Actuarial Notes

Standard Filing

By Financial Services Regulatory Authority of Ontario · 2019 · AU0126APP

FSRA Approach guidance on the Standard Filing, its modified "file and use" route for private passenger automobile rate and risk classification changes in Ontario. It communicates FSRA's principles, processes and practices for applications for approval of private passenger automobile insurance rates and risk classification systems under the Automobile Insurance Rate Stabilization Act, 2003, and applies to insurers that elect to use the Standard Filing process. It took effect on October 9, 2019 (previously listed as No. AA-001-19), and FSRA lists it as active.

Purpose

  • The Approach communicates FSRA's principles, processes and practices for applications for approval of private passenger automobile insurance rates and risk classification systems under the Automobile Insurance Rate Stabilization Act, 2003.

Scope

  • It applies to insurance companies writing private passenger automobile insurance that elect to use FSRA's Standard Filing process.

Rationale and Context

  • FSRA named streamlining automobile insurance rate regulation a priority for 2019-20; the Approach implements principles-based changes establishing a modified "file and use" approach to reduce regulatory burden.

Principles

  • Automobile Insurance Rate Regulation Principles
    • Consumer Focus, Sustainability, Transparency & Disclosure, Simplicity, Responsiveness and Innovation — developed with the Rate Regulation Advisory Group and detailed in Appendix 1.

Process and Practices

  • Standard filing eligibility
    • The proposed overall rate level change is no more than 5.0%, calculated on a capped and uncapped basis.
    • No customer sees a renewal increase of more than 15.0% on a static book; insurers may use capping to meet this.
    • FSRA has approved a Major Filing within the three years before the Standard Filing's submission.
    • Approved Standard Filings may not combine to more than 5.0% overall, or more than 15.0% to any one customer at renewal, in any 12-month period.
  • Permitted and prohibited changes in standard filings
    • Permitted: base rates, differentials, rating variables, rating rules, discounts, surcharges, a UBI program, the CLEAR vehicle rate group table, fees, Optional Accident Benefit rates, algorithm changes in support, and capping; new variables, rules and surcharges must already be approved for use in Ontario.
    • Prohibited: changing territorial definitions and introducing new rating models (e.g. generalized linear models, generalized additive models, decision trees, machine learning).
  • Submitting a standard filing
    • Filings go through ARCTICS, FSRA's Automated Rates and Classification Technical Information Communication System.
  • Submitting filing contents
    • Cover letter; Summary of Information (Appendix A); Certificates of the Officer/Designate and of the Actuary (B1, B2); rating algorithm; base rates, differentials, discounts and surcharges; rating rules; final rates; dependent categories; rating examples (C); fees (D); Optional Accident Benefits (E); and an optional filing checklist (F).
  • Service standards and approval process
    • FSRA gives notice within 5 business days that a filing is eligible and complete, and decides within 25 business days; a filing with no decision by then is considered approved.
    • FSRA keeps full discretion: it may require a Major Filing instead, or reject a Standard Filing, before the deemed approval date, with its rationale in writing.

Effective Date and Future Review

  • Effective October 9, 2019; the latest date for FSRA to initiate a review is October 9, 2024.

Appendices and References

  • Appendices
    • Appendix 1: Rate Regulation Principles
  • References
    • ARCTICS; Private Passenger Automobile Filing Guidelines – Major

About this Guidance

  • Approach documents describe FSRA's internal principles, processes and practices for supervisory action and the application of CEO discretion; they do not, of themselves, create compliance obligations.

Appendix 1: Rate Regulation Principles

  • 1 Consumer Focus — risk-based, competition and choice, accountable, and fair: rating models free of bias and unfair discrimination.
  • 2 Sustainability — adequate rates with claims costs and expenses effectively managed, and evidence-based, actuarially sound pricing.
  • 3 Transparency & Disclosure — open (rating models, including machine learning and AI, subject to governance and available for review) and comprehensible.
  • 4 Simplicity — low burden, with oversight focused on outputs (price) over inputs, and consistent decisions.
  • 5 Responsiveness — collaborative and timely.
  • 6 Innovation — a modern framework that permits experimentation benefiting consumers.

Related readings

  • FSRA Risk Management — FSRA's operational risk management guidance for rating and underwriting

Sources