ISO Insurance Services Office of Israel, Ltd.
Amot Bituach Building, Building B, 9th floor, Derech Petach Tikva 48, Tel-Aviv 66184, Israel
Telephone (972) 3 687 6536, Fax (972) 3 687 6542, E-mail info@iso-israel.co.il, Internet www.iso-israel.co.il
Database for the Compulsory Vehicle Insurance in Israel
Risk Classification Plan
and
Proposed Offsets
to
Tariffs for 2003
March 14, 2003 update
Proposed for 2003
March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Table of Contents
PART A – RISK CLASSIFICATION PLAN ..................................................................................................... 4
INTRODUCTION AND OVERVIEW ............................................................................................................... 4
SECTION A: PROPOSED ISRAEL CLASSIFICATION PLAN FOR PRIVATE OWNED
AUTOMOBILES .................................................................................................................................................. 5
EXECUTIVE SUMMARY ....................................................................................................................................... 5
INTRODUCTION ................................................................................................................................................... 7
PROPOSED CLASSIFICATION PLAN AND FACTORS ............................................................................................... 7
SUPPORT FOR THE VARIABLES INCLUDED IN PROPOSED CLASSIFICATION PLAN ................................................. 8
Age of Driver (Year of Birth) ........................................................................................................................ 8
Driver Gender ............................................................................................................................................... 9
Driver Experience (Years Licensed) ........................................................................................................... 10
Accident History .......................................................................................................................................... 10
Major Conviction History ........................................................................................................................... 10
Air Bags Indicator ....................................................................................................................................... 11
Vehicle Engine Size ..................................................................................................................................... 11
Other Variables Considered, But Not Included in the Proposed Classification System for Israel ............. 12
SUPPORT FOR THE PROPOSED CLASSIFICATION FACTORS ................................................................................. 15
BI Accidents ................................................................................................................................................ 15
Major Convictions....................................................................................................................................... 16
Years Licensed ............................................................................................................................................ 16
Age and Gender .......................................................................................................................................... 16
Consideration of Principal Operator Status ............................................................................................... 17
Air Bag Indicator Indications and Selections ............................................................................................. 17
RATING DISTINCTIONS IN TARIFFS .................................................................................................................... 18
ISRAEL CLASSIFICATION PLAN RATING RULES .................................................................................................. 18
Rule 1 - Introduction - the Included Vehicles ............................................................................................. 18
Rule 2 - Premium Determination ................................................................................................................ 18
Rule 3 - Driver Classification ..................................................................................................................... 19
Rule 4 - Accidents ....................................................................................................................................... 20
Rule 5 - Major Convictions ......................................................................................................................... 20
Rule 6 - Vehicle Specific Factors ................................................................................................................ 20
Rule 7 - Endorsements ................................................................................................................................ 21
SECTION B: PROPOSED ISRAEL CLASSIFICATION PLAN FOR PRIVATE OWNED
MOTORCYCLES .............................................................................................................................................. 22
EXECUTIVE SUMMARY ..................................................................................................................................... 22
INTRODUCTION ................................................................................................................................................. 24
PROPOSED CLASSIFICATION PLAN AND FACTORS ............................................................................................. 24
SUPPORT FOR THE VARIABLES INCLUDED IN THE PROPOSED CLASSIFICATION PLAN FOR PRIVATE OWNED
MOTORCYCLES ................................................................................................................................................. 24
Other Variables Not Included in the Proposed Classification System for Israel ........................................ 25
RATING DISTINCTIONS IN TARIFFS .................................................................................................................... 25
ISRAEL CLASSIFICATION PLAN RATING RULES .................................................................................................. 26
Rule 1 - Introduction - The Included Motorcycle ........................................................................................ 26
Rule 2 - Premium Determination ................................................................................................................ 26
Rule 3 - Driver Classification ..................................................................................................................... 26
Rule 4 - Accidents ....................................................................................................................................... 28
Rule 5 - Major Convictions ......................................................................................................................... 28
Rule 6 - Endorsements ................................................................................................................................ 28
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SECTION C: PROPOSED ISRAEL CLASSIFICATION PLAN FOR CORPORATE OWNED
VEHICLES.......................................................................................................................................................... 29
INTRODUCTION ................................................................................................................................................. 29
PROPOSED CLASSIFICATION PLAN AND FACTORS ............................................................................................. 29
Corporate Owned Automobiles ................................................................................................................... 30
Corporate Owned Motorcycles ................................................................................................................... 30
Trucks (Private and Corporate) .................................................................................................................. 30
Additional Variables ................................................................................................................................... 30
RATING DISTINCTIONS IN TARIFFS .................................................................................................................... 31
APPENDICES ..................................................................................................................................................... 33
BAILEY’S MINIMUM BIAS PROCEDURE ............................................................................................................. 33
INFORMATION ABOUT PRIVATE OWNED AUTOMOBILES – EXHIBITS 1A - 8 ........................................................ 35
PART B - PROPOSED OFFSETS TO 2003 TARIFFS .................................................................................. 36
SECTION A: OFFSETS AND UNDERLYING EXPOSURE DISTRIBUTIONS ........................................ 36
EXECUTIVE SUMMARY ..................................................................................................................................... 36
PRIVATE OWNED AUTOMOBILES ...................................................................................................................... 37
Calculation of Average Rating Factors and Offset ..................................................................................... 37
Underlying Exposure Distributions ............................................................................................................ 37
ENGINE SIZE ..................................................................................................................................................... 39
PRIVATE OWNED MOTORCYCLES ..................................................................................................................... 40
Calculation of Average Rating Factors and Offset ..................................................................................... 40
Underlying Exposure Distributions ............................................................................................................ 40
CORPORATE OWNED AUTOMOBILES ................................................................................................................. 42
Calculation of Average Rating Factors and Offset ..................................................................................... 42
APPENDICES ..................................................................................................................................................... 44
INFORMATION ABOUT OFFSETS AND UNDERLYING EXPOSURE DISTRIBUTIONS – EXHIBITS A1 – A2 .................. 44
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Israeli Compulsory Vehicle Insurance
Part A
Part A – Risk Classification Plan
Introduction and Overview
This Risk Classification Plan details the risk variables for the compulsory vehicle insurance, and
includes vehicle and driver variables. Example of these variables include dates (such as the issuance
and renewal dates of a policy, accidents dates, etc.), driver’s characteristics such as age, gender and
driving experience, vehicle characteristics like air bags, and the way the vehicle is used.
