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` UNITED STATES PATENT AND TRADEMARK OFFICE
` BEFORE THE PATENT TRIAL AND APPEAL BOARD
` __________________
` LIBERTY MUTUAL INSURANCE CO.
` Petitioner
` v.
` PROGRESSIVE CASUALTY INSURANCE CO.
` Patent Owner
` __________________
` Cases CBM2012-00002; CBM2012-00004(JL)
` Patent 6,064,970
`
` Case CBM2013-00004(JL)
` Patent 8,090,598
` Cases CBM2012-00003; CBM2013-00009(JL)
` Patent 8,140,358
`
` __________________
`
` DEPOSITION OF MARY LOU O'NEIL
` Washington, D.C.
` Friday, September 13, 2013
`
`Reported by: John L. Harmonson, RPR
`Job 65806
`
`TSG Reporting - Worldwide 877-702-9580
`
`

`
`Page 6
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`Page 7
`
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`
` M. O'NEIL
`introduced by Mr. Miller.
` Q. Were you familiar with this document
`before it was offered by Progressive in its
`response to the Liberty Mutual petition?
` A. Yes. I've been familiar with this
`document since its initial publication. I
`believe it was back in the 1980s, maybe 1982 or
`somewhere in that range.
` Q. So it's a document you're well
`acquainted with; is that right?
` A. It's not something --
` MR. MYERS: Objection. 402, 403.
` A. I'm familiar with the document as any
`other professional actuary might be.
` Q. It's not a document that would be
`obscured to actuaries practicing in their field;
`is that right?
` MR. MYERS: Objection. Federal Rule
` of Evidence 402, 403. I'm going to give the
` rule number as we go forward, but I'm
` referring to the Federal Rules of Evidence.
` A. I'm not sure what you meant by
`"obscure." We don't -- at least I as a
`professional don't sit and look through all of
`Page 8
`
`1
` M. O'NEIL
`2
`CBM2012-2.
`3
` (Liberty Mutual Exhibit 1022, having
`4
` been marked for identification, is attached
`5
` hereto.)
`6
` Q. Can you identify that document,
`7 Ms. O'Neil?
`8
` A. Do you wish for me to read the entire
`9
`description on the cover?
`10
` Q. If that's how you would like to
`11
`identify it.
`12
` Let me ask a different question. Is
`13
`this your rebuttal declaration in the
`14
`CBM2012-2 case?
`15
` A. That is correct. That is what the
`16
`identifying caption says.
`17
` Q. And you recognize it as such, correct?
`18
` A. Yes.
`19
` Q. Okay. Now, I would ask you to turn to
`20
`Paragraph 46. Are you there?
`21
` A. Yes.
`22
` Q. Okay. In this paragraph you're
`23
`providing testimony about helping to develop an
`24
`actuarial class system in New Jersey, correct?
`25
` MR. MYERS: Objection. 402, 403.
`
`1
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`
` M. O'NEIL
`the -- you know, I guess there are 50 standards
`of practice and several statements of principle,
`daily. I mean, it's on an as-needed basis. You
`go back to the document whenever you might want
`to use it.
` Q. And in fact, you've used this document
`in your actuarial work in the past?
` A. Yes, I have used it in the past.
` Q. And in fact, in the past has some of
`your actuarial work been conducted in a way
`that's consistent with the statement of
`principles set forth in this document?
` MR. MYERS: Objection. 402, 403.
` A. I believe all of my actuarial work has
`always been consistent with all of the standards
`of practice, which includes the statements of
`principles.
` Q. And by that, you mean this statement
`of principles that is Progressive's Exhibit 2012?
` A. Well, there are several statements of
`principles attached to the standards of practice.
`This is one of them. So I included everything.
` Q. Okay. Let me now hand you another
`exhibit, Liberty Mutual Exhibit 1022 in case
`Page 9
`
` M. O'NEIL
` A. This paragraph mentions something I
`did as a consultant to the New Jersey Market
`Transition Facility.
` Q. And what you did was help to develop
`an actuarial class system using driving record
`points; is that right?
` A. Correct.
` Q. And when you did that, was your work
`consistent with the risk classification statement
`of principles that's Progressive's Exhibit 2012?
` MR. MYERS: Objection. 402, 403.
` A. Yes. As I said, my work has always
`been consistent with the statement of principles.
