Liberty Mutual Exhibit 1047
`Liberty Mutual v. Progressive
`CBM2012-00003
`Page 00001
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`

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`M. O'NEIL
`
`M. O'NElL
`
`Page 98
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`i
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`Page 99
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`O3I-JO'\U1»l"_‘-|.AJl\‘.II—'
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`disagreement.
`Q. Now, would you agree with me that the
`term "rating factor" is commonly used with
`reference to actuarial classes?
`
`MR. MYERS: Objection. 402, 403.
`A. There is a term "rating factor"
`utilized in the current classification system.
`However, it is not the same as "rating factor" as
`referenced in the patent.
`Q.
`Is the term -- Well, what do you mean,
`the term is utilized in current classification
`
`systems?
`A.
`In the current classification system,
`which is described, I don't believe the '358
`patent goes into detail, but it is described in
`more detail in the '970. The current system
`describes several rating characteristics, risk
`characteristics, such as age, sex, marital
`status, and so on. The standard class plan
`utilizes those. And I believe it comes up with
`possibly 260 or so cells of people that are
`classed -- might be classed in. So there is a
`lengthy description ofthat.
`And so how do we rice an insured
`
`M. O'NElL
`
`calculating the insurance premiums; is that
`right?
`
`MR. MYERS: Objection. 402, 403.
`I wouldn't characterize it that way.
`A.
`That's why I tried to explain it the way I did.
`It's which comes first. Okay? In
`this case, those ratios or class plan
`relativities are second. The prices for the two
`classes are first. And all classes have been
`
`related to one class for purposes of expense
`saving and not republishing your entire rate
`manual every time, for simplicity and other
`reasons.
`
`So they happen to be labeled probably,
`but maybe 50 years ago, as a rating factor
`because they were used to rate the policy. It
`had nothing to do with anything technical about
`it. And basically they express relationships
`between a particular class and the base class.
`So they are not calculated directly. They're
`just a ratio oftwo prices.
`And so I hope that's clear. That was
`my explanation.
`Well
`I didn't understand our last
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`using that system? We would -- we could have a
`premium for each of those cells, but as I
`mentioned earlier, because of the fact that the
`data by each little cell are not analyzed all the
`time to come up with a different premium in that
`particular cell in particular, for convenience
`sake a single classification is taken as a base,
`and it's usually like the adult driver. And all
`the other prices are related to that. And it's
`sort ofa classification relativity.
`But any rate manual, which is the
`thing the agent uses to price a policy, will call
`those rating factors because they are used to
`rate or price the policy. And so for convenience
`sake, for the agent's use, for publication of the
`rate manual, all of the cells were ratioed to the
`base class.
`
`So now the insurance company only has
`to publish new base rates. They don't have to
`publish a price for each class every time they
`issue the rate manual to the agent.
`Q.
`So under the system you described, the
`rating factor is a numerical value assigned for
`each particular classification that's used in
`
`Page 101
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`M. O'N EIL
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`answer when you said that they aren't calculated
`but they're a ratio. Isn't the ratio calculated?
`A. Well, all right.
`I guess ifyou want
`to call it that, yeah, it's calculated in that
`respect.
`It's a ratio.
`Q. Now--
`I meant that it
`A. Let me clarify.
`wasn't a direct calculation. Like for a
`
`particular cell we didn't go and like indirectly
`make calculations of those numbers. Everything
`is a ratio. That's what I meant.
`
`So is that the way, the way you just
`Q.
`described, that the auto insurance companies with
`whom you have worked actually go about assigning
`rates?
`
`MR. MYERS: Objection. 402, 403.
`A. Yeah, I'm not sure what you mean by
`that question.
`I'm son'y.
`Q. Well, youjust described a procedure
`in which rating factors are used in coming up
`with rates for a whole universe of people. I'm
`just asking whether in your experience that's the
`way insurance companies go about doing that.
`A. Well --
`
`R3521!“
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`‘:_.|F,‘...._I_‘.1,.‘T.‘l_‘...
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`1,3.
