Will Insurance Rating
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1 WROTE an article on insurance which appeared in "The Commercial Motor" dated October 21, 1949. 1 gave some examples of premium rates and referred to
the factors according to which they were assessed. I pointed out that these factors were the carrying capacity of the vehicle, the district in which it was based and the type of licence There are three classes of district: "A," country areas or places not within five miles of a town with a population exceeding 30,000; "B," industrial towns, excluding London and Glasgow, and usually with a population of 50,000 or more; "C," London and Glasgow.
This problem of assessing rates for the insurance of goods vehicles has been recently the subject of discussion by an advanced study group of the Insurance Institute of London.
The discussion turned mainly on the three factors just described, and there seemed to be a feeling among those concerned that some other method of assessing rates might be more suitable. The actual rates charged did not enter into the discussion. I imagine that matter would be outside the terms of reference of a group of this kind.
The ideal basis for rating for goods vehicles would be, it was suggested, according to the extent of use, combined with the usual district classification and other factors normally taken into account. Various methods of assessing the extent of use were discussed as being a possible basis for assessment of premiums. The most obvious, according to these experts, that of mileage run by the vehicles, was turned down because there was no reliable method of checking the distance run. One suggestion was that the extent of use should be measured according to the number of petrol coupons issued. This struck me as being an idea which would cause hilarity in certain circles. This suggestion was also turned down for the reason that it would mean more clerical work and could apply only while petrol rationing was in force.
Cut Rates: Cut Premiums
Another suggestion was that, so far as hauliers were concerned, the extent of use should be measured by turnover. The difficulty here was that it would be difficult to fix a suitable standard owing to the variety of goods carried and differences in prices charged for the work. To me it seemed that if these suggestions came to anything there would be an added inducement for a haulier to cut rates as it would result in a diminution of his insurance premiums.
Rating on the basis of wages paid was also suggested but, as wage levels vary, it might not be possible to find a suitable standard rate and difficulty might also be experienced in obtaining reliable returns of 'wages expenditure attaching solely to transport by the insurer's vehicles. Ftirthermore, none of these systems would be well received 102
by policyholders and agents because of the additional wOrK to effect premium adjustments. In the end, or so it seemed to me, the deliberations of this body, so far as this item was concerned, led nowhere. It apparently came to the conclusion that as a basis in assessing premiums, there was nothing more suitable than the methods already mentioned.
In considering these factors, however, there were certain
criticisms. Several members objected to the method of rating according to carrying capacity because they considered that declared carrying capacity figures were inclined to be misleading. It has been possible for makers to bring a vehicle within a lower rating group by virtue of its general description. as, for example, a vehicle may be described as a 3-tonner, whereas its maximum carrying capacity is actually 41 tons.
There appeared to be a general impression that the risk increased according to the weight involved, and it was therefore suggested that the weight of the vehicle should also be taken into account by rating according to the gross laden weight.
I am at a loss here, for if this principle be adopted, it seems to me that the insurance companies will be no better off than they are at present. They take the carrying capacity at present, and they have already indicated that difficulties have arisen in determining what that carrying capacity is in any particular case. According to the new plan, they will merely add the unladen weight, as recorded in the registration book, to the carrying capacity, which will, of cane. remain as difficult to determine.
Other Factors Included
Notwithstanding that difficulty, there still seems to be a feeling that it would be better all round if the unladen weight were taken into consideration. The use of carrying capacity as a factor in rating tends to give the same premium for entirely different classes of vehicle, whereas, possibly, more.differential rating can be obtained if the factor included unladen weight. There were cases in which loads were bulky but of comparatively low weight. Another suggested advantage of working according to laden weight was that it would automatically tend to take into account other features such as engine power, length of vehicle and weight of load. To help in consideration of this aspect, an analysis of commercial-vehicle specifications was made in order to ascertain the number of vehicles by makes which can be put into groups according to gross weight, engine power and carrying capacity. In making their analysis, the members of the group discovered certain interesting facts. The schedule commenced
• with a gross weight of 15 cwt. and was built up with progressive increases of 5 cwt. for each group. Against each grouo were shown the make and nominal carrying capacity " of the various vehicles having the same gross laden weight. 'I Ina schedule showed that there was a considerable variation. in the gross weight of light vans, but that all of them fell'below the gross weight of 2 tons. The groups between 2 tons and 5 tons gross we;ght contain a comparatively small number of types. One vehicle, however, aroused comment. It was a lorry which had a carrying capacity of 2 tons, abut by reason of light-alloy body construction a gross weight of only h tons. This vehicle was regarded as exceptional. • Beyond 5 tons gross weight, there appeared to be some 'automatic grouping, and it became clear that most vehicles with a nominal carrying capaclty of 3 tons had a gross weight of more than 5 tons but not exceeding 6 tons. Most vehicles with a nominal capacity of 4 tons were between 6 and 71 tons gross weight. Vehicles with carrying capacities of 5 and 6 tons were between 71 arid 91 tons grosa weight. There was a suggestion that gross weight might differ materially between oiland petrof-engined vehicles, but the highest difference in weight irk any one case appears to be 5. cwt., and this can therefore be disregarded for rating . purposes.