Currently, in the United States, classification plans for automobile insurance differ by the category of
vehicle. For example, private owned and operated automobiles are rated based on the driver
characteristics as well as the vehicle characteristics, whereas corporate owned vehicles are rated
predominantly on the vehicle characteristics and the specific business use of the vehicle. In the
United States these rating schemes have proven to accurately identify and appropriately price the
underlying differences in loss potential for each of these different categories of vehicles. The drivers
and vehicles are classified into different risk groups, each with its own levels of the risk variables.
This part includes the classifications for private owned vehicles for private use (including cars and
motorcycles), corporate owned vehicles and vehicles used commercially.
This section is divided into several chapters, according to the type of covered vehicle:



Section A: Private owned automobiles
Section B: Private owned motorcycles
Section C: Corporate owned vehicles
At the end of the section are several appendices:


Bailey’s minimum bias procedure: summary of the methodology given in “Insurance Rates
with Minimum Bias” by Robert Bailey that details the methodology used by ISO Israel to
compute the classification factors.
Information about private owned automobiles: exhibits 1a - 8 (20 exhibits overall) that
support chapter A.
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Section A: Proposed
Automobiles
Israel
Classification
Plan
Part A - Section A
Private Owned Automobiles
for
Private
Owned
Executive Summary
This section of the document pertains specifically to the proposed Israel classification plan for private
owned automobiles, which will become applicable sometime in 2003.
The initial classification rating plan that is being proposed was developed based on a combination of
Israel driver and accident experience as compiled by the Central Bureau of Statistics, United States NoFault insurance data (No-Fault is the coverage most similar to compulsory automobile insurance in
Israel), and information gathered from ISO Israel’s visits to Israeli insurance companies in 2000.
Due to the limited availability of Israel automobile experience, the proposed factors have been selected in
consideration of possible differences between Israel and the United States; to moderate the initial effects
of the new rating structure on individual insureds, and to comply with the Ministry of Finance’s
provision that the net premium for each vehicle may not exceed 96% of the Pool’s net premium. As time
goes on and Israel insurance experience is compiled in the ISO Israel database, the Israel insurance
experience will be analyzed, and revisions to the factors noted below will be proposed, as necessary.
Following is a summary of the current versus the proposed classification rating variables, and associated
factors, for private owned automobiles in Israel:
Age and Gender
Female Operators Aged less than 21
Male Operators Aged less than 21
Female Operators Aged 21-24
Male Operators Aged 21-24
Operators Aged 25-49
Operators Aged 50-64
Operators Aged 65-74
Operators Aged 75 & Over
Current Factor
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Proposed Factor (Primary)
1.03
1.05
1.015
1.025
1.00
0.95
0.95
0.95
Years Licensed in Israel
Less than 2 years
At least 2 but less than 4 years
4 or more years
Current Factor
N/A
N/A
N/A
Proposed Factor (Additive)
+0.05
+0.025
0.00
Number of Accidents
0 or 1
2
3 or More
Current Factor
N/A
N/A
N/A
Proposed Factor (Additive)
+0.00
+0.025
+0.05
Number of Major Convictions
0
1 or More
Current Factor
N/A
N/A
Proposed Factor (Additive)
+0.00
+0.05
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Part A - Section A
Private Owned Automobiles
Air Bags Indicator
Current Factor
There is at least one Air-Bag in the vehicle
N/A
There are no Air-Bags in the vehicle
N/A
Proposed Factor (Multiplicative)
0.975
1.00
Vehicle Engine Size Factors
Current Factor
Vehicle Engines Size in Cubic Centimeters
Less than or equal to 1,050
N/A
1,051 – 1,550
N/A
1,551 – 2,050
N/A
2,051 – 3,050
N/A
3,051 or more
N/A
Proposed Factor (Multiplicative)
1.00
1.00
1.00
1.00
1.00
Additionally, ISO Israel is capturing detail for the following variables through the Israel statistical plan,
so that analyses of these variables can be performed in the future, for possible refinement to the initial
classification plan for private owned automobiles:








Principal vs. Non-Principal Operator Status
Driver Marital Status (optional)
Presence of Anti-Lock Braking System in Vehicle (optional)
Vehicle Weight
Number of Operators of Vehicle
Model Year of Vehicle
Seating Capacity of Vehicle (optional)
Education Level (optional)
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
Introduction
This section of the document pertains specifically to the proposed Israel classification plan for private
owned automobiles, which will become applicable sometime in 2003.