` Q. So in your experience, you have always
`adhered to this statement of principles whenever
`you have provided your professional services as
`an actuary?
` MR. MYERS: Objection.
` Q. Is that right?
` MR. MYERS: Objection. 402, 403.
` A. I wouldn't use that terminology, that
`terminology of "adhered." As I've explained
`other places in my declaration, these statements
`of principles and the standards of practice are
`3 (Pages 6 to 9)
`
`TSG Reporting - Worldwide 877-702-9580
`
`

`
`Page 42
`
`Page 43
`
`1
` M. O'NEIL
`2
`refresh your memory and look at that material.
`3
` A. I've taken a quick look at that.
`4
` Q. Okay. Let me direct your attention to
`5
`the first sentence of the paragraph, Ms. O'Neil.
`6 Would you agree with me that automobile accident
`7
`statistics such as the number of at-fault
`8
`accidents can be considered as a risk
`9
`characteristic for which an actuarial class might
`10
`be created?
`11
` MR. MYERS: Objection. 402, 403.
`12
` A. I believe there are existing actuarial
`13
`classes based on number of at-fault accidents,
`14
`zero, one, two, three, four.
`15
` MR. WAMSLEY: My issue is, Jim, that
`16
` rather than answer yes or no and explain,
`17
` Ms. O'Neil provides a narrative answer which
`18
` does not frequently respond to my question.
`19
` So I really would, in the interest of
`20
` getting this done expeditiously, like to
`21
` suggest that the witness, when I present a
`22
` simple question that asks for a yes or no,
`23
` give a yes or no. If she feels the need to
`24
` explain or qualify, she's obviously free to
`25
` do so.
`
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` M. O'NEIL
` MR. MYERS: We disagree. Please
` proceed.
` Q. If one were to create or evaluate a
`potential actuarial class relating to number of
`accidents, expected claims loss data would be
`used in doing that. Am I right?
` MR. MYERS: Objection. 402, 403.
` A. I'm not sure what you mean by
`"evaluate."
` Q. To assess whether an actuarial class
`can be created.
` A. I don't agree with that. I believe
`you can create classes, zero, one, two, three,
`four accidents. And regardless, as a hypothesis,
`one would create those classes.
` Q. But in order to actually use them as
`classes in setting insurance premiums, am I
`correct that expected claims loss data would be
`used to determine whether they were actually
`useable in that fashion?
` MR. MYERS: Objection. 402, 403.
` A. It is not that simple of an analysis
`to determine what the appropriate -- Well, let me
`go back.
`
`Page 44
`
`Page 45
`
`1
` M. O'NEIL
`2
` You're setting up the class, is what I
`3
`understand. Is that correct?
`4
` Q. You're considering setting up that
`5
`class, that's right. That's my hypothetical.
`6
` A. So we don't already have it. Well, I
`7
`think what would be done, if one did not want to
`8
`collect any information ahead of time, is we
`9 would hypothecate that drivers with more
`10
`accidents might be drivers who have more claims.
`11
`So we set up the classes and we collect data, and
`12
`then we look at the data to see if indeed it is
`13
`true that those drivers that have more accidents
`14
`have more claims.
`15
` Q. So the data you collect is claims
`16
`data. Am I right?
`17
` A. Well, you collect more than that. You
`18
`would collect premium data, claims data,
`19
`obviously the number of exposures. You would
`20
`collect a lot of data.
`21
` Q. So when you were doing your work in
`22
`New Jersey that you testified about previously
`23
`this morning, what data did you refer to in your
`24
`work there?
`25
` A. For determining what portion of that
`
`1
` M. O'NEIL
`2
`analysis are you referring to?
`3
` Q. It's the activity that's mentioned in
`4
`Paragraph 46 of your rebuttal declaration,
`5 Ms. O'Neil.
`6
` A. Yes.
`7
` Q. That's what I'm referring to.
`8
` A. Yes. But what portion of that are you
`9
`referring to here now?
`10
` Q. I'm referring to the part where --
`11
`your activity in support of the development of an
`12
`actuarial class system using driver record
`13
`points.
