`car owner is required to purchase automobile liability insurance in an
`amount no less than specified by the law in order to be able to register his/
`her car. The first of these laws was enacted in Massachusetts in 1927.
`Compulsory laws had a positive effect in that there was relatively little
`interference with the liability responsibility system. However, with respect
`to the original purpose of financial responsibility laws, compensation of
`victims, several flaws remained: (1) claim settlements were slow; (2) the size
`of settlements was not necessarily proportionate to the amount of injury;
`(3) victims who could not prove negligence of the other party were
`uncompensated; (4) people without assets to protect were forced to buy the
`coverage; and (5) although fewer, there continued to be significant numbers
`of uninsured drivers. Thus, other measures to close these gaps were
`introduced. These included: (1) mandatory uninsured motorist coverage;
`and (2) unsatisfied claim and judgment funds. Uninsured motorist coverage
`provides surrogate liability insurance to compensate victims of an unin-
`sured driver. Unsatisfied claim and judgment funds are state funds, which
`provide compensation to victims not compensable from any other source.
`
`No-fault
`insurance laws. Because of the ineffectiveness of both the
`compulsory insurance laws and the liability system to compensate accident
`victims in a fair and timely manner, no-fault laws were introduced in
`various states. The purposes of these laws were to provide: (1) equitable
`distribution of benefits to accident victims; (2) timely payment of benefits to
`victims; (3) reduction in litigation; and (4) cost containment.
`The no-fault laws were intended to achieve these goals by: (l) estab-
`lishing a new coverage, personal injury protection, which would provide
`direct first party payment of economic loss by the injured victim’s own
`insurer, and (2) establishing a tort exemption or threshold that must be
`met before an innocent, injured victim could institute a third party liability
`suit for noneconoinic (pain and suffering) loss. The threshold is defined
`differently in different states. These definitions fall
`into three broad
`categories in which the threshold is expressed as: (1) dollars—a specific
`dollar amount of eligible medical expenses; (2) words (verbal)—words
`describing the kind of bodily injuries that the victim must have sustained;
`(3) days of disability-——the number of days for which the innocent victim is
`
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`AUTOMOBILE INSURANCE
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`disabled. More generally, the thresholdis defined as a combination of
`dollar, verbal, or days of disability.
`No-fault laws were introduced in 15 states during the 1970s. Subsequent
`studies have shown that personal injury protection coverage has achieved
`its intended purposes of adequate, timely compensation to victims without
`regard to fault. However, depending on the type and/or amount of the
`threshold and the amount of personal injury protection benefits required to
`be provided under the specific no-fault law, the no-fault system has not
`resulted in the desired cost containment.
`
`The Policy Contract
`
`Standard language for the automobile policy contract is not required. This
`flexibility, not generally available for other lines of business, is largely due
`to the efforts of the insurance industry through its trade associations to
`voluntarily develop standard contracts. Consequently, although there are
`differences in contracts sold by the more than 800 automobile insurers, the
`variations in coverage are relatively minor.
`Different standard contracts were developed for insuring private pas-
`senger automobiles, for instance the widely used family automobile policy
`and personal automobile policy. They usually include four basic coverage
`parts: liability, medical payments, protection against uninsured motorists,
`and damage to your own auto. They differ with respect to the amount of
`coverage:
`the basic limits of $10,000 per person and $20,000 per
`occurrence for bodily injury and $5,000 for all damages due to any one
`occurrence for property damage may be increased to,
`respectively,
`$100,000, $300,000 and $100,000; if higher limits are desired, they may be
`purchased from a surplus lines insurer or obtained through a personal
`catastrophe policy.