The initial classification rating plan that is being proposed was developed based on a combination of
Israel driver and accident experience as compiled by the Central Bureau of Statistics, United States NoFault insurance data and information gathered from ISO Israel’s visits to Israeli insurance companies in
2000. Historical Israel insurance experience was not available in time to be included in the initial
classification analysis performed by ISO Israel.
No-Fault coverage in the United States is the coverage most similar to compulsory automobile insurance
in Israel. However, not all states have mandatory No-Fault insurance laws in effect. As a result, analyses
based on United States data include experience only from those states which have mandatory No-Fault
laws in effect. These states include: Colorado, Delaware, DC, Florida, Kansas, Kentucky, Maryland,
Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Utah, Washington
and Hawaii.
Due to the limited availability of Israel automobile experience, the proposed factors have been selected in
consideration of possible differences between Israel and the United States; to moderate the initial effects
of the new rating structure on individual insureds and to comply with the Ministry of Finance’s provision
that the net premium for each vehicle may not exceed 96% of the Pool’s net premium. As time goes on
and Israel insurance experience is compiled in the ISO Israel database, the Israel insurance experience
will be analyzed, and revisions to the factors noted below will be proposed, as necessary.
Proposed Classification Plan and Factors
Following are the proposed classification rating variables, and associated factors, for private owned
automobiles in Israel.
Age and Gender
Female Operators Aged less than 21
Male Operators Aged less than 21
Female Operators Aged 21-24
Male Operators Aged 21-24
Operators Aged 25-49
Operators Aged 50-64
Operators Aged 65-74
Operators Aged 75 & Over
Proposed Factor (Primary)
1.03
1.05
1.015
1.025
1.00
0.95
0.95
0.95
Years Licensed in Israel
Less than 2 years
At least 2 but less than 4 years
4 or more years
Proposed Factor (Additive)
+0.05
+0.025
0.00
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Number of Accidents
0 or 1
2
3 or More
Proposed Factor (Additive)
+0.00
+0.025
+0.05
Number of Major Convictions
0
1 or More
Proposed Factor (Additive)
+0.00
+0.05
Part A - Section A
Private Owned Automobiles
Air Bags Indicator
Proposed Factors (Multiplicative)
There is at least one Air-Bag in the vehicle
0.975
There are no Air-Bags in the vehicle
1.00
Vehicle Engine Size Factors
Proposed Factor (Multiplicative)
Vehicle Engines Size in Cubic Centimeters
Less than or equal to 1,050
1.00
1,051 – 1,550
1.00
1,551 – 2,050
1.00
2,051 – 3,050
1.00
3,051 or more
1.00
Thus, the final classification factor for a particular risk would be obtained as follows:
(Age and Gender Factor + Years Licensed in Israel Factor + Number of Accidents Factor + Number of
Major Convictions Factor) * Air Bags Indicator Factor * Vehicle Engine Size Factor.
Further details regarding the classification plan rating rules can be found in the section “Israel
Classification Plan Rating Rules for Private Owned Automobiles”.
Support for the Variables Included in Proposed Classification Plan
As mentioned above, the selection of variables used for the development of the Israel classification plan
was based on a combination of Israel driver and accident experience as compiled by the Central Bureau
of Statistics, United States No-Fault insurance data (No-Fault insurance coverage in the United States is
similar to the type of coverage provided by Israel’s compulsory automobile liability insurance), and
information gathered from our visits to Israeli insurance companies in 2000.
Following is support for the selection of the variables included in the proposed classification plan for
private owned automobiles.
Age of Driver (Year of Birth)
Exhibits 1A & 1B display Israel accident frequency and accident severity information by driver age, as
complied by the Central Bureau of Statistics. As Exhibit 1A illustrates, accident frequency in Israel
varies significantly by the age of the driver. Specifically, there is an inverse relationship -- as the age of
the driver increases, the corresponding accident frequency decreases. Additionally, as exhibit 1B
illustrates, drivers under the age of 18, and drivers over the age of 65, are involved in a greater
percentage of total fatal and serious accidents than drivers of other ages. Assuming that the actual costs
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Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
of accidents increase with increasing severity, the loss severities resulting from the accidents that drivers
of these age groups have will be higher than those associated with drivers of all other ages.
