Webinar on Territories Test and Learn Environment (TLE)

Saad Opal:
00:06    Hello, everyone, and welcome to our webinar on Territories: Test and Learn Environment. My name is Saad Opal and I'm a Senior Manager, Auto Supervision at FSRA. Thank you for taking the time to join us today. I hope you are as excited about this initiative as we are. This hour-long session today will be focused on key points for Territory TLE and expectations when participating in the TLE. Before we begin, land acknowledgments are important as they recognize the injustice and genocide of indigenous people in Canada, which spans centuries. To understand the importance of land acknowledgments, we need to recognize the historical traumas suffered by the indigenous peoples and the lasting effects they have today. Land acknowledgments are a traditional practice shared amongst many indigenous nations to recognize the land and territories they are visiting. As an agent of the Crown, we must be committed to the recommendation of the Truth and Reconciliation Commission of Canada's Calls to Action.

Saad Opal:
01:03    This land acknowledgment is a small way to demonstrate respect towards indigenous peoples and their land, which we occupy. That being said, we acknowledge that the land we are meeting on is traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabe and the Chippewa, the Haudenosaunee, and the Wendat peoples, and is now home to many diverse First Nations, including the Inuit and the Métis peoples. We acknowledge that Toronto is covered by Treaty 13 with the Mississaugas of the Credit and the Williams Treaties signed with multiple Mississaugas and the Chippewa bands. We are thankful to the First Nations, Métis, and the Inuit peoples who have cared for these territories since time immemorial and who continue to contribute to the strength of Ontario and to all communities across the province. Now, some ground rules. As you join the webinar, you will notice your camera and mic have been turned off.

Saad Opal:
02:01    There will be a Q&A right after the presentations. But keep in mind, you don't have to wait till the end of the presentation to start posting in the Q&A. You can start posting questions as you go through the presentation. The questions will be selected at random. If any questions are not answered during the Q&A, they will be addressed later through a frequently asked questions that we will share. I'm also joined today by my colleagues Jonas Schwab-Pflug and Cong Wang, but I would like to start off with introducing our EVP of Auto Insurance Products and Policy, Glen Padassery, for some opening remarks. Over to you, Glen.

Glen Padassery:
02:38    Thanks, Saad. And just wanted to take a quick moment to thank you all and welcome you to our first technical webinar on the Auto Territory Test & Learn. I appreciate you taking the time to join, listen, and ask questions to better understand how you might participate in our extremely ambitious pilot. At FSRA, we value collaboration and transparency, so we want to make sure you're aware of how this work fits into our overall rating, underwriting, and reform strategy. This really marks a great intersection of two important roles at FSRA, working with the auto insurance sector on producing rates that are just and reasonable, and supporting innovation in the marketplace. Please don't hesitate to reach out to either myself or members of the amazing team I get to work with to help us define what mutual success looks like. I won't take up much more of your time. I just wanted to really say hi. Thanks. And now I'm happy to hand this over to Jonas. Jonas, over to you.

Jonas Schwab Pflug:
03:36    Thanks very much, Glen. Hi, everyone. So again, we're here to discuss territory rating and the associated FSRA Test and Learn Environment, or TLE. Still, we'd like to begin by noting the broader context, our strategy to reform the regulation of rates and underwriting. Our strategy is based on three pillars, fair rating and underwriting, effective regulation, and supporting informed consumer decision-making. These pillars and associated desired outcomes are also the aims of our work on territory rating. Specifically, we want consumers to have access to fair auto insurance and protections against rating and underwriting misconduct. We want a dynamic marketplace that prioritizes value for money and choice, and we want consumers to have the information they need to make informed decisions. Without getting ahead of myself, we hope you see these pillars and desired outcomes reflected in the filing specifications that Cong will be presenting shortly. These are our goals, and we hope they're your goals too.

Jonas Schwab Pflug:
04:35    Before moving on, I'll add that the strategy is holistic and contemplates all of the tools at FSRA's disposal. Thus, our territory rating TLE sits alongside planned guidance on risk-based supervision for rating and underwriting, measures to enhance transparency, and a host of process improvements, many delivered in the past few years. Next slide, please. Most of you probably know why we're here today. But to make sure we're all on the same page, we recently completed a review of territory rating. You'll find that review linked in the annual review guidance that we released on December 23rd, 2023, in addition to some early details respecting our plan. The review concluded that the current approach limits rating accuracy and therefore makes rates less fair. We think that greater flexibility should mean more consumers paying the right price, a price that better reflects their risk. And of course, in the background of this work is a public perception that the current system is unfair and that some Ontarians are more adversely affected than others.

Jonas Schwab Pflug:
05:35    Recognizing that things will never be perfect, we do intend to make things better, fair for consumers. With that objective in mind and in keeping with the direction of our broader strategy, we announced the TLE for territory rating on January 3rd, 2024. It's open for applications right now. Participating insurers will no longer be required to adhere to the current territory rating bulletin. At the same time, the TLE will help us proactively monitor the impact of innovation in the area of territory rating. Also importantly, it'll help inform our broader rate and underwriting regulation reform strategy, particularly guidance on risk-based supervision, covering a range of topics, including fairness, operational risk management, rate filing, and accreditation. But again, we're here to talk about Territories TLE and more specifically, what it means for you, how you can get in on the action, what we're looking for in terms of filing, and so on. To that end, I'm pleased to turn things over to Cong Wang, our chief actuary.