`
`Rates
`
`Policy rating. Classification plans. The liability policy premium is based on
`the following factors:
`
`Territory
`
`Limits of liability
`
`Age, sex, and marital status of the operators
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`Use classification of the automobile
`
`Eligibility for rating under the driver training and good student rules
`
`Driving records of operators of the owned automobile
`
`Years of the operators’ driving experience
`
`Eligibility for rating under the multi-car rule
`
`The first two items are reflected in the base premiums. Items three through
`five are the primary classification factors and items six through eight are
`the secondary classification factors. The final rating factor is the sum of the
`primary and secondary rating factors. This final rating factor is multiplied
`by the base premium for each coverage to determine the final premium for
`each coverage.
`Each of the factors affecting liability insurance premiums is briefly
`described as follows:
`
`1. Territory. Within each state, territorial subdivisions may be structured
`by county, city, areas within a city, township, town, village, or some
`combination of these. The number of rating territories varies from state
`to state (as low as under ten to more than 50) and by company within a
`given state. The territorial designation used for rating is that territory
`and state in which the vehicle is principally garaged and used. Claim
`statistics by territory are based on accidents charged to the location
`where the car is principally garaged and used—not the territory where
`the accident occurred. Rates within a state vary significantly by
`territory with high-to—low relationships varying by state but reaching
`six to one or more in states with densely populated urban areas.
`2. Age, sex, marital status. These variables are the most controversial in
`the classification plan because of the relationship to claim costs, for
`example, a driver’s sex is not within the individual’s control. Thus,
`opponents of these variables propose that premium should be based
`only on “causal” variables such as accident and violation history. In
`response to this challenge, a few states (Hawaii, North Carolina and
`Massachusetts) have prohibited the use of age or sex as rating
`variables. However, in the majority of states, the classification scheme
`used by the “bureau companies” splits drivers into seven basic age, sex,
`and marital status groupings: (a) unmarried females under age 25
`(separate classes for each year of age up to 20 and one class for ages
`21-24); (b) married males under age 25 (separate classes for each year
`of age up to 20 and one class for ages 2l~24); (c) unmarried males
`
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`AUTOMOBILE INSURANCE
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`under age 25, who are not owners or principal operators of the insured
`automobile (separate classes for each year of age up to 20 and one
`class for ages 21-24); (d) umnarried males under age 30, who are
`owners or principal operators (separate classes for each year of age up
`to 20, one class for ages 21-24, and one class for ages 25-29); (e)
`females ages 30-64, who are the only operator; (0 those aged 65 or
`over, one or more operators; and (g) all others. These groupings
`produce more than 100 distinct rating classifications.
`Use ofthe automobile. The above age, sex, and marital distinctions are
`further combined with the vehicle-use variable. The five vehicle use
`classes are: (a) pleasure use; (b) used to or from work less than 15 miles
`one way; (c) used to or from work more than 15 miles one way; (d)
`business use, and (e) farm use.
`Driver training and good student. The driver training and good
`student variables are discounts to the otherwise applicable youthful
`driver rate, which recognize the more favorable experience of these
`groups.
`Driving record, driving experience. As noted above, these are two of
`the factors that comprise the secondary rating factor, and they are
`generally referred to as the safe driver insurance plan (SDIP). The
`SDIP is used to distinguish among drivers based on their accident
`record, traffic conviction record, and driving experience. There are five
`SDIP classes based on SDIP points (0, 1, 2, 3, 4+)—one point for
`each “chargeable” accident during the last three years, three points for
`certain traffic violations such as driving while intoxicated, and one
`point for driving inexperience (licensed less than three years). Rate
`differences for each SDIP class are significant, e.g., one point costs
`40% more than zero points, and three points costs 120% more than zero
`points.
`Multi—car, vehicle we. The secondary rating factor, as noted above, is
`also dependent on qualification for the multi—car rule plus variations
`based on vehicle type. The multi~car rule applies when more than one
`car is insured—it usually results in a reduction of 20 points (not
`percent) from the secondary rating factor of each vehicle. Vehicle type
`is considered broadly as vehicles are classified as standard,
`inter-
`mediate and high-performance, and sports.
`
`The application of the above factors is illustrated in the following
`equation for a youthful unmarried male, age 18, the owner or principal
`operator, with driver training, without a good student discount, with
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`pleasure use, one accident, inexperienced, using one standard performance
`car.