`14
` A. As I explained before, that system was
`15
`developed, as I just mentioned, using the initial
`16
`hypothesis that drivers with more driving record
`17
`points would result in more claims. So given
`18
`that hypothesis and the absence of any prior
`19
`historical data of any kind, and the idea was to
`20
`generate revenue, I believe we looked at what had
`21
`been charged in -- by some companies that
`22
`actually charged for violations and began with
`23
`that, and then created scenarios that if these
`24
`prices were utilized, what would be the revenue
`25
`generated, what would be a reasonable charge over
`12 (Pages 42 to 45)
`TSG Reporting - Worldwide 877-702-9580
`
`

`
`Page 94
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`Page 95
`
`1
` M. O'NEIL
`2
` AFTERNOON SESSION
`3
` THE VIDEOGRAPHER: This is the
`4
` beginning of DVD 3 in the deposition of
`5
` Ms. O'Neil. On the record at 1:13.
`6
`BY MR. WAMSLEY:
`7
` Q. Good afternoon.
`8
` A. Good afternoon.
`9
` Q. Let me show you a couple of new
`10
`exhibits, Ms. O'Neil. Maybe you would like to
`11
`put those off to the side for the moment --
`12
` A. Okay.
`13
` Q. -- to reduce a little bit of the
`14
`paper --
`15
` A. Space.
`16
` Q. -- that's in front of you. I'm not
`17
`promising we won't revisit them.
`18
` A. Well, we might. I'll at least get
`19
`them in some order here. There we are.
`20
` Q. I just realized I need to look at one
`21 more thing.
`22
` Okay. Let me hand you what's been
`23 marked as Liberty Mutual Exhibit 1032 in
`24
`CBM2012-3.
`25
` (Liberty Mutual Exhibit 1032, having
`Page 96
`
`1
` M. O'NEIL
`2
` been marked for identification, is attached
`3
` hereto.)
`4
` Q. And that's your rebuttal declaration
`5
`in that matter, correct?
`6
` A. Yes. That relates to, as we call it,
`7
`the '358 patent.
`8
` Q. Right. And I'll also hand you
`9
`Progressive Exhibit 2005 in CBM2012-3, which is
`10 Mr. Miller's declaration.
`11
` (Progressive Exhibit 2005, having been
`12
` marked for identification, is attached
`13
` hereto.)
`14
` Q. Now, Ms. O'Neil, you did not provide a
`15
`declaration relating to the '358 patent earlier
`16
`in these proceedings with the petition submitted
`17
`by Liberty Mutual, correct?
`18
` A. That is correct.
`19
` Q. Did you read the '358 patent back
`20
`before Liberty submitted its petition relating to
`21
`that patent?
`22
` A. I believe I did. That is my
`23
`recollection.
`24
` Q. Did you read any prior art relating to
`25
`that patent at that time?
`
`Page 97
`
`1
` M. O'NEIL
`2
` A. That I do not recall, specifically
`3
`related to that patent as opposed to the others.
`4
` Q. Well, are you familiar with the
`5 Nakagawa patent reference?
`6
` A. Yes.
`7
` Q. Do you recall that? Do you remember
`8
`reading that before Liberty submitted its
`9
`petition relating to the '358 patent?
`10
` A. I am not certain. I might have read
`11
`it then. I'm not certain exactly when I read it.
`12
` Q. But do you believe you first saw the
`13 Nakagawa patent this summer after Progressive
`14
`filed its response to Liberty's petition?
`15
` A. No, I had that document in my
`16
`possession. I'm just not sure when I actually
`17
`looked at it. You know, I might have gotten it
`18
`and then it was, you know, don't read this now.
`19
`I'm really not sure about the sequence, but I
`20
`definitely had it sooner.
`21
` Q. Did you prepare a declaration relating
`22
`to the '358 patent before Liberty submitted its
`23
`petition on that patent?
`24
` A. No, I did not prepare one.
`25
` Q. Were you asked to provide any opinions
`
`1
` M. O'NEIL
`2
`about it at that time?
`3
` A. Not that I recall.
`4
` Q. Do you recall reviewing any other
`5 materials relating to that '358 patent petition
`6
`before it was filed?
`7
` A. No, I don't recall that at this time.
`8
` Q. Did you have meetings with counsel
`9 where you discussed that proceeding?
`10
` A. No, I don't recall any such meetings.
`11
` Q. Had you been asked, would you have
`12
`been able to provide a declaration on the '358
`13
`patent back at the time of Liberty's original
`14
`petition?
`15
` MR. MYERS: Objection. 402, 403.