Cong Wang:
6:39    Thank you, Jonas. Hi, good morning, everyone. This is Cong Wang. I'm the Chief Actuary at FSRA responsible for auto insurance operational risk supervision. Thank you for providing me this opportunity to provide you this information session on Territory TLE filing specifications. For the purpose of the Territory TLE, all territory-related constraints that currently contained in the technical notes, section 17 will be removed in order to provide insurance companies more flexibilities in territory rating to increase the rating accuracy, reduce subsidization, foster innovation, and market competition. Some of those constraints that we currently have includes 2,500 vehicle as a minimum exposure requirement, maximum 55 territories in Ontario, 10 territories in the city of Toronto, capping large losses, contiguous requirements - adjoining territory cannot be varied more than 10% in rating differentials - as well as the common territory definition requirements.

Cong Wang:
7:47    There are several things that I really want to mention here for clarification purpose. What does it mean to the insurance companies when building a territory rating model when those prescriptive constraints are removed in the Territory TLE filing application? First of all, credibility. While the prescriptive threshold for credibility, 2,500 vehicle as a minimum exposure requirement, will be removed, it does not mean credibility is no longer required to be considered in insurance company's territory rating model. While credibility and homogeneity may be considered as a rating input in the past, stability of the rates of the time is the outcome the regulator is focusing on in the future. While insurance companies are expected to use their own data to the extent credible, they can always rely on external data to further enhance the credibility of the data and provide additional insight.

Cong Wang:
8:46    One of the external data resources could be GISA Stop Plan exhibits, Auto 1085 Ontario, the actual loss ratio exhibit at individual efficacy level, which was made available to the industry since 2018. Secondly, I want to talk about the rating differential limitation that was in the previous territory constraints, but it no longer will be required to be considered in the Territory TLE application. FSRA will no longer requiring insurance companies to limit their territory differentials for adjoining territories within 10% range. It provides insurance companies with greater flexibility to match their premium with risk level and allow for additional rating accuracy. While the previous limiting requirements is no longer considered, the smoothing transition of the rates between adjacent territories will be the outcome that FSRA will focus on in the Territory TLE filing application.

Cong Wang:
9:50    Lastly, I want to talk about the contiguous requirements. When the previous contiguous requirements is now removed, if loss experience indicates that two noncontiguous geographic areas should be rated the same, it's reasonable for the insurance company to consider including them in a single territory for the purpose of rating. Whether call it one geographic area is 99A and call the other geographic area 99B, or combining those nongeographic areas altogether in a single territory and call it Territory 99. FSRA does not prescribe any particular approach or method and insurance companies should be able to make their own decision, but accountable for their business decision and by presenting the data, methodology, rationale, proposal in TLE application for FSRA to review.

Cong Wang:
10:48    When insurance companies are building their new territory rating model with flexibility and innovation, we're all excited that the prescriptive requirements are now removed, but we do encourage insurance companies to keep in mind that FSRA's regulatory review of Territory TLE filing will be outcome-focused, and we are going to assess what will be the consumer outcome. We also encourage insurance company to review the experts' territory reports, where the part one of the report was published as part of the annual review guidance in 2022, December, and part two of the report was published as part of the annual review guidance in December 2023. The expert report not only includes their recommendation to FSRA, but also the rationale, insight based on their expertise, their advanced modeling, and their technical experience.

Cong Wang:
11:43    Effective January 3, 2024, insurers will be able to submit their Territory TLE application as a major filing in ARCTICS. FSRA has published its territory filing specifications on FSRA website and insurance companies are expected to submit a major filing application to propose any change for territory rating for GTA for PPA category. At this moment, we define GTA as, these are Star Plan Territory 704, 710, and 717. We understand that it's not a perfect definition at this moment, but we'll use it as a starting point. With understanding insurance company, we have some challenges, especially in the geographic areas at the boundaries. You may not be able to find a clear-cut, but we expect insurance companies to make reasonable judgments and adjustment to minimize the territory definition and rating change outside of the 704, 710, and 717.

Cong Wang:
12:51    Focusing on GTA allows FSRA to use TLE as a tool to receive proposals from insurers to better understand innovative methods for territory design and also help FSRA to identify any potential unforeseen issues and allow FISRA to develop mitigation strategies. For effective and efficient review of the Territory TLE rate filing applications, we expect the insurance company to propose changes to territory within GTA only with a neutral overall rate level without any other classification changes in the Territory TLE rate filing application. Having said that, FSRA does not anticipate reviewing the overall rate level indication during the Territory TLE rate filing review process.

Cong Wang:
13:40    Insurers will no longer need to follow prescriptive territory requirements in the existing major filing section, 4K. And instead, we expect the insurance company to provide us overall data and modeling technique descriptions, prescriptive model results, evaluation of the proposed territory impacts, evaluation of the proposed change to fairness. Appendix 4KA to 4KF in the territory filing specification replace the current specifications found in the current major filing guidance. They will enable FSRA to review and evaluate if the desired fairness outcome has been achieved as a result of the territory rating changes. Some of the filing specifications are worth to mention here. First of all, Appendix 4KB require insurance company to submit vehicle level data with policy effective dates and all rating variables used in auto insurance rating algorithm in a spreadsheet format.

Cong Wang:
14:46    This enables FSRA to assess and evaluate rating impact not only at individual insurer level, but also at various risk segment level and at industry aggregate level by various timeframe. In addition, Appendix 4KC, requiring insurance company to demonstrate its evaluation and mitigation of potential bias and discrimination in territory model. In the previous legacy framework, insurance companies pricing algorithms were pretty straightforward with a common understanding that there are certain rating elements we should never consider in the pricing algorithm to avoid intentional bias. However, in today's landscape, with insurance companies developing sophisticated rating algorithms and models and also collecting extensive amount of data, even though prohibited rating variables are not directly used in the rating model, some of those prohibited rating variables predicted power may indirectly being picked up already in the final results.

