Analysis Finds Loss Potential Varies by Vehicle
JERSEY CITY, N.J., April 1, 2004 — Insurance Services Office, Inc. (ISO) has introduced a personal auto rating program carriers can use to tailor the cost of insurance for bodily injury and property damage liability and no-fault/medical payments coverage based on a car's make and model. This new program will help insurance companies more accurately rate individual personal auto risks based on each vehicle's loss potential.
ISO's new symbols program has been filed for regulatory approval as an alternate rating program in all states except Massachusetts, North Carolina and Hawaii, which have individual state rating programs, and California, Puerto Rico and Texas, where the program will be filed at a later date. The program has already been accepted for carriers' use in 30 jurisdictions.
Based on an extensive analysis of personal auto loss experience, ISO's new rating plan provides surcharges of up to 25 percent and discounts of up to 20 percent against the insurance rates of nearly 300 makes and models of vehicles. As a credit and surcharge program, it is designed to be revenue neutral overall, although an individual policyholder's premiums could increase or decrease based on the make and model of vehicle driven. ISO will regularly update the program to reflect loss experience data every other year.
ISO's research was prompted by the growing popularity of light trucks, including pickups, sport utility vehicles (SUVs) and vans, and the effect a changing mix of vehicles might be having on insurance losses. SUVs are the fastest-growing category of passenger vehicles. SUVs accounted for less than 7 percent of all noncommercial new vehicles sold in 1990. By 2002, one in every four new vehicles sold was an SUV.
In addition to its analysis of each individual make and model's loss experience, ISO examined the correlation between vehicle size, body construction (frame versus unibody) and other related characteristics, such as vehicle length, width, height, weight, wheel base and horsepower, and the resulting insurance loss experience for liability and no-fault/medical payments coverages.
"Our analysis showed size alone is not a reliable predictor of a vehicle's potential for liability and no-fault/medical payments coverage losses," said Kevin B. Thompson, senior vice president in charge of ISO's Insurance Services Department.
"Our findings run counter to perceptions that all SUVs, because of their size and design, inflict greater damage and incur greater liability losses in collisions with other vehicles. A number of SUV models had better loss experience than sedans and other smaller vehicles," said Thompson.
"This is not an SUV surcharge program. It is not a light-truck surcharge program. It is a rating tool insurers can use to achieve more accurate, risk-specific pricing," said Thompson. "It is a vehicle rating plan to ensure everyone pays a fair share for liability insurance based on scientific and empirical analyses of a credible sample of losses," said the ISO executive.
The new vehicle rating plan contains two rating symbols for each make and model vehicle — one for bodily injury and property damage liability, the other for no-fault/medical payments coverages. Liability insurance covers the policyholder for damages caused to others. No-fault or Personal Injury Protection (PIP) coverage pays medical and related expenses for an insured and the insured's family in the 13 states that have no-fault auto insurance laws.
The new program is an alternative to the standard ISO personal vehicle manual classification and rating system. Carriers adopting the plan will file their rate modifications and effective dates with regulators.
Thompson said companies will be able to use the program "as is" or by adjusting the surcharge and discount factors. Because incorporating this new symbols plan into company policy rating and issuance systems is a complex process, policyholders are not likely to see rate changes right away, he said.
Details about the new program are contained in an ISO Circular distributed to insurance companies that purchase ISO's personal automobile rules service. A new Liability and No-Fault/Medical Payments Coverage Symbols manual containing the symbol assignment for each vehicle make and model is also available to ISO customers who have elected to receive it. Nonparticipating ISO carriers interested in receiving the new manual should contact ISO.
For carriers choosing the new alternate rating program, ISO has introduced a new VINMASTERTM automated rating product for liability and no-fault/medical payments insurance. Like the VINMASTER product for comprehensive and collision coverages, the new VINMASTER database delivers the appropriate rating information for every make and model based on 10-digit vehicle identification numbers.
ISO is a leading source of information, products and services related to property and liability risk. For a broad spectrum of commercial and personal lines of insurance, ISO provides data, analytical and decision-support products; consulting; data processing; and technical, statistical and actuarial services. ISO field services include on-site rating and underwriting services and the evaluation of community loss-mitigation efforts. ISO's products help customers with sales and prospecting, underwriting, rating and quoting, customer management, policy administration, product development, claims administration and fraud detection. ISO's AIR Worldwide subsidiary provides technologies to assess and manage natural and man-made extreme-event risk. Through its ISO Claims Services, Inc. (iiX unit) and Intellicorp subsidiaries, ISO provides motor vehicle reports and criminal-records information and through its AscendantOne unit delivers rating, quoting and policy-administration solutions. Solutions from ISO's Quality Planning Corporation (QPC) subsidiary enable insurers to identify auto premium leakage and recover lost premium. In the United States and around the world, ISO serves insurers, reinsurers, agents, brokers, self-insureds, risk managers, insurance regulators and other government agencies.