`16
` A. I believe I would have been able to,
`17
`yes.
`18
` Q. Let's look at your rebuttal
`19
`declaration, then, Ms. O'Neil. And in
`20
`particular, Paragraph 17, 18 and 19. Are you
`21
`there?
`22
` A. Yes, I am at the page where 17 begins.
`23
` Q. Now, in these paragraphs you disagree
`24 with Mr. Miller and his declaration, correct?
`25
` A. Yes, there are several places of
`25 (Pages 94 to 97)
`TSG Reporting - Worldwide 877-702-9580
`
`

`
`Page 98
`
`Page 99
`
`1
` M. O'NEIL
`2
`disagreement.
`3
` Q. Now, would you agree with me that the
`4
`term "rating factor" is commonly used with
`5
`reference to actuarial classes?
`6
` MR. MYERS: Objection. 402, 403.
`7
` A. There is a term "rating factor"
`8
`utilized in the current classification system.
`9 However, it is not the same as "rating factor" as
`10
`referenced in the patent.
`11
` Q. Is the term -- Well, what do you mean,
`12
`the term is utilized in current classification
`13
`systems?
`14
` A. In the current classification system,
`15 which is described, I don't believe the '358
`16
`patent goes into detail, but it is described in
`17 more detail in the '970. The current system
`18
`describes several rating characteristics, risk
`19
`characteristics, such as age, sex, marital
`20
`status, and so on. The standard class plan
`21
`utilizes those. And I believe it comes up with
`22
`possibly 260 or so cells of people that are
`23
`classed -- might be classed in. So there is a
`24
`lengthy description of that.
`25
` And so how do we price an insured
`Page 100
`
`1
` M. O'NEIL
`2
`using that system? We would -- we could have a
`3
`premium for each of those cells, but as I
`4 mentioned earlier, because of the fact that the
`5
`data by each little cell are not analyzed all the
`6
`time to come up with a different premium in that
`7
`particular cell in particular, for convenience
`8
`sake a single classification is taken as a base,
`9
`and it's usually like the adult driver. And all
`10
`the other prices are related to that. And it's
`11
`sort of a classification relativity.
`12
` But any rate manual, which is the
`13
`thing the agent uses to price a policy, will call
`14
`those rating factors because they are used to
`15
`rate or price the policy. And so for convenience
`16
`sake, for the agent's use, for publication of the
`17
`rate manual, all of the cells were ratioed to the
`18
`base class.
`19
` So now the insurance company only has
`20
`to publish new base rates. They don't have to
`21
`publish a price for each class every time they
`22
`issue the rate manual to the agent.
`23
` Q. So under the system you described, the
`24
`rating factor is a numerical value assigned for
`25
`each particular classification that's used in
`Page 101
`
`1
` M. O'NEIL
`2
`calculating the insurance premiums; is that
`3
`right?
`4
` MR. MYERS: Objection. 402, 403.
`5
` A. I wouldn't characterize it that way.
`6
`That's why I tried to explain it the way I did.
`7
` It's which comes first. Okay? In
`8
`this case, those ratios or class plan
`9
`relativities are second. The prices for the two
`10
`classes are first. And all classes have been
`11
`related to one class for purposes of expense
`12
`saving and not republishing your entire rate
`13 manual every time, for simplicity and other
`14
`reasons.
`15
` So they happen to be labeled probably,
`16
`but maybe 50 years ago, as a rating factor
`17
`because they were used to rate the policy. It
`18
`had nothing to do with anything technical about
`19
`it. And basically they express relationships
`20
`between a particular class and the base class.
`21
`So they are not calculated directly. They're
`22
`just a ratio of two prices.
`23
` And so I hope that's clear. That was
`24 my explanation.
`25
` Q. Well, I didn't understand your last
`
`1
` M. O'NEIL
`2
`answer when you said that they aren't calculated
`3
`but they're a ratio. Isn't the ratio calculated?
`4
` A. Well, all right. I guess if you want
`5
`to call it that, yeah, it's calculated in that
`6
`respect. It's a ratio.
`7
` Q. Now --
`8
` A. Let me clarify. I meant that it
`9
`wasn't a direct calculation. Like for a
`10
`particular cell we didn't go and like indirectly
`11 make calculations of those numbers. Everything
`12
`is a ratio. That's what I meant.