Cong Wang:
15:54    This resolved the questions of potential proxy discrimination and unintentional bias. Are there any specific groups being treated more negatively than others? Has insurance companies actively assessed the potential proxy discrimination? While this was not a concern in the legacy framework, unintentional bias and proxy discrimination has become a pressing issue that FSRA must deal with now. FSRA is not going to prescribe any particular approach or method that insurance company must use or follow in order to demonstrate the desired outcome has been achieved. And instead, we leave it to the insurance company to explore and demonstrate to FSRA the desired consumer fairness outcome will be able to achieved.

Cong Wang:
16:52    There are certain entry requirements for Territory TLE. And FSRA's expectation on insurance accountability for managing their customer experience, enhanced and transparent communication, as well as assessment of the proposed change for fairness are outlined in Appendix 4KE of the Territory TLE filing specification document. Insurance companies are accountable for managing their customer experience by having a comprehensive understanding of the policyholders who may be adversely impacted by territory rating changes. Insurance companies are also expected to demonstrate their developed strategy, plan, and mechanism to support the consumer experience during the transition. Example of some of the mechanisms could be capping, rebating, and waiving midterm cancellation fees.

Cong Wang:
17:49    Insurance companies are also expected to demonstrate to FSRA their delivery on the enhanced and transparent communication with the consumers. For example, extending renewable notice period to the impacted policyholders such that where they have more time to shop around. It is worth mentioning that capping is commonly used in the auto insurance rating to manage dislocations and consumer experience. It is FSRA's expectation that as part of the Territory TLE that the use of the capping, including but not limited to capping threshold, capping, and capped premiums, the capping rules need to be transparently communicated to the policyholders in plain language.

Cong Wang:
18:39    This is one of the key consideration in FSRA's approval decision of territory rating changes in the TLE application and the approval decision of the use of the capping. Given the importance of this part, I want to emphasize on this part again. Capping, again, is commonly used in auto insurance rating for the purpose of managing customer experience. However, it is FSRA's expectation that as part of the Territory TLE, the use of the capping, including capping threshold, capped and uncapped premiums, and capping rules need to be transparently complicated to the affected policyholders in plain language. And again, this will be considered as a key when FSRA's review approve the territory filing proposals and the decision of the use of the capping in the TLE filing applications.

Cong Wang:
19:33    Also, as part of the Appendix 4KE in the filing specifications, the insurers are expected to demonstrate additional rating accuracy, reduced subsidizations across geographic areas. Insurers are not using any prohibited rating variables anywhere in auto insurance rating and underwriting and anywhere in the territory models, process, system, and decisions. Proxy discrimination and unintentional bias has been previously elaborated. Are there any specific group of policyholders being treated more negatively than others? Has insurance companies actively assessed potential unfair discrimination and proxy discrimination in their auto insurance rating and underwriting models used for the territory definition changes? Ultimately, FSRA expect insurance company to demonstrate that process are in place and activities has been performed for detecting, measuring, and mitigating potential bias and unfair discriminations within the rating model for the territory changes.

Cong Wang:
20:41    Fairness assessment is also one of the key considerations in FSRA's approval decision in the Territory TLE applications. Again, FSRA is not prescribing any particular approach or method that insurance company must use or must follow. And instead, we're liberating the insurance company to explore and demonstrate to FSRA that the desired outcome for the fairness has been achieved. Effective January 3rd, 2024, insurance company will be able to submit this Territory TLE application as a major fine in ARCTICS. Before submitting a Territory TLE application, please consult with your relation manager. In case any data files or filing document exceed 10 megabytes, please inform your relation manager, who will guide you on transmitting those data files or documents to FSRA.

Cong Wang:
21:37    FSRA consult the insurance companies and understand that it take anywhere between six months and two years' time for the insurance company to develop a new territory model for implementation as some are constrained by limited capacity resources and some others are constrained by competing projects internally. To ensure a level playing field, insurers are expected to implement territory definition and rating change for policy effective on or after July 2nd, 2024, regardless when the auto insurance receive FSRA's approval decision for the Territory TLE rate filing application. The territory filing specification applies to insurance companies' initial territory filing under the TLE. Any subsequent territory filings will be processed under a regular major filing approach. Insurance companies who choose not to participate in the TLE or who join at a later stage are expected to continue to use the regular major funding approach for territory rating changes.

Cong Wang:
22:46    As we mentioned previously, this Territory TLE provides insurance company opportunity to make territory rating changes for PPA within the GTA. A reduced scope on territory rating changes within GTA for PPA resulting in minimum disruption to consumers outside of these geographic areas during the transition. This TLE will also provide FSRA opportunity to collect more data, insight, evidence during the TLE application review process and also in the testing period likely in the next two years. So FSRA will be able to perform outcome-focused tests to evaluate if the desired outcome of the fairness has been achieved, evaluate if the intended regulatory outcome has been achieved, identify any unforeseen consequences that may require FSRA to develop a mitigation strategy.

Cong Wang:
23:40    FSRA has not resigned the current territory bulletin yet but based on the evaluation of the insight and evidence collected from the industry as a result of the Territory TLE, FSRA will consider resigning the territory bulletin and make a subsidization at a later time. FSRA is looking at relying on the forthcoming and fairness guidance and supervisory framework to mitigate all potential issues that are arising from auto insurance rating and underwriting. Having said that, FSRA will not have a separate guidance in the future for territory. And instead, the fairness guidance and supervisory guidance will be responsible for any rating and underwriting issues, including any potential issues that may arise from territory rating. This is the end of my information session on Territory TLE filing applications. Thank you, and I will pass it over back to Saad.