`
`Primary rating factor (based on age,
`sex, marital, use, driver training,
`and good student)
`Secondary rating factor (based on
`1 point for 1 accident and 1 point
`for inexperience, and standard
`type car)
`
`2.65
`
`+ .70
`
`Total rating factor
`
`3.35
`
`Liability coverage premium = Total rating factor X Base premium for the
`coverage, territory,
`and selected limit of
`
`liability
`
`or,
`
`$503 = 3.35 X $150
`
`The above plan illustrates the basic concepts underlying most classif1ca—
`tion plans in use in the United States today. There are, however, individual
`company variations in the variables used, size of the differentials used, and
`method of combination and application of the variables. For example, some
`companies further classify drivers using annual mileage with two annual
`mileage distinctions——under 7,500 miles per year and all others.
`
`Ratemaking. Rates are made by the ISO for use by its member
`companies. In addition, individual companies also make rates for their own
`use. Altholighhthe process of developing base premiums is not identical for
`any. 'two _ companies‘ V and‘ mmayl differ based on requirements of the
`jur_i_s_dic_tiQn, there are certaingcommon elements to the process:
`
`1. Data. Liability rates are set for each state based on two years of
`accident year data for the “basic limits” of liability for the state.
`2. On-level premium. The premium for the experience period is adjusted
`to reflect the current rate level.
`
`3. Loss development. Accident year claims are adjusted to reflect their
`ultimate paid value using loss development factors. All claim amounts
`include loss adjustment expense.
`4. Trend. Trend factors, based on data for the 12 prior quarters, are used
`for both claim frequency and average claim cost.
`
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`AUTOMOBILE INSURANCE
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`5. Loss ratio. This is the incurred loss, adjusted for loss development and
`trend, divided by on—level premium.
`6. Weighting and indicated rate level change. Generally, for liability
`coverages, the accident-year adjusted loss ratios are weighted, 85% for
`the current year, 15% for the prior year. The adjusted weighted loss
`ratio is then compared with the expected loss ratio to determine the
`indicated rate level change for the state. The expected loss ratio is
`derived using company expenses and a 5% loading for profit and
`contingencies.
`
`The following formula illustrates this procedure:
`
`Incurred loss and loss
`
`adjustment expense X trend factor (for current year) J _ x 5:35 +
`
`Basic limits earned premium on level
`*’
`
`Incurred loss and loss
`adjustment expense X trend factor (for prior year) X 1 5
`Basic limits earned premium on level
`
`/Expected loss ratio -1 X 100
`
`= Indicated statewide rate level (%) change
`
`Before requesting such a rate level change, other factors must be
`considered. These include: credibility, judgment, competition, marketing
`objectives, underwriting, etc. A"
`"
`In addition, once the overall rate level is determined for the state, specific
`prices must be set for each territory. This is accomplished by developing
`loss ratio relativities to reflect the relative risk for each territory, after
`adjustment for credibility, and applying these relativities to the statewide
`average rate level change. The proposed premium changes are then
`introduced in accordance with the regulatory filing procedures of the
`state.
`Other rating factors such as increased limit of liability differentials and
`classification differentials are generally reviewed less frequently than the
`base rates and are at that time the subjects of special studies.
`
`Residual market. As in most countries, the underwriting process in the
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`United States results in some risks that no insurer wants to write. These
`
`risks constitute the residual market. Because private passenger automobile
`insurance must be purchased by law in many states, most state statutes
`provide for some type of program to make insurance available to all
`drivers. There are three basic plans currently in use—automobile insurance
`plans (currently used in 43 jurisdictions), reinsurance facilities (currently
`used in three jurisdictions), and joint underwriting associations (currently
`used in five jurisdictions). The key areas of difference among the plans from
`the company viewpoint are: service of residual market business, sharing
`mechanism for residual market premiums, and losses. Each of the residual
`market mechanisms is briefly described as follows:
`
`1. Automobile insurance plans (AIP). This is the oldest and most often
`used residual market plan. An insured, unable to obtain insurance in
`the voluntary market, may apply to the plan for coverage. The plan,
`based on an equitable random distribution system, then assigns the
`application to an insurance company. Each insurance company
`licensed to transact automobile insurance business in the state is
`
`required to accept a proportion (equal to its voluntary market share in
`the state) of the plan applicants. Risks written by a company for the
`plan are the company’s own risks,
`i.e., the company collects the
`premium, services the policy, and pays all claims on the policy. Rates
`and coverages offered are uniform for all plan insureds regardless of
`the insuring company.
