`Covered Business Method Review Petition
`of United States Patent No.: 6,064,970
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`Patent Owner: Progressive Casualty
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`Insurance Co.
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`§ Att’y Docket No.: LMIC-018-802
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`§ Customer No. 28120
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`§ Petitioner: Liberty Mutual
`§ Insurance Company
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`§
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`DECLARATION OF MARY L. O’NEIL
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`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
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`I, Mary L. O’Neil, hereby declare under penalty of perjury:
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`I. Qualifications
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`1.
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`2.
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`I am currently Principal of O’Neil Consulting Services, Inc. (OCS), an
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`independent actuarial consulting practice, which I established in 1986. I have
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`over 30 years experience as a property casualty actuary in the insurance
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`industry. My CV is attached as Ex. 1012.
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`OCS provides actuarial consulting services to a variety of clients from both the
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`regulatory and private sectors. For example, the regulatory agencies in which I
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`have provided consulting services include the North Carolina Department of
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`Insurance (for which I have completed Private Passenger Automobile rate
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`analyses for more than twenty years), the New Jersey Department of Insurance,
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`the New York Department of Insurance, the Ontario Automobile Insurance
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`Board, the Texas Office of Public Insurance Counsel, the Georgia Department
`Liberty Mutual
`Exhibit 1011
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`3.
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`4.
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`5.
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`of Insurance, the Pennsylvania Department of Insurance, and the Wyoming
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`Department of Environmental Quality.
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`Individual insurers or insurance pools for which I have provided consulting
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`services include Integrity Insurance Company in Liquidation (on behalf of
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`liquidator), Home State Holdings, Inc. in Liquidation (on behalf of liquidator),
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`Security Indemnity Insurance Company in Rehabilitation (on behalf of
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`rehabilitator), Pennsylvania Millers Mutual Insurance Company, several small
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`insurers, and several self-insurance pools.
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`The services I have performed on behalf of OCS include analysis of proposed
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`rates by insurers, analysis of required insurer reserves in conjunction with
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`regulatory examinations of insurance companies, evaluation of loss reserves for
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`purposes of reinsurance commutation, preparation of required reserve opinions
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`for individual insurers and pools, evaluation of legislation, and other special
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`projects.
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`Rate analyses have included private passenger automobile, homeowners’,
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`dwelling fire, title, and workers’ compensation. These projects have been
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`completed for individual rate filings or full industry rate filings in selected
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`states. I have also estimated the required loss and loss adjustment expense
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`reserves for a multibillion dollar multi-line insurer group, a number of insurers
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`in conjunction with financial examinations, for purposes of commutations,
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`several small insurers, and self-insurance pools. These analyses have sometimes
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`addressed the issues of mass torts or catastrophes.
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`6.
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`7.
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`My previous work experience includes insurance actuary positions at the New
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`Department of Insurance (“NJDOI”), Prudential Property and Casualty
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`Insurance Company, and General Reinsurance Corporation.
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`During my nearly two years at NJDOI, I served as the Department’s Chief
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`Actuary. My responsibilities included supervision of the actuarial aspects of
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`regulation for all lines of insurance: personal lines and commercial lines rates
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`and forms, life contracts and health rates. In addition, I supervised the life
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`valuations and supplied assistance to the Examinations Division in valuing
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`property/casualty insurer reserves. I also served as an advisor to the
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`commissioner and other department staff on all issues before the department.
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`8.
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`For the eleven years I worked at Prudential, I had a variety of responsibilities,
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`which included insurance pricing, marketing, reserving, financial analysis, and
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`various special projects. I started as an actuarial student and rose to the level of
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`Vice President and Assistant Actuary. Finally, at General Reinsurance
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`Corporation, I spent one year doing mostly statistical insurance work.
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`9.
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`10.
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`I have also worked with several law firms in a consulting and/or expert
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`capacity. My attached CV lists all the matters in which I was involved,
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`including my testimonial experience. See Ex. 1012.
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`I have the professional designations of Fellow of the Casualty Actuarial Society
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`(FCAS), Member of the American Academy of Actuaries (MAAA), Chartered
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`Life Underwriter (CLU), and Chartered Financial Consultant (ChFC). I am
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`also a member of the Casualty Actuarial Society (CAS), American Academy of
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`Actuaries (AAA), and the International Association of Insurance Receivers
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`(IAIR).