Exhibit 1C displays United States personal automobile claim frequency and pure premium No-Fault
insurance experience by driver age. As Exhibit 1C illustrates, similar patterns are observed for the United
States automobile market for accident frequency and pure premium. That is, accident frequency and pure
premium generally decrease as the age of the driver increases, up until the age of 75. At 75 years of age,
the experience starts to worsen.
It should also be noted that the Israeli insurers we met generally believed that the age of the driver would
be the factor that would most influence the loss potential for compulsory coverage.
For these reasons, ISO Israel has proposed including driver age in the classification plan for private
owned automobiles in Israel, and collecting year of birth of the youngest operator in the statistical plan.
Driver Gender
Exhibits 2A & 2B display Israel accident frequency and accident severity information by driver gender,
as compiled by the Central Bureau of Statistics. As Exhibit 2A illustrates, accident frequency in Israel
varies significantly by the gender of the driver. Specifically, Israeli male drivers exhibit much higher
accident frequency than Israeli female drivers. Additionally, as exhibit 2B illustrates, Israeli male drivers
are involved in a greater percentage of serious and fatal accidents than female drivers are. Assuming that
the actual costs of accidents increase with increasing severity, the loss severities resulting from the
accidents that male drivers have will be higher than those associated with female drivers.
Exhibit 2C displays United States personal automobile claim frequency and pure premium No-Fault
insurance experience by driver gender. As Exhibit 2C illustrates, the patterns observed for the United
States automobile market are different than those of Israel. That is, in the United States, female drivers
exhibit somewhat higher accident frequency and pure premiums than male drivers.
Some additional items should be considered with regard to gender. In the United States, gender
distinctions are maintained only for youthful drivers (i.e., drivers under the age of 24) for classification
rating purposes. This is because gender is expected to have little predictive power at older ages. As
Exhibit 2D illustrates, this is not the case with Israel. Significant differences continue to be observed by
gender, regardless of the age of the driver.
One possible explanation for the observed discrepancy by gender is the percentage of the population
licensed to drive by gender. As Exhibit 2E illustrates, females in Israel are much less likely to obtain a
driver’s license than males; this is true regardless of age. As a result, it is possible that the observed
results by gender are affected by factors other than just the gender of the driver. That is, the select
population of females obtaining driver licenses in Israel may have very different characteristics (other
than gender) than the population of males obtaining driver licenses in Israel. For example, these females
might live in less congested areas, or may use their vehicles less often than the general population of
males obtaining driver licenses. As Exhibit 2F illustrates, these are not considerations in the United
States, since the percentage of the population licensed to drive is fairly consistent by gender.
It should also be noted that the Israeli insurers we met with generally believed that the gender of the
driver would be an effective classification variable.
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Part A - Section A
Private Owned Automobiles
For these reasons, ISO Israel has proposed including driver gender in the classification plan for private
owned automobiles in Israel. However, judgment has been applied to the final selected factors, to reflect
the differences observed between Israel and United States gender experience.
Driver Experience (Years Licensed)
Exhibits 3A & 3B display Israel accident frequency and accident severity information by years licensed,
as compiled by the Central Bureau of Statistics. It should be noted that the years licensed denoted by the
CBS is the years licensed in Israel, and as a result driving experience outside of Israel is not considered.
As Exhibit 3A illustrates, accident frequency in Israel varies significantly by the years the driver is
licensed. Specifically, there is an inverse relationship -- as the years licensed increases, the corresponding
accident frequency decreases. However, as exhibit 3B illustrates, the distribution of the severity of
accidents is fairly uniform, regardless of the number of years the driver is licensed.
Exhibit 3C displays United States personal automobile claim frequency and pure premium No-Fault
insurance experience by years licensed. As Exhibit 3C illustrates, similar patterns are observed for the
United States automobile market. That is, accident frequency and pure premium generally decrease as the
number of years the driver is licensed increases.
It should also be noted that the Israeli insurers we met with generally believed that the length of time an
individual was licensed would be a relevant rating factor, particularly for the first few years of licensing.
For these reasons, ISO Israel has proposed including years licensed in the classification plan for private
owned automobiles in Israel.
Accident History
ISO Israel did not have sufficient Israeli information on accident history available for analysis. However,
in the United States the accident history of the driver has proven to be a very powerful discriminator for
personal automobile loss potential. This is illustrated in Exhibit 4, which displays United States personal
automobile claim frequency and pure premium No-Fault insurance experience by Bodily Injury Liability
accident history. (Bodily Injury Liability accident history reflects the operator’s number of accidents
resulting in a Bodily Injury claim within the previous three years) As Exhibit 4 illustrates, the frequency
and pure premiums increase significantly with each accident involvement. One thing that should be noted
with regard to the United States Bodily Injury Liability accident history is that it reflects only those cases
where a driver was proven to be at-fault in the accident, and where a bodily injury occurred.