Saad Opal:
24:39    Thank you everyone. Like I mentioned earlier, if you have any questions, you can post them under Q&A. That's right beside the chat function. We will try to go through as many questions as we possibly can. Any questions that we don't answer, we will try to answer them using our frequently asked questions after the seminar itself. I'm going to ask the first question, which has been asked a few times already. Is the max territories excluding GISA Territory 704, 710, 717 equal to 45? Is that essentially 55 minus 10? Similar question was asked. Also asking - currently, we are limited to 10 territories in Toronto and 45 outside of Toronto - can FSRA confirm that outside the GTA, insurers will be limited to 45 territories, or will this increase to 55?

Cong Wang:
25:35    Thank you, Saad. I'm pretty sure this is not a simple math calculation of 55 minus 10 equal to 45. So the current constraint is within the province of Ontario, insurance company can only have a maximum of 55 territories, while within the City of Toronto with the postal code starting with M, there is a 10-territory limit. Currently, there is no prescriptive threshold how many territories the insurance company can have within GTA. The purpose of the scope for GTA is to ensure for any existing rating and any existing territory definition that are outside of the GTA, we don't expect the insurance company going to make any change for those area to minimize the disruption to the policyholder's premium during the transition time periods as a result of the Territory TLE. An insurance company can make any proposed change within GTA, which is 704, 710, and 717. We don't have a prescriptive threshold how many new territories you will be able to have in GTA, but as I elaborated on the first slide of my territory specification presentation, credibility threshold is removed, but the credibility will still be considered. While, currently, the way how we consider the credibility is by using a prescriptive threshold 2,500 vehicle count to measure the credibility of the data over the time, in the future, the way we are going to measure will be focused on the outcome, the stability of the rates of the time, the stability of the rates that insurance company developed based on the new territory definition that need to be stable is kind of the outcome we're looking for.

Saad Opal:
27:22    Perfect. Thank you. Another question is, does the TLE apply to PPA only or also apply to IRCA or Individually Rated Commercial Auto?

Cong Wang:
27:32    So at this moment, as we say, the entry requirements for Territory TLE applies to PPA in GTA only. So at the starting point, we decided that this will roll out to PPA. We may consider extend this initiative to other category vehicles. But for now, as part of the Territory TLE, the entry requirement again is applying to private passenger vehicles within that Territory 704, 710, and 717.

Saad Opal:
28:04    Perfect. Thank you. Another question from the group: what is the reasonable length of time for a client renewal notification?

Cong Wang:
28:16    So first of all, there is a legal requirement according to the Insurance Act or regulation requirements. The renewable notice must be sent to the policyholders in advance. But now I think we're talking about additional time for the consumers for their information to explain their premium, to explain their premium change, to explain the impact of the territory change to them, such that we do think additional time should be provided to the policyholders such that they will be able to have time to digest information and to shop around, if it is determined to be necessary for them. We do not prescribe a new threshold the insurance company must have in order to satisfy this expectation. We leave it to the insurance company to have their internal discussion with their business partners, with their compliance, with their strategy, with their stakeholders in order to have a business decision. Insurance companies are accountable for their business decision and then present their business decision with rationales to FSRA for consideration during the review process.

Saad Opal:
29:23    Perfect, Cong. The next question sort of just goes into the same thing. Can FSRA be more specific around their minimum expectation surrounding client communication? Significant IT capacity may be required for tailored communication, and the specifications need to be precise.

Cong Wang:
29:44    FSRA is trying to stay away from minimum requirements because FSRA is principle-based and we're outcome folks regulator. We are assessing the outcome and the way how insurance company will be able to achieve the outcome. 10 insurance company probably have 20 different ways how they will be able to achieve that. So insurance companies are encouraged to explore internally with their internal stakeholders and partners to understand how they will be able to transparently and timely communicate the premium change and territory impact to the policyholders' premium, especially for those negatively impacted, adversely impacted policyholders in timely manner during the transition time period because we do expect a large dislocation will flow into the market. On top of that, companies are of different nature, different size, different complexity, and they're writing different type of business.

Cong Wang:
30:42    They're a direct writer in the market, broker channel, agency channel, and each of them have a different communication, strategy, and plan. So we are not prescribing any particular message or approach insurance company must follow. Transparency is one of the key component in FSRA's fairness strategy, fairness initiative. So insurance companies are expected to provide their own business decision based on their internal discussion, their business strategy, and present it to FSRA for consideration as part of the TLE review process. So again, other than the traditional actual justification and modeling techniques, modeling results that we are requiring to support the territory definition change, the fairness assessment, transparent complication assessment, potential unfair discrimination assessment, proxy discrimination assessment will all be the TLE entry requirements that insurance companies have to provide the evidence to FISRA to demonstrate they have satisfied the desired regulatory outcome. For any of those fairness-related, transparency -related, proxy discrimination-related desired outcome, we don't have any particular approach or method that insurance company must follow. We don't have any minimum requirements. We leave it to the insurance companies to demonstrate. And obviously, larger insurance companies will probably have more data, have more complex system and model. So the way how small insurance companies are expected to demonstrate to us may not be exactly the same as large insurance companies.

Saad Opal:
32:31    Thank you, Cong. Another question. Are waiving cancellation fees a requirement for TLE participation?

Cong Wang:
32:41    So this question is very similar to the one above. We don't have any prescriptions. Company may have a different approach. It doesn't mean insurance company have to satisfy everything we just said during the presentation information session. I think I did emphasize in the presentation that some of the examples that are related to transparent communication, including providing advanced notice to renew policies, and some of the ways insurance companies could consider in terms of managing the customer experience include rebating, waving cancellation fees, as well as the use of having to manage custom experience. It's not a minimum requirement, and it's not a requirement the insurance company must do in order to satisfy the TLE application entry requirements.

Saad Opal:
33:35    So the same tone, another question which is similarly positioned. Are you saying the renewal notice period must be filed with FSRA with the expected outcome and rationale for the set notice period?