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`11. My education includes a B.S. in Mathematics from Pennsylvania State
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`University, and an M.A. in Statistics, also from Pennsylvania State University.
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`12.
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`I have been retained on behalf of Petitioner and real party in interest, Liberty
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`Mutual Insurance Company (“Petitioner” or “Liberty Mutual”), to offer
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`statements and opinions generally regarding the understanding of a “person of
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`ordinary skill in the art” in the insurance industry as it relates to Progressive
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`Casualty Insurance Company’s (“Progressive”) ‘970 Patent.
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`13.
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`I am being compensated at a rate of $500 per hour for my services, after expert
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`service fees. My compensation does not depend on the outcome of this
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`Business Method Review Petition or the pending litigation between Petitioner
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`and Progressive in the U.S. District Court for the Northern District of Ohio
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`II. Materials Considered
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`14.
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`In developing my opinions below relating to Progressive’s ‘970 Patent, I have
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`considered the following materials:
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`x Progressive’s U.S. Patent No. 6,064,970 with Reexamination
`Certificate (“the ‘970 Patent”) (Ex. 1001);
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`x PCT Publ’n No. WO90/02388 (“Pettersen”) (Ex. 1005);
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`x The 1995 Consumers Guide on Automobile Insurance (Downstate),
`published in 1988 (“New York Guide”) (Ex. 1006); and
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`x “Disparate Impact and Unfairly Discriminatory Insurance Rates”,
`Michael J. Miller, Casualty Actuarial Society E-Forum, Winter 2009
`(Ex. 1013).
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`III. The ‘970 Patent
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`A. Level of Ordinary Skill for the ‘970 Patent
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`15.
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`I have read Progressive’s ‘970 Patent, which I understand was filed on August
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`17, 1998 and issued on May 16, 2000. I also have been informed that the ‘970
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`Patent claims a priority date to a related patent of January 29, 1996. Generally,
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`the patent relates to determining a cost of insurance based on monitored
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`vehicle telematics data.
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`16.
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`I have been informed that the factors that may be considered in determining
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`the ordinary level of skill in the art include: (1) the levels of education and
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`experience of persons working in the field; (2) the types of problems
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`encountered in the field; and (3) the sophistication of the technology. I
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`understand that a person of ordinary skill in the art is not a specific real
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`individual, but rather a hypothetical individual having the qualities reflected by
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`the factors above.
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`17.
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`The field of art relevant to the ‘970 patent is insurance, and more particularly
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`determining a cost of vehicle insurance based on telematics data. In my
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`opinion, a person of ordinary skill in the aspects of insurance pricing pertinent
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`to the ‘970 patent (apart from the vehicle telematics aspects) would be an
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`individual with at least a B.S. in Mathematics, or equivalent, with at least 5 years
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`of experience in the insurance industry setting premiums for auto insurance,
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`and, as a minimum, as an associate or near-associate in the Casualty Actuarial
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`Society (e.g., passed at least 4-5 actuarial exams, including the examination on
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`ratemaking).
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`18.
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`For purposes of this Declaration, unless otherwise noted, my statements and
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`opinions below, such as those regarding my experience and the understanding
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`of a person of ordinary skill in the art generally (and specifically related to the
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`references I consulted herein), reflect the knowledge that existed as of January
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`1996, at the latest.
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`B. Opinions Regarding Setting Costs of Insurance
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`19.
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`Insurance is a financial product or service in which an insurer agrees to assume
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`certain financial risks – in particular, the risk that insured losses will occur – in
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`return for a premium payment from a customer. The contract specifying the
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`terms of this agreement is commonly referred to as an “insurance policy.” In
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`determining what premium to charge a customer (or “policyholder”) for
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`insuring a particular risk before the insurer has had any experience with that
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`policyholder, an insurer considers a number of factors. For example, in
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`determining a premium for a new policy, the insurer considers the prior claim
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`history (frequency and severity of claim costs) of the prospective policyholder,
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`as well as the prospective policyholder’s requested coverage amounts, including
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`policy limits (for individual events and overall coverage) and the deductibles
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`that may be subtracted when an insurer pays a customer for an insured loss.