It should be noted that the Israeli insurers we met with also agreed that in concept, the driving record of
the vehicle operator would be relevant to rating the risk.
For these reasons, ISO Israel has proposed including accident history in the classification plan for private
owned automobiles in Israel.
Major Conviction History
ISO Israel did not have sufficient Israeli information on conviction history available for analysis.
However, in the United States the conviction history of the driver has proven to be a very powerful
discriminator for personal automobile loss potential. This is illustrated in Exhibit 5, which displays
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Part A - Section A
Private Owned Automobiles
United States personal automobile claim frequency and pure premium No-Fault insurance experience by
conviction history. As Exhibit 5 illustrates, the frequency and pure premiums increase significantly with
each occurrence of a conviction. One thing that should be noted with regard to the United States
conviction history is that it reflects experience from all convictions – both minor convictions and major
convictions.
Due to the observed differences by conviction history in the United States experience, ISO Israel has
proposed including conviction history in the classification plan for private owned automobiles in Israel.
Air Bags Indicator
Similar to accident history and conviction history, ISO Israel did not have sufficient Israel information on
the presence of air bags in the vehicle available for analysis. However, the personal automobile rating
plans in effect in the United States currently include discounts for this variable. In fact in some states,
these discounts were initiated by government action prior to the accumulation of experience to support
such action, due to the intuitive nature of the expected results. Subsequently, various studies by United
States governmental agencies have shown that the presence of air bags in vehicles significantly reduces
the resulting injuries to occupants of that vehicle in the event of a collision. The appropriateness of these
discounts was further supported by United States insurance experience, which was collected and
analyzed, after such discounts were introduced. Exhibit 6 contains United States insurance experience for
vehicles equipped with air bags versus vehicles without air bags. As Exhibit 6 illustrates, the experience
for vehicles with air bags is considerably lower than the experience for vehicles without air bags.
For these reasons, ISO Israel has proposed including the Air Bags Indicator in the classification plan for
private owned automobiles in Israel.
One item that should be noted is that the No-Fault coverage in effect in the United States differs from the
compulsory coverage in effect in Israel in one respect -- the payment of losses to a pedestrian. In the
United States, losses to pedestrians are not covered by no-fault coverage; rather they are paid by Bodily
Injury Liability coverage, which is compulsory in almost every state. Thus, the experience contained on
Exhibit 6 is exclusive of losses paid to pedestrians. Since the injuries suffered by pedestrians would not
be affected by the presence of air-bags in the striking vehicle, and since the compulsory coverage in
effect in Israel includes payments for losses sustained by pedestrians, the savings due to the presence of
air-bags in the vehicle may be slightly lower in Israel than it is in the United States for No-fault coverage.
According to the CBS, pedestrians represent 10% of all claimants in Israel for compulsory automobile
insurance.
Vehicle Engine Size
While some studies in Israel have indicated that engine size has an effect on the loss potential of a
vehicle for compulsory insurance, ISO Israel has not yet been able to ascertain the insurance experience
for vehicle engine size in Israel. Also, since this initial classification plan for compulsory insurance is
constrained by the requirement that the maximum tariff can only be 96% of the pool tariff, ISO Israel has
had to significantly temper the initial factors included in this class plan. Based on our experience in
rating auto coverages in the U.S., ISO Israel believes that the driver characteristics are more significant
than engine size in determining loss potential. Thus, ISO Israel has included the engine size parameter in
this initial class plan with factors of 1.00 for all engine sizes. In the future, after sufficient experience
collected through the Israel statistical plan has been accumulated, ISO Israel will analyze the predictive
power this variable provides and change the classification plan accordingly.
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Part A - Section A
Private Owned Automobiles
Other Variables Considered, But Not Included in the Proposed Classification System for Israel
ISO Israel has also identified additional variables, which may further refine the classification, and rating
of private owned automobiles in Israel. These variables are as follows:









Income Potential (i.e., Education Level)
Principal vs. Non-Principal Operator Status
Driver Marital Status
Garaging Location of Risk (i.e., Territory)
Anti-Lock Brake Indicator
Vehicle Weight
Number of Operators of Vehicle
Seating Capacity of Vehicle
Model Year of Vehicle
However, for the reasons noted below, ISO Israel is not proposing the inclusion of these variables in the
initial Israel classification plan for private owned automobiles. Rather, ISO Israel is suggesting that detail
for some of these variables be captured through the Israel statistical plan, so that future analyses of these
variables can be performed. In the future, after sufficient experience collected through the Israel
statistical plan has been accumulated, ISO Israel will analyze the additional predictive power these
variables provide. If any of these variables is deemed significant in further classifying and rating
compulsory automobile risk potential, then ISO Israel will propose including such variables in a future
refinement to the Israel classification plan for private owned automobiles.
Income Potential (Education Level)
While the compulsory automobile coverage in Israel includes coverage for loss of income, there are a few
reasons why ISO Israel has not included income potential in the initial classification plan:
First and foremost, neither Israel nor United States insurance experience was readily available for
analysis by the income potential of the driver.
