Washington State Transit Insurance PoolRating System RecommendationsAugust 26, 2010
Presented by:Kevin Wick, FCAS, MAAA
PricewaterhouseCoopers Slide 2
High Level Points
• A risk sharing pool should charge each member in proportion to the risk they are contributing to the program- “Risk” does not equal actual losses
• Rating system is the program’s method of assessing the individual member risk
• Individual member actual losses are variable
• Need to temper impact individual member losses have on rates (risk measurement) or fundamental purpose of pool is defeated
PricewaterhouseCoopers
Context
Background• Review conducted of experience rating
system (dated July 23, 2010)• Recommendations presented at July 29,
2010 WSTIP Meeting• Recommendations revised and examples
prepared
Slide 3
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Recommendations
1. Current review suggests single blended rate per mile is appropriate but mode rate differences should be monitored annually
2. Maintain a three-year loss experience window
3. Vary the individual loss cap by size of member
4. In mod calculation, weight between relative loss experience and prior mod (versus relative loss experience and 1.000)
5. More transparent presentation that provides a year by year context for evaluating loss levels
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Recommendation # 3 Revised – Varying Loss Cap
Slide 5
Group Members Criteria
Average Loss Level
Recommended Loss Limit
Large 1 Pierce, Community 15m+ $404,000 $250,000
Large 2 Ben Franklin, Spokane, Intercity, Kitsap, Whatcom, Island
3.5m-15m
$114,000 $100,000
Medium Link, Everett, Clallam, Skagit, Grays Harbor, Yakima
1.5m-3.5m
$50,000 $50,000
Small Grant, Mason, Jefferson, Pacific, Valley, Pullman, Columbia, Twin, Asotin, CUBS
<1.5m $14,000 $25,000
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Rating Example – Part 1
Slide 6
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Rating Example – Part 2
Slide 7
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Financial Impact of Moving to Proposed System
1. Annual Fluctuation - same
2. Recognition of long-term favorable or unfavorable loss levels
• Improvement under proposed system• Deficiency in primary rating base
3. Large loss impact – effectively the same• Current - less consideration is given
to less predictable losses at higher limits
• Proposed – tiered cap allows more consideration of individual member experience
Slide 8
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