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`TSG Reporting - Worldwide
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`877-702-9580
`
`26
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`[Pages 98 to 101)
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`Page 00002
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`Page 00002
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`

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`M. O'NEIL
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`M. O'NElL
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`Page 118
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`Page 119
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`requirement to have expected claims losses.
`Q.
`In the sense of no necessary
`requirement to look at historical claims data; is
`that the --
`
`MR. MYERS: Objection. 402, 403.
`A. There was the possibility of obtaining
`data from other sources.
`
`Q. But you don't regard that kind of data
`as expected claims loss data?
`A.
`It may or may not be expected claims
`loss data.
`I don't know what other data I might
`find available.
`
`Q. Can estimated claims loss data be
`expected loss data?
`A.
`I guess I'm not understanding that
`question.
`In what context are you speaking?
`Q. Well, I'm trying to understand what
`you envision by expected claims loss. And my
`question is simply whether an estimated claims
`loss can serve as expected claims loss data.
`A. You might be able to use such data,
`but it's not necessary to use or to have that
`data, is what I'm saying.
`‘_ MMQ.
`l§_ut it would tgialify in your mind as
`Page 120
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`M. O'NEIL
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`conclude that the '650 application contemplated a
`direct calculation of insurance costs?
`
`MR. MYERS: Objection. 402,403.
`A. That is what I stated here in
`
`Paragraph 23. There is no specific mention of
`utilization or calculation of rating factors.
`Therefore it could be concluded that a direct
`calculation was intended.
`
`In your experience working and
`Q.
`consulting as an actuary involved in setting
`premiums or reviewing rate submissions based on
`actuarial classes, did you ever have a situation
`where such a direct calculation of insurance
`
`premiums was done?
`A.
`I guess — I guess I'm not relating to
`what you're saying in terms of a practical
`specific thing.
`I'm relating to this in terms of
`what I would do given the information presented
`in the '650. And I'm thinking, okay, the '6S0
`presents using monitored data to price insurance.
`I don't know how many classes I would have and so
`on. And so there's no reason to think that I
`
`I
`might not be able to calculate it directly.
`have no reason to believe I couldn't. That would
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`expected claims loss data, whether you used it or
`not; is that right?
`A.
`It could be actual, it could be
`expected, it could be from some other source.
`But again, it's not necessary to use any kind of
`claims loss data, is what I'm saying. No matter
`what adjective you put in front, you don't really
`need to use claims loss data.
`
`Q. Let's look at page 20 ~- excuse me,
`Paragraph 20, 2 l , 22 and 23 ofyour declaration,
`your rebuttal declaration that is. For the
`record, that's Liberty Exhibit I032.
`A. How far up did you go?
`Q.
`20 through 23. Okay‘?
`A. Yes. I've taken a look at those
`
`quickly.
`Q. Okay. So am I correct that your
`opinion as expressed in these paragraphs is that
`the ‘(S50 application does not inherently disclose
`rating factors?
`A. Correct. That is my opinion. Ido
`I not see that in the '650.
`Q. And that's because you believe a
`person of ordinarymsmkill in the art could
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`Page 121
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`M. O'NEIL
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`be the best calculation because then you would
`have the most data.
`
`So although the '6S0 -- excuse me,
`Q.
`although rating factors were in common usage
`during the relevant period in time, you would not
`have believed that the '650's disclosure of
`
`calculation of premiums relied on the use of
`rating factors?
`MR. MYERS: Objection. 402, 403.
`A. Your question had two disparate parts
`to it.
`In the beginning ofthc question you
`refer to rating factors in common use. Those
`were what we identified earlier as the
`
`relativities labeled as rating factors. They
`were not the same as the rating factors in the
`'3 58.
`
`Soto say that this '65{}, oh, yeah, we
`would assume that, no, we wouldn't, because now
`
`we have a whole new system presented based on
`monitored data. Why would we assume that we're
`going to relate something back to the adult
`driver class, because that's what the old rating
`factors or rclativities did. They just took
`stuff and related it back to the base rice. So
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`TSG Reporting - Worldwide
`
`877-702-9580
`
`31
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`(Pages 118 to 121)
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`Page 130
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`M. O'NElL
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`C13!-JO“uL.'|'|-J”;-(_.mJl\Jl—‘
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`agent utilizing it firsthand, is in my book
`chapter, that illustration.