Secondly, it is not clear to what extent the income potential of the rated driver will be a predictor of loss
potential due to the fact that the income losses associated with the rated driver represent apparently at
most 17.5% of the total paid losses for Israel compulsory automobile coverage. It is a known fact that on
average, income losses represent approximately 35% of the total loss payment for the compulsory
coverage in Israel. (Source: Payment to claimants of compulsory insurance by Avner.) Furthermore,
according to the Central Bureau of Statistics, drivers (that is drivers at the time of the accident) represent
only about 50% of all injured parties – that is, passengers and pedestrians together represent the other
50% of the claimants. As a result, information on the income potential of the rated driver is expected to
be a good predictor for at most 17.5 % of the total compulsory losses (i.e., the percentage of claims paid
to the claimant for which income potential information is available (the rated driver) times the average
percentage of losses which are income losses OR 35% x 50% = 17.5 % -- if the driver at the time of the
accident is the rated driver). However, the driver at the time of the accident is not always the rated driver.
Given the greater number of licensed drivers than registered private automobiles in Israel (by a ratio of
about 2 licensee’s per registered private automobile), ISO Israel believes that the actual percentage of
income losses that could be attributed to the rated driver would be lower.
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Part A - Section A
Private Owned Automobiles
For these reasons, ISO Israel will not collect information in the Statistical Plan on the income of the
youngest operator.
However, since the potential for long term disability type claims exists, ISO Israel will collect
information on future income potential of the youngest operator through the statistical plan, so that future
analyses of this variable can be performed. For data collection purposes, the education level of the
drivers will be used as a proxy for future income potential.
Once sufficient information has been collected through the statistical plan, ISO Israel will analyze the use
of income potential as a rating variable.
Principal Operator Status
Sufficient Israel accident experience was not available for analysis by the operator status of the driver
(i.e., whether the rated driver is the principal operator of the vehicle or only an occasional operator of the
vehicle) Furthermore, analysis of this variable for United States No-Fault experience led to either
insignificant or counter-intuitive results. For these reasons ISO Israel has not included principal operator
status in the initial classification system for Israel.
Driver Marital Status
Sufficient Israel accident experience was not available for analysis by the marital status of the driver.
While this variable is used in classifying personal automobile risks in the United States, it is used
sparingly – that is, marital status distinctions are made only for youthful male operators. Due to the
limited amount of data currently available by marital status, and the differences observed for Israel vs.
United States gender experience, ISO Israel recommends that marital status not be included in the Israel
classification plan at this time.
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Part A - Section A
Private Owned Automobiles
Garaging Location of Risk (Territory)
The only Israel accident experience available for analysis in location detail was information based upon
the location of the accident and not on garaging location. While distinctions in accident frequency were
observed for urban vs. non-urban accident locations, the particular location that a vehicle can or does
travel to is not known a priori, and thus cannot be used for risk classification purposes. In the United
States, experience has shown that the location of garaging, which is known a priori, is a good predictor of
personal automobile loss experience. However, geographic location information is greatly affected by
external factors such as population density and current road conditions . Since these external factors are
not directly comparable for the United States and Israel, United States territory information is
inappropriate for direct use in Israel. As a result, ISO Israel recommends that the location of
garaging/territory not be included in the Israel classification plan at this time. Additionally, at the request
of the Ministry of Finance and the aforementioned reasoning, ISO Israel will not capture information on
the garaging location of the vehicle in the Statistical Plan at this time.
Anti-Lock Brake Indicator
Sufficient Israel accident experience with distinctions for the presence or absence of an anti-lock braking
system was not available for analysis. Furthermore, according to a safety research paper published by
General Motors Global Research and Development Operations (Anti-Lock Brake Systems and Risk of
Different Types of Crashes in Traffic, 1998) significant decreases in risk were observed only when antilock braking systems were utilized on wet roads. On dry roads there was no observable effect on total
crash risk resulting from the use of anti-lock braking systems. Since Israel has a rather dry climate, the
effect of anti-lock braking systems on Israel automobile loss potential is questionable. As a result, ISO
Israel recommends that the presence of anti-lock braking systems in the vehicle not be included in the
Israel classification plan at this time.
Vehicle Weight
While United States experience has been observed to vary by the weight of the vehicle, sufficient
information on the weight of private owned automobiles in Israel is not currently available. As a result,
vehicle weight cannot be included in the Israel classification system until this information is readily
available to insurers for all private owned vehicles.
Number of Operators of the Vehicle
The number of operators of the vehicle could be related to the loss potential of each vehicle, since as the
number of drivers which have access to a vehicle increases, the potential for that vehicle to be in
operation increases, thus increasing the potential exposure for that risk. However, there is currently not
enough experience available for Israel or the United States to sufficiently support inclusion of the
number of operators of the vehicle in a classification plan for Israel at this time. It should be noted that
this variable is not currently used in classifying personal automobile risks in the United States.