Cong Wang:
33:49    So if the insurance company decide that advanced renewable notice period will be one of the initiative for the purpose of providing transparent and enhanced communication to the policyholders, the information and the business rationale as well as the supporting evidence and decision need to be submitted to FSRA as part of the Territory TLE filing applications.

Saad Opal:
34:13    Perfect. And again, very similar question, but I figure it's worth asking, with a similar answer most likely. But does the communication to-- does the communication to customers regarding capping need to be filed as well?

Cong Wang:
34:27    Yeah. So this is the key component that I mentioned twice during my presentation. The use of the capping, including the capping threshold, the capped premium, uncapped premium, as well as the capping rules - for example, how many years there will be the capping in place - will need to be communicated transparently to those affected policyholders.

Saad Opal:
34:52    Perfect. So I'm going to change direction a bit and ask a different question. What is the expected FSRA review timeline for the TLE filing compared to a regular major filing?

Cong Wang:
35:06    So first of all, although, as you know, we're having some additional requirements, expectations, part of the Territory TLE under the Innovation Office, but majority of the filing content will still be processed under the major filing in ARCTICS. We do expect this type of filing may take a bit longer than regular major filing given that the scope of the review has been expanded beyond the actual just unreasonableness, beyond the regular territory clustering model, territory rating model, predict model. We're also going to engage other teams such as Innovation Office as well as Relation Manager to review things that are outside of the traditional major filing. So having said that, this major filing, which going to help us process the Territory TLE filing, may take a little bit longer than regular and may result in additional questions for the insurance company to help us better to understand the desired fairness outcome has been achieved, how to understand those proxy discrimination has been addressed in the Territory TLE application. At the same time, we also understand we don't expect all the insurance company going to submit their Territory TLE at the same time. So we don't expect we're going to handle a large volume of the Territory TLE filing at the same time. So this may help a little bit in terms of review process and the timeline. So this is different than a regular measure filing for the purpose of handling product reform. We're going to receive 60 insurance companies rate filing application at the same time, but this time, based on over understanding by talking to the insurance companies, we don't expect all the Territory TLE finding will be submitted at the same time.

Saad Opal:
36:51    Thank you so much, Cong. I'm going to continue with the questions in the same sort of direction. How long is the waiting period for the next major or standard filing after we file for a TLE filing?

Cong Wang:
37:09    I don't think we have any restrictions or expectations. Insurance company should continue to use major filing and the standard filing to process their regular business needs in the rating and underwriting. But we may need to keep in mind that there might be some conflict in terms of the rating and rating proposal between the territory definition used in the Territory TLE filing and the new filing, as well as any written algorithm, rating differentials, territory differentials that are between the TLE filing and the future major incident filing. So if you do foresee there could be some potential conflicts or overlap, my best recommendation is talk to your relation manager so we will be able to jointly find a solution to process your regular rating and underwriting change outside of the Territory TLE filing application.

Saad Opal:
38:14    Thank you so much. Going back to capping generally just because there's a lot of questions coming through about capping. Transparency on capping thresholds and capped/uncapped premiums are emphasized during the presentation. Can you clarify to what level of transparency you mean? Does it mean we need to communicate to the customer the exact capped and uncapped premium due to the Territory TLE change?

Cong Wang:
38:44    So as I emphasized in the presentation, the use of the capping to the affected policyholders must be communicated to the policyholders in timely manner in a transparent way such that they are able to understand if they are being capped positively or negatively, how long the cap will be on for those policyholders who are being affected, and any potential rules when the cap is going to apply and when the cap is not going to apply. Some of the example could be related to when the cap is applied to the policyholders for the purpose of the dislocation minimization. But in certain circumstances, such as there is a material change in written characteristic, if there is a material change in coverage, or if there is a material change in residential location, geographic area, or postal code of the garage location for the vehicle, then the capping may not be applied.

Cong Wang:
39:52    So different companies have a different capping strategy, capping rules, capping algorithm, as well as the timeframe when the cap is applied to policyholders. So as part of the Territory TLE, we do require insurance company going to explore internally with better understanding of their system constraints and have advanced preparation to make sure such information will be able to be transparently communicated to the policyholders. We also understand that insurance companies are of different nature. Some of them are direct writers, some of them are brokers, some of them are agents. We don't have a particular approach insurance company that need to follow, but insurers are ultimately accountable for the communication of the capping effectively to the policyholders.

Saad Opal:
40:46    Perfect. Thank you so much. Sticking with the capping theme, is the neutral rate level to be done precap?

Cong Wang:
40:56    So I think from actual perspective, when we talk about rate level, it's always on the uncapped basis. Only the premium can have a capped premium impact. While when we do the-- for example, when we're calculating rate level through the rate level indication, we always have to project all historical earned premium to the current level by using either extension exposure method or Parallelogram method. And this will require the historical premium to be rerated to the current rate level on an uncapped basis.

Saad Opal:
41:29    Thank you so much. I'm going to switch over from capping just to give you a bit of a break from the capping questions.

Cong Wang:
41:35    Thank you.

Saad Opal:
41:37    Will insurer be able to submit a general segmentation alongside new territories for TLE in a single filing?

Cong Wang:
41:48    So the major filing requirement has never prescribed what insurance company can do and what insurance company can't do. And because AIP, this time, has decided that we're going to use the measure filing to process the Territory TLE filing. So technically speaking, insurance company will be able to propose any classification change or rating change as part of the major filing application. But we do encourage companies that please only include the territory definition, territory rating change for GTA within the Territory TLE application in order to have an efficient and effective communication and review process for FSRA to process those changes for you, because we understand there is a very tight timeline here. Now we're towards the end of the January and the earliest insurance company will be able to move the change to the market will be July 2nd. More change outside the Territory TLE scope means extremely longer review process and additional questions. So we do encourage companies, if you have something outside the Territory TLE scope, you really want to process those changes and implement those changes into the market. We do encourage you to talk to your relation manager such that we can jointly explore whether we can process your review change outside the Territory TLE funding either in a standard filing approach or a major filing approach.

