Regulating MPI Rates
The PUB examines two areas when establishing the basic rates, or premiums, paid by MPI customers for Basic Insurance. First, the Board examines the actuarial calculations employed by the Corporation to assess claims risk, which is the primary factor determining variability in premiums between various MPI customers. Second, the Board examines the revenue requirements of the Corporation, which is the primary factor determining the premium levels for all MPI customers regardless of their driving history.
Assessing the revenue requirements of MPI is often the primary focus of the Board when conducting regular reviews of the Corporation’s rates, as premium adjustments are frequently based on MPI’s perceived revenue needs in relation to expenditure growth or contraction.
MPI expenses can be grouped into three broad categories: Normal Operations Expenses, Improvement Initiative Implementation Expenses and Improvement Initiative Ongoing Expenses.
Normal Operations Expenses are incurred to manage the day-to-day operations of the Corporation whereas Improvement Initiative Implementation Expenses represent one-time expenses to implement various projects, and Improvement Initiative Ongoing Expenses are the expenses that occur as a result of costs that continue after projects have been put into service. These three categories are then assigned to four expense areas—namely, claims, road safety/loss prevention, operating and regulatory/appeal expenses.
The most significant expenses for the Corporation fall under the claims and operating categories. MPI incurs significant expenses related to paying out claimants, upgrading its services and paying employees wages commensurate with public sector collective bargaining. All of these expenses are scrutinized by the Board on an annual basis, and it determines the charges to customers through vehicle premiums, driver premiums and service/transaction fees.
Vehicle premiums make up the bulk of MPI revenue and are charged on the basis of four factors, as outlined in the “Basic insurance” section. From year to year, the revenue earned by Basic insurance premiums changes due to rate changes as ordered by the PUB, changes to the number of vehicles in the fleet (the Volume Factor) and the gradual upgrade of the fleet as older vehicles are replaced with newer ones (the Upgrade Factor).
When obtaining a driver’s license, motorists are assessed a premium based on the principle that all drivers should contribute premiums to the insurance fund, regardless of whether the driver owns or insures a vehicle. The level of driver premiums paid by licensed drivers are set based on the Drivers Safety Rating (DSR) scale.
Projected revenue from driver premiums changes based on four components—namely, the number of earned driver units by DSR level, the expected movement of drivers on the DSR scale, the average number of earned units per driver by DSR level and the driver premiums by DSR level.
Investment income earned from the Corporation’s investment portfolio reduces the revenue that is required to be collected through premiums. The Corporation’s investment income is allocated between the Basic, Extension and Special Risk Extension (SRE) lines of its business based on the net average weighted equity balances, with approximately 80 percent of the investment income allocated to Basic insurance in any given year. Again, the Board only has jurisdiction over Basic insurance.
Service fees and other revenues
This revenue is derived mainly from quarterly and monthly pre-authorized payment plans, late payment fees, motor vehicle transaction fees, dishonoured payment fees and pre-authorized payment default fees.