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`The insurer attempts to evaluate (in a process referred to as underwriting) the
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`risk that the prospective policyholder will incur insured losses during the
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`prospective policy period based on a variety of factors, including information
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`about the prospective policyholder. This underwriting process yields cost
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`information – in particular, information pertinent to expected cost of a loss.
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`For automobile insurance, this information would include, for example,
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`information about the insured driver and information about the insured
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`vehicle. For renewal pricing, an insurer is also able to consider its own
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`historical loss experience with that customer.
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`20.
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`In setting insurance prices (i.e., premiums), insurance providers are subject to
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`regulation by state authorities. Among other things, those authorities impose
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`requirements on how providers may set the rates they charge to policyholders –
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`in part to ensure that insurers are not unfairly discriminating among
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`policyholders in setting these prices. These state-imposed non-discrimination
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`requirements apply across various different types of insurance.
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`21.
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`Because of these non-discrimination requirements (and because they are also
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`useful as a practical matter) it is necessary for insurers to create and apply
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`actuarial classes – roughly speaking, groups sharing similar risk characteristics –
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`in setting insurance rates so that their rates will meet the statutory standard of
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`being “not unfairly discriminatory” and, hence, be approved. In the context of
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`automobile insurance, for example, insurers generate actuarial classes of
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`insurance that group operators or vehicles having a similar risk characteristic
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`and base insurance rates on these classes, in part because this is required in
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`order to produce insurance rates that meet the statutory standard of not being
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`unfairly discriminatory. Ex. 1006, NY Guide at 14. This practice of generating
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`actuarial classes arose out of the rating law standards adopted by most states
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`beginning in 1946 based on the NAIC Model Law from 1946 , which required
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`that rates should not be unfairly discriminatory. See Ex. 1013, Disparate Impact
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`and Unfairly Discriminatory Insurance Rates,” Michael J. Miller, Casualty
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`Actuarial Society E-Forum, Winter 2009, at 279-280 and 283.
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`22. As noted above, in setting the initial price or premium to be charged, the
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`insurer considers, among other things, policy limits and deductibles for the new
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`policy. In addition to this information being necessary for the insurer’s overall
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`risk calculation in determining the premium for a prospective policyholder,
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`this practice of generating and applying a collection of requested information,
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`such as policy limits and deductibles, to determine a base cost of insurance,
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`such as vehicle insurance, is also required in order to produce insurance rates
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`which meet statutory non-discrimination standards. Ex. 1006, NY Guide at 14.
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`Again, the practice of generating an insured profile of rating characteristics can
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`be traced back to the rating law standards adopted by most states beginning in
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`1946, based on the NAIC Model Law from 1946 which required that rates
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`should not be unfairly discriminatory. Ex. 1013, Disparate Impact and Unfairly
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`Discriminatory Insurance Rates at 279-80, 83.
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`C. Opinions Regarding the Pettersen Reference
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`23.
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`I have read Pettersen, which discloses,1 among other things, a way of recording
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`the driving pattern of a vehicle using an in-vehicle device that measures speed
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`and acceleration to evaluate the driving behavior. Ex. 1005, Pettersen at 1-2.
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`Pettersen explains that such evaluation of driving behavior would be used by an
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`insurance company to “set a more fair bonus arrangement” for insurance
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`policyholders. Id. at 1.
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`24.
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`In my opinion, a person of ordinary skill in the art would have understood
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`Pettersen’s disclosure of a “more fair bonus arrangement” to describe
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`rewarding a policyholder for past driving performance. As part of this
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`arrangement, it would have been understood that the policyholder’s insurance
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`policy premium varies retrospectively based on the policyholder’s driving
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`statistics (from the vehicle telematics data). And, as mentioned above,
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`calculating an insurance policy premium necessarily involves determining limits
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`and deductibles for a policy as well as applying actuarial classes, due to, for
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`example, state regulations. Thus, a person of ordinary skill would have
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`understood that Pettersen necessarily discloses that an insurance company
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`would use actuarial classes based on the policyholder’s vehicle data, as well as
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`the limits, deductibles, and other factors from the policyholder’s insurance
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`1 As noted in paragraph 18, supra, the discussions herein all present my opinion of
`what a person of ordinary skill in the art would have understood as of January 1996.
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`Executed this 14th day of September,
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`State College,
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`3DJH
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