`2. Reinsurance facility (RF). The insured submits an application for
`insurance to the insurance company of his/her choice. By law all
`applicants are accepted. The company then reviews its applicants and
`determines which would not qualify for its voluntary book of business
`(subject to a limit expressed as a proportion of its total book). For these
`risks the company cedes both premiums and claims to the RF.
`Periodically the RF premiums, claims, and operating expenses are
`aggregated for all insurers writing in these states—the difference (plus
`or minus) is then allocated to each insurer in the state in proportion to
`its total market share.
`
`3.
`
`Joint underwriting association (JUA). Applications are submitted to a
`limited number (generally around 10 or 12) of servicing insurers,
`which process the business on behalf of the JUA, collect premiums, and
`pay claims, in exchange for a service fee. The premiums, claims, and
`expenses of the JUA are aggregated and the difference (profit or loss) is
`then allocated to each insurer in the state in proportion to its voluntary
`market share.
`
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`Quebec
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`AUTOMOBILE INSURANCE
`
`A fundamental reform in automobile insurance was put into effect in
`Quebec on March 1, 1978. By then, the “Régie de 1’Assurance Auto-
`mobile,” a public institution, took over the compensation of all victims of
`bodily injury caused by an automobile, regardless of responsibility. All the
`inhabitants of Quebec who suffer bodily injury can be compensated by the
`Régie, whether they are responsible for the accident or not. Beside the full
`repayment of the incurred expenses and lump sum compensations for loss
`of physical integrity, the victims have a right, in the case of disablement, to
`compensation for loss of income amounting to 90% of their net income.
`However, the compensation for any individual cannot exceed a ceiling
`which is determined annually so that 85% of the population can be fully
`compensated. This annuity is index—linked.
`The financing of the Régie is made possible by (1) a tax on gasoline (in
`1982, 0.22 cents/litre), and (2) an annual levy paid when renewing the
`registration certificate and the driving licence (in 1982, $104). This levy is
`the same for each driver. Since the notion of responsibility had been
`completely abolished, the Régie did not attempt to have a larger part of its
`expenditure met by the drivers who cause more accidents. As a result, no
`differentiation is made according to the power of vehicle, the driver’s age,
`etc.
`While the compensation for bodily injury was entrusted to a public
`Régie, the private insurers retained the insurance for damage to property,
`where the notion of responsibility has not been abolished. The distinction
`between third party liability insurance (compulsory) and “collision” or
`“property damage” insurance (optional) has been maintained. However, a
`system of direct compensation of their policyholders was imposed on
`insurers, i.e., without subrogation. A company that believes that its insured
`is not at fault in an accident nevertheless compensates him directly and
`cannot apply to the insurer of the driver responsible to recover the amount
`paid. Notice that the standard third party liability insurance’ has the coverage
`limited to $100,000. In return for the payment of a moderate premium, this
`limit can be raised, although unlimited coverage is never allowed.
`This important reform in the structure of automobile insurance has, of
`course, turned the private insurance market upside down. The inhabitants
`of Quebec paid to their insurers $871.4 million in premiums in 1977 and
`only $576 million in 1978. Taking account of the compensation paid by
`insurers for part of the premiums written in 1977, this means a decrease in
`the global income of the companies amounting to $233.4 million, in other
`words 27%. This serious decrease in the amount of premiums has
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`consequently forced several insurers to withdraw from the market. The
`number of companies allowed to transact automobile insurance has fallen
`from 164 to 130 in one year.