`13
` Q. So is that the way, the way you just
`14
`described, that the auto insurance companies with
`15
`whom you have worked actually go about assigning
`16
`rates?
`17
` MR. MYERS: Objection. 402, 403.
`18
` A. Yeah, I'm not sure what you mean by
`19
`that question. I'm sorry.
`20
` Q. Well, you just described a procedure
`21
`in which rating factors are used in coming up
`22
`with rates for a whole universe of people. I'm
`23
`just asking whether in your experience that's the
`24
`way insurance companies go about doing that.
`25
` A. Well --
`
`26 (Pages 98 to 101)
`TSG Reporting - Worldwide 877-702-9580
`
`

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`Page 102
`
` M. O'NEIL
` MR. MYERS: Objection.
` Q. As a general matter.
` MR. MYERS: Objection.
` A. In my experience, every company has a
`rate manual, and they have agents that need to
`apply that. And so they all have the same
`procedures basically where they will publish the
`relativities, which you're calling a rating
`factor, and they will publish the base rate. And
`that is to be used by the agents to rate the
`policy.
` Now, at this point in time a lot of
`places aren't even using those. They're using
`little calculators.
` Q. A new exhibit. So I'll hand you an
`exhibit that's been premarked in -- and it has
`three numbers because it applies in three of the
`CBMs that we are here talking about today. So
`CBM2012-3, Progressive Exhibit 2014; CBM2013-4,
`Progressive Exhibit 2018; CBM2013-9, Progressive
`Exhibit 2027.
` (Progressive Exhibit 2014, 2018, 2027,
` [a single document] having been marked for
` identification, is attached hereto.)
`
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`
`Page 104
`
`Page 103
`
` M. O'NEIL
` Q. Ms. O'Neil, do you recognize that
`document?
` A. Yes. This is -- The cover is, I
`guess, the copy of a cover of a book, and you
`have attached to that a chapter in that book that
`I contributed. The book was a compendium of
`chapters written by different people.
` Q. So you wrote Chapter 3 of this book
`"Dealing with Automobile Insurance in North
`America"?
` A. Correct.
` Q. Okay. So do you recall the book?
` A. Yes.
` Q. And the procedure you just described
`for insurers to use base premiums and rating
`factors, that's described in this chapter,
`correct?
` A. Correct, yes. The purpose of this
`chapter, I might add, was Mr. Lemaire was putting
`this book together, and so it was to provide
`general background as to how auto insurance
`basically worked at the time.
` Q. So on page 47 you present a sample
`formula and rate calculation, correct?
`
`Page 105
`
`1
` M. O'NEIL
`2
` A. Correct.
`3
` Q. And at the top there you're adding up
`4
`rating factors, coming up with a total rating
`5
`factor, right?
`6
` A. Correct.
`7
` Q. And then the computation that is made
`8
`is to compute the liability coverage premium by
`9 multiplying that total rating factor with the
`10
`base premium?
`11
` A. Right. This is what I explained to
`12
`you in words before. If you just look right at
`13
`the page before, it describes which class we're
`14 making the price for is a youthful unmarried
`15 male, age 18, owner or principal operator, with
`16
`driver training, without a good student discount,
`17 with pleasure use, one accident, inexperienced,
`18
`using one standard performance car. So all of
`19
`those things in that list were the risk
`20
`characteristics. And so we had to now find this
`21
`cell within that class plan for that price.
`22
` Now, the insured could have published
`23
`the price. But as I said before, one class is
`24
`selected as the base, which is what is referred
`25
`to in the equation or base premium. That base
`
`1
` M. O'NEIL
`2
`premium for the coverage and territory is the
`3
`adult driver with none of these special
`4
`discounts, et cetera. And this relativity rating
`5
`factor is applied to that. And the reason the
`6
`other part of this is added on is because the
`7
`rating algorithm that was in place at the time
`8 was to look at driving record experience such as
`9
`number of accidents, and add the other factor on,
`10
`not multiply it, and come up with this total
`11
`amendment to the base premium. And the base
`12
`premium was, like I said, for just like an adult
`13
`driver without any of these other characteristics
`14
`that we just mentioned.
`15
` Q. So what you characterize in the book
`16
`at page 47 as the total rating factor is the sum
`17
`of all of the rating factors associated with each
`18
`of those particular characteristics that you
`19
`identified; is that right?
