How ISO develops the Rating Symbols
Throughout the 1990s, the number of light trucks and SUVs on the road increased considerably. Today, those types of vehicles are a significant portion of the total number on the road. The changing mix of vehicles, along with the rising concern about the effects that larger vehicles cause when they collide with smaller ones, led to the development of the Liability and PIP/Medical Payments Vehicle Rating Plan.
ISO developed the plan by analyzing the correlation between a vehicle’s size, construction, and related characteristics, and a vehicle’s insurance loss experience for liability and PIP/medical payments coverages.
ISO assigns Symbols based on two factors—the actual loss experience for a vehicle series, and a predicted loss-ratio relativity for the series.
First, ISO looks at the actual loss experience of a particular vehicle and assigns a loss ratio relativity to each vehicle series. Then, we supplement the loss ratio with a predicted relativity based on the results from a predictive model. The model uses a number of factors, such as curb weight and chassis type, to calculate the predicted relativity based on the physical characteristics of the vehicle series. Based on that analysis, ISO assigns each vehicle series two Symbols—one for Liability and another for PIP/Medical Payments.
After ISO assigns the preliminary Symbols, we examine actual loss experience for that vehicle and make adjustments—both upward and downward—to revise the Rating Symbols when necessary. If the vehicle’s loss experience is consistent with that anticipated by the current Symbol, ISO does not adjust the symbol. If the loss experience is better than that anticipated by the current Symbol, ISO decreases the Symbol, resulting in a lower cost to insure. If the loss experience is worse than that anticipated by the current Symbol, ISO increases the Symbol, resulting in a higher cost to insure.
By adjusting the Symbol based on actual loss experience, ISO’s Symbols promote equity.