`The insurance companies have full freedom to establish their third party
`liability premium rates. However, tradition, competition, and the existence
`of a technical grouping of insurers (the task of which is to study rating and
`to make rating recommendations) have had the effect that most of the
`companies use the same classification criteria, which are to be found in
`detail hereafter.
`
`The geographical area. Quebec is divided into eight areas: the premium
`difference between the highest rated area (Montreal) and the lowest rated
`area (Iles-de-la-Madeleine) amounts to 40%.
`
`The driver. The policyholders of Quebec are generally divided into 14
`classes, according to the use of the vehicle, the insured’s age, sex and
`marital status and the annual distance travelled. The l4 classes are as
`
`follows (in parentheses, the multiplicative premium coefficients, calculated
`for all companies combined).
`
`Class 01 (0.76)
`
`1.
`
`Private use of the vehicle
`
`2. The main driver, whether the policyholder or not is
`a. A single man aged 30 or over
`b. A married man aged 25 or over who lives with his wife
`c. A woman aged 25 or over
`3. No male driver under 25
`
`4. No unmarried female driver younger than 25 who has not taken
`driving lessons
`the policyholders’
`two drivers per vehicle living at
`5. At
`the most
`residence, each of them having held a valid driving licence for the last
`three years
`6. The car is not used by the driver on his way to work, nor for business
`purposes.
`7. The expected distance travelled does not exceed 16,000 km per year.
`
`Class 02 (I)
`
`1. Private use of the vehicle
`2. The main driver is
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`5 2
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`AUTOMOBILE INSURANCE
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`a. A single man aged 30 or over
`b. A married man aged 25 or over who fives with his wife
`c. A woman aged 25 or over
`3. No male driver under 25
`4. No unmarried female driver younger than 25 who has not taken
`driving lessons
`5. At
`the most
`residence
`6. The vehicle may be used for commuting to work provided it does not
`cover a distance of more than 16 km per trip.
`
`two drivers per vehicle living at
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`the policyholder’s
`
`Class 03 (1.03)
`
`1. Private use of the vehicle
`2. The main driver is
`a. A single man aged 30 or over
`b. A married man aged 25 or over who lives with his wife
`c. A woman aged 25 or over
`3. No male driver under 25
`
`Class 04 (1.42). The main driver is a single man aged 25 to 29.
`
`Class 06 (0.5). Additional premium is paid by a man aged under 25 who
`drives the vehicle occasionally, the main driver belonging to the category
`01, 02, 03, or 07.
`
`Class 07 (1.47)
`
`1. Business use of the vehicle
`
`2. The main driver is
`a. A single man aged 30 or over
`b. A married man aged 25 or over
`c. A woman aged 25 or over
`3. No male driver under 25
`
`Class 08 (1.5 7). The main driver is a married man under 21, who lives
`with his wife.
`
`Class 09 (1.57). The main driver is a married man under 25, but at least
`21, living with his wife.
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`

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`NORTH AMERICA
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`53
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`Class 10 (2.33). The main driver is a single man aged 16, 17, or 18.
`
`Class 11 (2.33). The main driver is a single man aged 19 or 20.
`
`Class 12 (1.75). The main driver is a single man aged 21 or 22.
`
`Class 13 (1.55). The main driver is a single man aged 23 or 24.
`
`Class 18 (1.25). The main driver is a woman under 21.
`
`Class 19 (1.25). The main driver is a woman aged 21 to 24.
`
`The experience rating category. This form of a posteriori classification
`subdivides the policyholders into five categories according to the number of
`years since the last claim. The definition of the top category, category 5,
`varies slightly from company to company. Here are the definitions adopted
`by a particular company, together with (in parentheses) the multiplicative
`premium coefficients calculated for all insurers combined.
`
`Category 5 (0.87). During the five years immediately preceding the date
`of inception of