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Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
Seating Capacity of the Vehicle
The seating capacity of the vehicle could be related to the loss potential of each vehicle, since as the
seating capacity increases, so does the potential for additional passengers in that vehicle, thus increasing
the potential exposure for that vehicle. However, there is currently not enough experience available for
Israel or the United States to sufficiently support inclusion of the seating capacity of the vehicle in a
classification plan for Israel at this time. It should be noted that this variable is not currently used in
classifying personal automobile risks in the United States.
Model Year
While the model year of the vehicle could be related to the loss potential of each vehicle, sufficient
experience was not readily available for Israel or the United States to support its inclusion in a
classification plan for Israel at this time. However, it should be noted that since vehicle safety devices are
present only in the newer model year vehicles, the model year of the vehicle and the presence of safety
features are expected to be correlated. Since the presence of air-bags is included in the proposed
classification plan, some of the potential differences by the model year of the vehicle may already be
accounted for in the proposed classification plan via the inclusion of the air-bag variable.
Support for the Proposed Classification Factors
For the introduction of the Israel classification rating system, ISO Israel analyzed relevant insurance data
from the United States with judgmental adjustments made based on observations of available accident
and demographic data from Israel and the United States. In analyzing the United States data ISO Israel
used a procedure contained in Robert Bailey’s paper “Insurance Rates with Minimum Bias”, Proceedings
of the Casualty Actuarial Society, Volume L. This methodology is particularly appropriate when no risk
group has sufficient exposure data to enable determination of its risk factors. The paper suggests how to
deal with biases that may develop when the data includes multiple risk factors, and explains how to deal
with the interactions and minimize the resulting bias. The methodology described in this paper is the
methodology currently used by ISO in analyzing automobile insurance classification data in the United
States. Further details of the Bailey’s minimum bias procedure can be found in the appendix.
The risk variables which were expected to be affected the most by interactive effects were the 5 driver
related variables -- driver age, driver gender, driver years licensed, driver accident history and driver
conviction history. As a result, these variables were analyzed using Bailey’s minimum bias procedure, as
explained in the appendix. The remaining variables – Air Bags Indicator and Engine Size — are vehicle
specific variables, and thus it was assumed that the effects of these characteristics would not be affected
by the driver of the vehicle.
Exhibit 7A displays the initial indications resulting from Bailey’s minimum bias analysis. Exhibit 7B
displays the indications after ISO Israel’s selected surcharges for BI Accidents, Convictions and Years
Licensed. For this analysis the base class was selected to be drivers who:




were not classified as youthful operators (age less than 24) or senior operators (ages 50 & above)
had no accident history
had no conviction history
have been licensed to drive for at least 4 years
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Part A - Section A
Private Owned Automobiles
The resulting base class indications for these categories are displayed as 1.00 for the primary factor
analyzed (age and gender) and 0.00 for the other variables analyzed (accident history, conviction history
and years licensed). The initial indication for a particular class would be obtained by taking the factor
displayed for the appropriate age and gender, and adding the factor displayed for the appropriate accident
history, conviction history and years licensed. The accident history, conviction history and years licensed
variables were chosen to be additive factors to ensure a consistent shekel surcharge/discount for each of
these variables, regardless of the age and gender of the driver. This was done because the effects of these
factors on the resulting loss potential are assumed to be independent of the age and gender of the driver.
ISO Israel has suggested tempering the initial indications for the BI accidents, convictions and years
licensed variables for the following reasons:
BI Accidents
As previously mentioned, BI accident history in the United States reflects only those cases where a driver
was proven to be at-fault in an accident, and where a Bodily Injury liability claim was eventually paid.
For a Bodily Injury Liability claim to have been paid in a no-fault state, the claimant injuries had to have
been severe. Thus, BI accident history in the United States reflects only the most severe accidents, and
furthermore, only those accidents where the driver was proven to be at fault. Since Bodily Injury
Liability coverage is compulsory in the United States even when No-Fault coverage is in effect, BI
accidents can be used as a predictor for No-Fault coverage loss potential. However, this is not the case in
Israel. Due to the fact that coverages other than compulsory liability are not mandatory in Israel, the
accident history used for classification rating purposes has been chosen to encompass accidents resulting
in a claim made through the compulsory automobile liability system. These will include accidents where
the driver may or may not have been at-fault, as well as accidents which are much less severe than those
considered under the United States BI accident history definition. For these reasons, ISO Israel suggests
selecting accident surcharges that are much more moderate than those indicated from the United States
experience. Additionally, ISO Israel suggests that surcharges not be applied for the first accident.
Specifically, ISO Israel suggests that 2 accidents be assigned an additive surcharge of +0.025, and that 3
or more chargeable accidents be assigned a surcharge of +0.05.
Major Convictions
In order to moderate the initial effects of the new rating structure on individual insureds, ISO Israel
suggests that 1 or more major convictions be assigned an additive surcharge of +0.05. Additionally, ISO
Israel suggests that surcharges be applied for major convictions only, where a major conviction is defined
as one that results in a driver’s license being confiscated, unless overturned by the court.