`What youjust asked me I believe was a
`question as an actuary, how would I determine the
`original price for those hundred risk
`characteristics that in the intersection would be
`an enormous number ofclasses.
`
`So it depends on who you're talking to
`Q.
`how to answer that question?
`A. Well, more than that. It depends on
`what you're trying to derive. Are you deriving
`the initial premium by cell or are you
`deriving the -- or has that already been done and
`are you just -- they are rating a specific policy
`for a specific insured in a specific
`classification cell?
`
`Q. And ifl'm doing the latter, what
`you'vejust described, I would use rating factors
`in conducting that calculation as you've
`described in your book; is that correct?
`A. Not necessarily. That's the current
`way it's been done in the past using the rate
`relativities right there in the chapter. That's
`_ describing the past procedure. A future
`
`Page 131;
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`Wwnofimwnn=fimw=w3#rmr1TTr*“**""-
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`M. O'NEIL
`
`procedure could be totally different.
`Q.
`Isn't what you've put in your book the
`typical way it's done?
`
`A. That's the past procedure, though,
`whereas the patents speak of something new. And
`I believe you asked me about something new.
`Q. Are you aware ofany insurance company
`that uses the direct calculation approach that
`you describe in Paragraph 23 rather than the
`rating factor approach that you've described in
`your book?
`MR. MYERS: Objection. 402, 403.
`I still think we're confused about
`
`A.
`
`perspective. Okay? What I describe here in my
`declaration is the perspective of the actuary.
`Okay? The actuary is setting price.
`What's described in the book is after
`
`the actuary already did that. The prices are
`there. Relativities between two prices or all
`the prices have been derived based on one
`specific selected class. And now we have a
`person utilizing that information to come up with
`a premium for a specific policy.
`So we're at different places in the
`
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`Page 132
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`M. O'NE1L
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`calculation, so both are used. This procedure
`I've described in my declaration is used
`internally by an actuary. That procedure is used
`externally by agents.
`Q. Let's look at another paragraph of
`your rebuttal declaration, Ms. O'Neil.
`Paragraph 25. Do you have that?
`A. Yes.
`
`
`
`So Ithink you also for purposes of
`Q.
`this have to look at Mr. Miller's declaration,
`Exhibit 2005, at Paragraph 43.
`A.
`43, you said?
`Q.
`43, right. Because you're commenting
`here about that paragraph of his declaration. Do
`you have that?
`A. Yes, I do.
`
`Q. Okay. So you see Mr. Miller here is
`quoting from a passage ofthe '650 patent which
`reads:
`
`The method is comprised of steps of
`monitoring a plurality of raw data elements
`representative of an operating state of a vehicle
`or an action ofthe operator. Selected ones of
`the luralit of raw data elements are recorded
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`M. O'N EIL
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`Page 133
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`when they are determined to have an identified
`relationship to the safety standards. The
`recorded elements are consolidated for processing
`against an insured profile and for identifying a
`surcharge or discount to be applied to a base
`cost of automobile insurance.
`
`Have I read that correctly’?
`A. Yes, you have correctly read that
`quote.
`
`Q. Okay. That quoted language which
`mentions identifying a surcharge or discount
`applied to a base cost of insurance is referring
`to multiplying the surcharge or discount against
`the base cost of insurance, isn't it‘?
`
`A. That's —- I don't believe that's my
`reading of that. Could you say that again,
`please‘? I'm sorry.
`MR. WAMSLEY: Could you read it back?
`(Whereupon, the req ucsted portion was
`read back by the Reporter.)
`MR. MYERS: Objection. 402, 403.
`I don't believe so.
`I believe
`
`A.
`
`surcharges and discounts are dollar values.
`When ou see the word a lied to a
`
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`(Pages 130 to 133)
`34
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