Saad Opal:
43:22    Thank you. Next question for yourself. How do we separate other market impacts over the next two years from specific impacts of the territory for the TLE? For example, major segmentations, economic changes, etc. How will data be collected, and how will the decision decisions be made?

Cong Wang:
43:45    So I think this might be a question for few very sophisticated insurance companies, because I mean, you have one set of the territory model for GTA, one set of the territory model for outside of the GTA, but you only have one set of the predicted modeling for the entire Ontario for all rating variable, not specifically for territory. Again, during the next two years transition time periods, we will be allowing insurance company to make more innovative change on character rating in GTA while trying to keep the geographic areas that are outside of the GTA with minimum disruption during the TLE application process. If insurance company want to process any territory rating change and territorial definition change that are outside of the GTA, a regular major filing is required. So that filing will not be processed under TLE, but through the regular major filing process. Only the initial Territory TLE filing will be processed under Innovation Office TLE framework, while if insurance companies want to subsequently revisit the GTA territory definitions later on combined with some of the changes outside of the GTA, a regular major filing will be processed and reviewed in order to accommodate for the change.

Saad Opal:
45:12    Perfect. The next question is similarly related, obviously, and I feel like you've partly answered already. But as part of the TLE, can the rate level between non-GTA and GTA territories be reviewed?

Cong Wang:
45:27    I think yes and no. So in the initial Territory TLE filing application, the purpose is to address rating accuracy, subsidization, and transparency issue for the GTA only. So we do expect that the GTA rate level will be neutral in the initial Territory TLE rate filing application. But it doesn't mean insurance company cannot further address the relativity issue or rate level subsidization issue between GTA and non-GTA. However, that is outside of the Territory TLE scope and will have to be processed under a different major filing after the initial TLE filing.

Saad Opal:
46:12    Now we're going to ask a pretty specific question. For Appendix 4KB data submission, is the requested dataset an enforced or a historical dataset?

Cong Wang:
46:27    So the requirement for Appendix 4KB will enable FSRA to collect the individual vehicle risk level data with more granular rating variables, the premium on both capped and uncapped basis with their policy effective date. So this dataset is expected to be an enforced policy based on the company's latest enforce, so if the enforce data represent company's latest book of business on a snapshot basis. And basically, we want to understand based on the company's new rating territory definition and new rating differentials, how the new territory rating and definition were impacting your existing book of business using the enforce as a snapshot, as an estimation. This will enable FSRA to understand not only the dislocation at the individual company level on aggregate basis but also by different segment. For example, how does your new territory definition and territory definitions are impacting certain geographic areas in Ontario? How does you new rating algorithm on territory definition that are impacting a specific group of policyholders in specific geographic areas? So this is the first time FRSA is collecting this granular level of data. It's not only for the purpose of understanding the consumer impact but also to understand how the premium change will flow into the market in various time frame.

Saad Opal:
48:03    Sort of shift in direction again. Will FSRA share the benchmarks that outputs will be assessed against for fairness and reasonableness of results ahead of time? This will help insurance be proactive during the analysis phase.

Cong Wang:
48:21    Thank you, Jonas. So this is a very interesting question. I probably want to spend a little bit more time on that. So I think we're trying to stay away from the word benchmark for several reasons. So first of all, the pricing actuary in the industry, probably understand that as part of the annual review guidance that FSRA introduced, we specifically elaborated on the use of the benchmark, especially for the loss trend benchmark. FSRA is not going to prescribe the insurance companies a list of the benchmark they must use in their filing application. It's not a minimum requirement. It doesn't mean when the benchmark is used, insurance company will be able to pass any predesigned test or the filing threshold or criteria. In this particular case, FSRA is a principle-based regulator that enabled us to focus on the outcome. So we're seeing over fairness assessment is being comprised of rating accuracy, proxy discrimination, discrimination, bias, as well as transparency. FSRA does not have any threshold or benchmark or minimum requirements that insurance company must be able to satisfy or demonstrate in order to pass such a test. And instead, we have our desired outcome. And the desired outcome has been elaborated in the filing document specifications. The insurance company should take it back, elaborate that, explore that within their internally with their internal stakeholder partners in order to understand how they will be able to achieve the regulatory desired outcome for the fairness to make sure the consumer will be treated fairly.

Saad Opal:
50:07    Perfect. And I think this almost seems like a follow-up question to the same question. So I'm going to ask this. Is the concern around proxy discrimination and unintended bias around unrestricted variables, like years licensed, age, or restricted variables like average income, race, or religion?

Cong Wang:
50:27    So currently, FSRA's auto policy and auto insurance product team are jointly designing the fairness guidance. We expect that such guidance will be out for public consultation sometime later this year. Give you some advanced information on that. We are leaving it to the insurance company to explore. Currently, we are not trying to define what is proxy discrimination, what is unintentional bias. But by reviewing the Insurance Act as well as some of the other regulation and insurance act parts, such as UDAP and Human Rights Code, companies should be able to figure out what are the prohibited rating variables that they're not supposed to consider in the rating and underwriting process. We did hear the feedback from the insurance company that we're not using some of the existing prohibited rating variables, such as a race, such as credit, so there is no way we will be able to figure out. But apparently, based on over understanding by consulting with the leading experts in the industry as well as some of the discussion that we heard observed during the FSRA exchange event last year, if insurance companies continue to say they don't have data to investigate or research if the proxy discrimination exists or not, this will not be able to satisfy the regulatory expectation. I think there are certain data in the marketplace in addition to GISA data, in addition to insurance company's own data. We're only able to help insurance company to actively identify, measure, and mitigate potential unfair discrimination in their auto insurance rating and underwriting system.

