Comment on “Discriminatory Bias in Rates Charged by the Canadian Automobile Insurance Industry”
The article by R. A. Holmes [1] on the subject of discriminatory bias in rates charged by the Canadian automobile insurance industry is misleading. Automobile insurance rating regulatory statutes in the United States and in Canada contain three basic requirements: rates shall neither be excessive, nor inadequate and they shall "avoid unfair discrimination." This last condition recognizes that fair discrimination is a requirement in the rating structure for automobile insurance, if the public is to be served by pooling risks among fairly large groups. In my judgment, Holmes does not have a clear understanding of this and overemphasizes the mathematician's or classical statistician's views in his article which opens and closes charging "discriminatory bias." The article should be read with a complete understanding of the practical and legal requirements of the automobile insurance industry. Canada-wide statistics cover fewer cars than are insured in a number of individual states in the United States. As in the United States, country-wide data are reviewed by interpretive bodies primarily to dampen the effect of chance fluctuations and to produce stable differentials. The relatively small volume of experience in Canada, however, compounds the problem of broad yet responsive groupings having stable differential patterns. Nevertheless, we believe that within the bounds of "avoiding unfair discrimination" the Canadian rate-making procedures do in fact produce premiums "which accurately reflect risks," which Holmes states is his main question under review. For several years, the rate-making associations have tested differentials, or relativities, using the American system of comparing loss ratios. Holmes is aware of this technique, since he was Research Associate to the Director of Research for the British Columbia Royal Commission on Automobile Insurance which was active in 1966, 1967 and 1968. Full testimony was given, to the Royal Commission on the subject of the differential complex. The concluding section of the author's article begins with the observation "the differential complex is a biased method of estimating Canadian automobile insurance