• The engine power total showed that power variation was so small in any one group of vehicles with the same carrying capacity that no useful purpose• would be served by introducing this as a factor in rating:
The upshot of these deliberations again appeared to be that no practical method of rating premiums other than that in force was likely to be discovered at present, and the conclusion was that no advantage would be obtained by pressing for the unladen weight of a vehicle to be taken into account and that it should be possible to continue the existing system of rating according to carrying capacity. There was a prop 'sal that additional information might be asked for on the proposal form so that in addition to asking in the schedule for the maker's maximum carrying Capacity,. there shouli also be included these twoquestions:—
(1) What additions or alterations have been made to the maker's standard chassis andtor body?
(2) What is the maximum weight of any load to be carried?
Closing Up of Classes Discussing the more practical aspects of the present system of rating, it was apparent that in connection with vehicles of a carrying capacity up to 1 ton there was little difference in the claims cost, and for practical purposes it hardly seemed necessary to have any division below I ton. Sufficient information was not available in respect of the higher carrying capacities to indicate whether any closing up of classes could be effected, but it was suggested that consideration should be given to the reduction of the number• of divisions in carrying capacity. In particular it was suggested that there was really no distinction necessary.
; 'between vehicles of 9 and lb tons carrying capacity.
Having devoted so much consideration to the one factor in rating, the group next turned its attention to the second
factor, that of districts. It was of the opinion that the present .method. of placing certain towns in specified districts according to population of the town was . unsatisfactory. It did not give accurate rating according to the density of the population and the area in which the vehicle was operating. There were numerous cases where vehicles were garaged just outside a large town but secured country rates by reason of the postal address., Most of these. vehicles were used extensively in town and should therefore be rated accordingly. It was agreed that differential rating should be 'made accordingato district, but it was recommended that an attempt he made to bring the-commercial-vehicle rating districts into line with
those adopted for private-car insurance.. ,
There was general agreement, on the wisdom of continuing the present scheduling of rates accordin"g to whether the operator was an A-. Bor Clicerisee. Apart from this question, however, certain traders–for example, sand, and gravel merchants, demolition contractors and cattle dealers —may warrant increased rating in view of the special hazards
attached to their particular occupations.. .
The next subject for discussion was that of liability to
non-fare-paying passengers. The group . fell that, as a matter of public policy, some attempt Should be made to arrange that commercial-vehicle policies should cover the passenger risk automatically. This would not only safegliard the vehicle owners in respect of unfortunate omissions to arrange passenger cover, but would also reduce the number of cases where the claimnI was without satisfactory redress. It was estimated that the inclusion of this cover in all commercial-vehicle policies would mean Only.', a small increase in premium.
Trailer Premiums Low
The opinion was expreaised that the present additional premiums for trailers used in .conjunction with commercial vehicles were too low. Most companiescharge a' flat additional premium according to the type of licence applying to the prime mover, but it is contended that the premium payable should be related to the carrying capacity of the trailer and that. a schedule of premiums should be drawn up accordingly. No difficulty would be exPerienced in applying the suggested schedule of rates to the insurance of specified trailers and, so far as unspecified trailers are concerned, the premium could be based on the estimated maximum carrying capacity.
The group seemed to be a little perturbed at the extra risk that was being carried by some Companies in respect of articulated vehicles, in particular those which combine low carrying capacity with a long overall length, such' as. the types used for the .carriage of aircraft parts. It is considered that this type of vehicle calls for special rating, and that a suitable flat premium should be quoted irrespective of district.
The driver is an important factor from the point of view of insuring the vehicle he drives. The group gave consideration to the possibility of taking the driver's age and .reputation into account as a 'satisfactory rating factor, but came to the conclusion that it was not a practical proposition. In discussing the matter, however, it was agreed that careful consideration should be -given to the possibility of obtaining, on the commercial-vehicle proposal form, further information in respect of drivers.
It was pointed out that the present commercial-vehicle form may provide the claims experience of the proposer, but it is rarely that proper information •concerning the claims experience and driving convictions; of individual drivers is obtained. Provision for ascerta•ning information of this sort would also enable insureas to pay more attention to the imposition of special terms for young drivers. S.T.R.