Saad Opal:
52:16    Thank you. Next question. What level of detail would be deemed satisfactory regarding the disclosure-- sorry, regarding the disclosure of modeling approach? Can you please provide some examples?

Cong Wang:
52:33    I would not call that disclosure because disclosure is more like requirements. But I think the description of the model methodology, the data being used, model cast duration is a document for FSRA actuary as well as FSRA's expert consultants on modeling to understand the model itself, the potential issues that we may be able to identify in the model, as well as the general methodology and data. So this is no much difference compared to a territory filing that company currently submit to FSRA. In the current territory definition change filing that companies submit to FSRA in the major filing, the general description of the data methodology and model and model results as well as the parameters to measure the performance of the model is also required.

Cong Wang:
53:30    So from this perspective, I don't think there is much difference. But from the use of as a person's work perspective, we do expect the pricing actuary going to have a conversation, engagement, collaboration, and discussion with the person who's performing the model work if the pricing actuary is not actually the one who's performing the model work. Because we want the pricing actuary to make sure active engagement and discussion is in place between the person who's performing the model and the person who's actually deciding to adopt the model results. The regulators need to gain the confidence that the pricing actuary is adopting a reasonable results that are just and reasonable to make sure reasonable rates and territory differential, territory definition will be reflected in auto insurance policyholders' premium calculation.

Cong Wang:
54:21    If there is no such a responsibility or practice in place between the modeler and the pricing actuary, then the regulator's confidence level in accepting or approving the model results were significantly been shrinking. So the responsibility in terms of the use of other people's work is very important in terms of adopting the model results. And also, as part of the ORM practice, we also think companies should have proper three lines of defense in place for the territory model to ensure there is sufficient second-line challenge during the peer review process, to ensure the result from the model will be adjusted and reasonable and appropriate and reasonable to be used for insurance rating and underwriting, especially as part of the TLE rate filing applications.

Saad Opal:
55:13    Thank you, Cong. We only have about three minutes left, so I'm going to just ask one final question. But before I ask the final question, I just want to let everyone know we've had a lot of questions that came through, and I know we weren't able to get through all of them. Like I said earlier, we will be sending out a frequently asked questions later once we have answers to all the other questions that were not answered or even the questions that were answered at this moment. So for the final question for Cong, if an insurer is not ready to file for July 2nd, 2024 effective date, will the insurer be required to follow the normal major filing process or will they still be able to file through the TLE process at a later date?

Cong Wang:
55:58    So the Territory TLE application door was opened on January 3rd, 2024. The earliest insurance company will be able to move the rates to the market will be July 2nd, 2024. We have not decided when the door will be closed. Having said that, we do foresee the Territory TLE timeframe will be around the next two years. If the insurance company do not have capacity or due to certain constraints were not be able to submit a refund application at this moment, they will always have opportunity to submit Territory TLE application in summer or later on. We have not decided on when this innovation approach will be terminated. So I do see we have a lot of time.

Saad Opal:
56:47    Perfect. Thank you so much, Cong. Any closing remarks from your end?

Cong Wang:
56:54    I'm all good. And I do truly recommend that if you have any further questions based on your company's specific nature, complexity, and your mix of business, you may want to start to have your conversation with the relation manager at Auto Insurance Product Team at FSRA. In this way, we will be able to provide you more information and insight. As a principle-based regulator, outcome focus is very important. We tell the insurance company what's the outcome the regulator is looking for. And the active communication with the relation manager and other people in FSRA is very important to keep this momentum moving and eventually for the insurance company to achieve the final desired outcome for the fairness and desired outcome for the consumer fairness.

Saad Opal:
57:43    Perfect. Thank you, Cong. And I completely agree with Cong. If you have any questions, please reach out to the auto products team and relationship managers and we will be able to try to answer any questions that you may have. We are all very excited about this initiative and we're looking forward to working with the industry to move it forward. Thank you everyone for attending. Really appreciate your time. Hope everyone has a good lunch.

Cong Wang:
58:10    Thank you.

Jonas Schwab Pflug:
58:11    Thanks, everyone.

Slide 1
[LOGOS: FSRA. Financial Services Regulatory Authority of Ontario and the Coat of Arms of Ontario.]

[Blue text appears over a white background.]

[TEXT ON SCREEN: Territories TLE Webinar. Test and Learn Environment for Territories.]

[TEXT ON SCREEN: Date: January 2024 Speakers: Glen Padassery, EVP Auto Insurance Products and Policy, FSRA Cong Wang, Chief Actuary Auto Insurance Operational Risk Supervision, FSRA Jonas Schwab Pflug, Senior Manager Auto Reform Policy, FSRA.]

[Saad Opal is seen in a small video window next to the presentation slides.]

Slide 2
[A slide titled: House Keeping appears. There are five items. 1. Video and sound will be turned off automatically 2. There will be a Q&A session after the presentation. 3.You can submit questions in the Q&A. 4. Questions will be selected at random. 5. Any unanswered questions will be addressed in the FAQ to be released later.

[Glenn Padassery appears in a small video window next to the presentation slides.]

Slide 3
[Blue text appears over a white background in the next slide. Opening remarks: Glen Padassery, EVP Auto Insurance Products and Policy.]

Slide 4
[Jonas Schwab Pflug appears in a video window next to the presentation slides.]