`20
` A. No.
`21
` MR. MYERS: Objection.
`22
` THE WITNESS: I'm sorry.
`23
` A. No, I wasn't sufficiently clear.
`24
`There never were any more additions than this.
`25
`There would have been one primary factor which
`27 (Pages 102 to 105)
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`Page 106
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`Page 107
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`1
` M. O'NEIL
`2
`related to all the listed risk characteristics
`3
`except for the accident frequency was a secondary
`4
`characteristic and that was added on. So you
`5
`never would have had anything more than primary
`6
`and secondary. That was all. Otherwise you
`7 would do it just this way. There was no third or
`8
`fourth thing that you would add on.
`9
` Q. I think I need to try to sharpen my
`10
`question here.
`11
` The primary rating factor that you've
`12
`identified on page 47, is that computed by adding
`13
`up rating factors attributable to the primary
`14
`rating risk characteristics?
`15
` A. No. That is -- Originally there would
`16
`have been a price for that particular cell. In
`17
`the classification plan you must envision all of
`18
`those risk characteristics all creating cells in
`19
`a multidimensional array. That particular cell
`20
`would have a price. That price was compared to
`21
`the base price, and we found out that it's 2.65
`22
`times higher than the base price. So for
`23
`simplicity sake, we're not going to give all the
`24
`prices out. We're going to just put this on the
`25
`page.
`
`Page 108
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`1
` M. O'NEIL
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` And those numbers -- There is no
`3
`number that adds up to 2.65 or otherwise
`4
`generates 2.65. It's just a ratio between the
`5
`dollar value of the premium for someone in that
`6
`cell to the base. There's just two numbers that
`7 we're looking at to get that 2.65.
`8
` Q. So when you refer to a cell, you're
`9
`referring to an -- a prospective insured's
`10
`position in the rating calculus based on the
`11
`various risk characteristics involved; is that
`12
`correct?
`13
` MR. MYERS: Objection. 402, 403.
`14
` A. The way I explain it, it's probably
`15
`similar to what you're saying. But to me, the
`16
`simplest explanation is to look at it like if
`17
`you -- It's a multidimensional matrix. And let's
`18
`say you only have three, so we could stop with
`19
`three dimensions, it would make it easier. You
`20 would have like a little cube here with little
`21
`squares. And so we would go to a square or a
`22
`cube in the middle and it would combine for us
`23
`all three risk characteristics if we only had
`24
`three.
`25
` In this particular instance of the
`
`Page 109
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` M. O'NEIL
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`class plan, we have many more than three, so the
`3 multidimensional matrix now has 260 cells or
`4
`little cubes where people can be. So this is one
`5
`of those.
`6
` Q. Is the term "rating factor" a
`7
`generally understood term in the actuarial field
`8
`as used -- as you've used it here?
`9
` A. Most people when they hear the term
`10 would think of the rate manual and the
`11
`relativities or ratios to the base premiums that
`12
`I have mentioned. If they're thinking of auto
`13
`insurance, that's pretty much -- because there
`14
`are other rate relativities, such as for
`15
`increased limits. They're all rate relativities.
`16
`It so happened they were called or labeled rating
`17
`factors years ago. I have no idea when they
`18
`started calling them that.
`19
` They could have called them class plan
`20
`relativities because they are called increased
`21
`limits relativities and deductible relativities.
`22
`Everything else is called relativity. Because
`23
`they only publish one price, say, for basic
`24
`limits liability, and then there is a factor that
`25
`is used to get the higher numbers. Because
`
`1
` M. O'NEIL
`2
`again, it's a ratio of prices. It's the same
`3
`type of thing.
`4
` Q. Now, you're aware, and you can look at
`5
`Paragraph 18 of your rebuttal declaration, that
`6
`the Patent Trial and Appeal Board construed the
`7
`term "rating factor" in the '358 patent, correct?
`8
` A. Correct.
`9
` Q. And you've quoted it here saying that
`10
`it's been construed as, quote: A calculated
`11
`insurance risk value such as a safety score or a
`12
`usage discount, close quote, and then added the
`13
`clarification that, quote: An insurance risk
`14
`value would be a value that reflects an
`15
`associated level of insurance risk and therefore
`16
`also a corresponding insurance premium, close
`17
`quote.
`18
` Do you recall that definition?