[The next slide is titled: Reform Strategy Outcomes. It reads: Make FSRA's oversight more dynamic, flexible and transparent with a consumer-focus on fair rates and underwriting practices, promoting market health with effective regulation and fostering informed decision-making. Three categories are written on the left-hand side: Pillars, Issue and Consumer Outcomes.

Three text boxes are next to the categories. The first reads: Fair rating and underwriting. Insurers must be accountable for rating and underwriting fairness and conduct (including the fair treatment of consumers). Consumers have access to fair auto insurance including protection from rating and underwriting misconduct. The second reads: Promoting market health with effective regulation. Barriers in the system impede new market entrants, innovation and delivering value-for-money to consumers. A dynamic auto insurance marketplace that prioritizes value-for- money and choice The third reads: Informed decision-making. The system is not transparent making it difficult for consumers to make informed decisions. Consumers have ready access to information needed to understand auto insurance and make informed decisions about available options.]

Slide 5
[The next slide is titled: Background and Purpose. It contains two titles. 1. Issue and Background and 2. Purpose. Under the title Issue and Background reads: FSRA has recently completed a review of Territory Rating. The review showed that the current approach to territory rating is limiting rate accuracy and therefore making rates less fair. Public perception that the current approach has an element of unfairness and more negatively impacts certain areas of Ontario. Under the title Purpose reads: FSRA is using a Test and Learn Environment (TLE), announced on January 3, 2024, to proactively monitor the impact of participating auto insurers, who would no longer be required to adhere to the territory rating bulletin. Insurers' responses and engagement with the TLE will enhance FSRA's understanding of the impacts of territory changes and inform policy work to improve fairness and supervision in response to concerns found in FSRA's territorial review.]

Slide 6
[Cong Wang appears in a video window next to the presentation slides.]

[The next slide is titled: Test and Learn Environment for Territories. The header reads: Acceptance into the Territories TLE will mean insurers will no longer be required to adhere to some auto rate filing guidelines associated with territories (e.g. 55 in Ontario and 10 in Toronto).

An envelop icon is displayed with the text: The TLE will serve as a mechanism to receive proposals from industry and allow FSRA to better understand innovative auto insurer methods for designing territories. A warning icon is displayed with the text: These results could identify any unforeseen consequences and allow FSRA to develop mitigating strategies.

A workflow icon is displayed with the text:  FSRA has developed a preliminary framework for outcomes-focused analysis of territory rating changes under the TLE. A magnifying glass icon is displayed with the text: This initiative will also enable FSRA to monitor whether Intended regulatory outcomes can be achieved by territory rating changes made by auto insurers under the TLE. A bullseye icon appears with the text: FSRA's central aim is to ensure fair auto insurance rates and underwriting throughout the TLE process. Text at the top if the slide reads: Further Details on the Innovation Framework and TLE in Appendix 2.]

Slide 7
[The next slide is titled: Filing Process & Requirements. It has three titles: 1. Approach. 2. Filing Specifications and 3. Additional Details. The slide reads: Approach: Major Filing Required for Territory Changes to PPA within the GTA. Filing Specifications: a) Overall Description, b) Data Submission, c) Predictive Models and Results, d) Evaluation of Proposed Territory Impacts, e) Evaluation of Proposed Changes for Fairness and f) Capping. Additional Details: Effective for Policies on or after July 2nd, 2024. FSRA does not anticipate reviewing auto insurers' overall rate level indications during the Territories TLE review. Priorities will be establishing fairness for consumers and aiming for rate level neutrality post territory rating adjustments. Will replace the current specifications found in the current Private Passenger Automobile Filing Guidelines - Major.]

Slide 8
[The next slide is titled: Admissibility Conditions. It has three titles: 1. Insurer Accountability. 2. Enhanced Communication and 3. Limited Scope. Insurer Accountability reads:  Insurers are expected to identify policyholders who may face adverse effects due to the territory rating changes and develop mechanisms to support the consumer experience during transition.

For example: capping, rebating, and waiving cancellation fees. Enhanced Communication reads: Enhancing communication with consumers for greater transparency and interpretability.
For example: extending renewal notices to impacted consumers, allowing them time to shop around. Limited Scope reads:  A reduced scope on territory rating changes within the Greater Toronto Area (GTA) for Private Passenger Vehicles (PPA), ensuring minimal disruption to consumers outside this region during the transition. GTA Definition: GISA Territories 704, 710, 717.]

Slide 9
[The next slide is titled: Next Steps. An arrow pointing to the right contains the text: Effective for Policies on or after July 2nd, 2023. Subsequent territory rating changes will be processed under a regular Major Filing approach.]

Slide 10
[The next slide is titled: TLE Evaluation Criteria. The header reads: FSRA will gather data to evaluate the outcomes resulting from territory rating changes over the testing period. There are four text boxes below the header. The first reads:  Neutral Average Premium. Validating that overall/average premiums stemming from territory changes remain neutral within the GTA enables FSRA to monitor for positive / negative outcomes. The second reads: Shifts in. Quote Volume. New Business Volume. Retention Rates. Analyzing shifts in quote volume, new business volume, and retention rates enables FSRA to evaluate consumer shopping around activity and market competition. The third reads: Improved Rating Accuracy & Reduced Subsidization. Consumers pay premiums that better align with their risks. A majority of drivers in the GTA paying less and no longer subsidizing high claim costs for drivers in other parts of the GTA. The fourth reads: TLE Uptake. Increased TLE uptake (measured by the number of participating insurers and market share) from a diverse group of large and small insurers enhances consumer outcomes for drivers in the GTA.]

Slide 11
[Saad re-appears in a small video window next to the presentation slides.]

[The next slide is titled: Innovation Framework and TLE Overview. Appendix 1. Questions?]