`19
` A. Yes. I recall writing this, yes.
`20
` Q. The rating factor you've just been
`21
`describing and that you describe in your book
`22 meets this definition of the Board, doesn't it?
`23
` A. I don't really think so. I mean, I
`24
`don't think it's the same thing. Like I said,
`25
`it's -- it's a rate relativity. I mean,
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`Page 111
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` M. O'NEIL
`definitionally speaking, yeah, I know it's
`labeled rating factor. But I believe it's
`something different than this over here. Those
`factors were a convenience for calculating a
`premium out of 260 possible classification cells.
` This value that the Board is -- has
`defined is much more broad. Calculated insurance
`risk values such as a safety score discount
`really does not necessarily have anything to do
`with actuarial classes.
` Q. But don't you agree that the rating
`factor that you described and discussed in your
`book is a calculated insurance risk value?
` MR. MYERS: Objection. 402, 403.
` A. The reason I'm inclined not to is
`because it's not something that anyone intended
`to calculate. It's a result of a ratio between
`two premiums. The premium was what was
`intentionally calculated, not the factor. The
`factor is a ratio of two premiums. So it's like,
`you know, the factor really is meaningless. It's
`a tool that was used to price a policy.
` So that's why I'm inclined not to --
`The Board's definition makes me think it's
`Page 112
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` M. O'NEIL
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`something that's purposely calculated to do
`3
`something with it such as the use of a safety
`4
`score or safety discount whereas these older
`5
`factors were not calculated in that manner with
`6
`that purpose. They're ratios to a base class, to
`7
`one class out of 260. Everything else is -- it's
`8
`a ratio.
`9
` Q. Well, I think you've agreed with me
`10
`that a ratio is a calculation, right?
`11
` MR. MYERS: Objection. 402, 403.
`12
` A. It is mathematically -- It's true that
`13
`one number divided by another is a calculation.
`14
` Q. And let's look at the Board's further
`15
`clarification that you've quoted in Paragraph 18
`16
`in which they go on to say:
`17
` An insurance risk value would be a
`18
`value that reflects an associated level of
`19
`insurance risk and therefore also a corresponding
`20
`insurance premium.
`21
` Isn't that exactly what the rating
`22
`factor that you describe in your testimony and
`23
`discuss in your book does?
`24
` A. Again, the problem I'm having with
`25 what you're saying is -- because I look at it as
`Page 113
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` M. O'NEIL
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`the order of calculation. You know, the reason
`3
`I'm not wanting to fit this to this is because
`4
`the order of the calculation and the rationale
`5
`for the calculation are different for the old
`6
`class bin rating factors versus the new based on
`7 monitored data.
`8
` The old factors -- There was no
`9
`intention to calculate factors. There was an
`10
`intention to calculate a price. Whereas under
`11
`the modern data I believe there is an intention
`12
`to calculate an insurance risk value.
`13
` Q. Turning back to your book chapter.
`14
` A. Yes.
`15
` Q. The rating factor that you refer to
`16
`there reflects a level of risk, doesn't it?
`17
` MR. MYERS: Objection. 402, 403.
`18
` A. It reflects the price differential
`19
`between the person in that classification cell
`20
`and the base cell.
`21
` Q. And am I correct that that price
`22
`differential reflects differences in risk between
`23
`the base cell person and the person who inhabits
`24
`this other cell, the 18-year-old with one
`25
`accident, as you describe him in your book?
`
` M. O'NEIL
` A. One would not be able to look at a
`price and determine a difference in underlying
`risk. I guess I'm trying to say that this
`particular factor does show a difference, and the
`difference arises not from the end price, it
`arises from the differences in expected losses.
` Q. You need the differences in expected
`losses to justify your rates, your differences in
`rates? Is that what you're saying?
` A. I didn't say that. I just said that
`that's what it would arise from. You would
`calculate the price looking at expected losses.
` Q. Would you agree that the differences
`in expected losses reflect differences in the
`risk of loss?
` MR. MYERS: Objection. 402, 403.
` A. I would say if you expect to pay more
`in claims, then -- See, my version of it is if I
`know or if I can predict the expected loss amount
`and I price it appropriately, the risk is the
`same. But I believe in the context of the
`patents the expected loss in itself is looked at
`as a difference in risk.
` Q. That's your interpretation of the
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