Years Licensed
In the United States, the majority of individuals who will obtain a driver’s license sometime in their
lifetime do so at the earliest age possible -- age 17. As a result, years licensed data in the United States is
very highly correlated with the age of the driver. In fact, in this initial analysis, years licensed may really
be explaining some of the effects attributable to driver age. In Israel, this may not always be the case,
since the proposed classification plan for Israel will classify risks based on the years an individual has
been licensed to drive in Israel only. For these reasons, ISO Israel suggests selecting years licensed
surcharges that are much more moderate than those indicated from the United States experience.
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Part A - Section A
Private Owned Automobiles
Specifically, ISO Israel suggests that the at least 2 but less than 4 years licensed category be assigned a
surcharge of +0.025, and that the less than 2 years licensed category be assigned a surcharge of +0.05.
In addition to the above reasons, ISO Israel selected the factors so that the plan is in compliance with the
Ministry of Finance provision that the net premium for each vehicle may not exceed 96% of the Pool’s
net premium.
These surcharges will of course be reviewed, and revised if necessary, once sufficient experience has
been collected and compiled in the Israel database.
Age and Gender
The final selections for age and gender reflect consideration of the fact that gender experience in Israel is
quite different than gender experience for no-fault coverage in the United States. Specifically, female
drivers in Israel exhibit much better experience than male drivers, whereas the opposite is true in the
United States. Furthermore, the selected factors have also been tempered to account for the fact that the
youthful operator experience included in this study was for unmarried operators only. (In the United
States age and gender distinctions are maintained only for unmarried youthful operators) Since an
argument can be made that young married operators are more mature for their age than unmarried
operators, it is possible that the experience for unmarried youthful operators is slightly higher than
youthful operators as a whole. For these reasons, ISO Israel suggests using the selected factors displayed
on Exhibit 7C.
The driver age and gender factors will of course be reviewed, and revised if necessary, once sufficient
experience has been collected and compiled in the Israel database.
Consideration of Principal Operator Status
In addition to the age and gender of the rated driver, the operator status of the driver (i.e., whether the
rated driver is the principal operator of the vehicle versus an occasional operator of the vehicle) may also
be related to the loss potential of a particular risk. That is, the operator status may be an indicator of how
much the vehicle is actually used by the rated driver, and thus may better distinguish the actual exposure
of the rated driver in cases where there are multiple operators of a vehicle. For this reason, ISO Israel
performed a second analysis where the operator status of the driver was taken into consideration in
addition to the age and gender of the driver. This analysis was performed using the same procedures as
described above, with the only difference being that principal operator status information was maintained
in addition to the age and gender, for the youthful operators. The results of this analysis are contained in
Exhibit 7D.
As Exhibit 7D illustrates, the indications including principal operator status were counter-intuitive for
youthful male drivers, ages 21-24. That is, the indications for principal operators were lower than those
for non-principal operators. If principal operator status was truly an indicator of the exposure of the rated
driver, the opposite should have been observed for youthful drivers.
Due to the anomalous results observed for No-Fault experience, ISO Israel did not include principal
operator status in the initial classification plan for Israel.
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Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
Air Bag Indicator Indications and Selections
Exhibit 8 displays the indicated frequency, pure premium and loss ratio relativities for United States nofault experience for vehicles with air bags to experience for vehicles without air bags. The loss ratios
displayed on this exhibit are defined as losses divided by collected premium. The collected premium in
this case reflects rating differences for variables contained in the personal automobile class plan currently
in effect in the United States. These variables include the driver’s age, the driver’s gender, driver’s
experience (i.e., years licensed) and the BI accident and major conviction history of all drivers of the
vehicle. While the United States personal automobile class plan for No-Fault coverage also includes
rating differentials based on the presence of vehicle air-bags, these rating differentials are not reflected in
the collected premium used for this analysis.
As Exhibit 8 illustrates, both relativities indicate discounts for vehicles with air-bags.
Based on this experience, ISO Israel suggests that the selected factors displayed on Exhibit 8 be used in
the initial Israel classification plan. Specifically, ISO Israel suggests selecting a discount of 2.5% for
vehicles equipped with an air bag.
The vehicle air bag discount will of course be reviewed, and revised if necessary, once sufficient
experience has been collected and compiled in the Israel database.
Rating Distinctions in Tariffs
Currently rating distinctions for several types of vehicles are maintained in the tariff. ISO Israel is
proposing that the rating distinctions for the following vehicles continue to be done via the tariff.
Vehicle Type
Private Vehicles
Subclass
Private Owned, Used for Driving Lessons
Private Owned, Antique Auto
Israel Classification Plan Rating Rules
Rule 1 - Introduction - the Included Vehicles
This section provides the automobile insurance rating rules applying to the following vehicles:
1. Must be private owned.
2. Must be one of the following types of vehicles:
 Private passenger autos and station wagons.
 Private field vehicle, commonly referred to as sport utility vehicles or jeeps ("rehev kvishshetach").
 Private mini-bus ("autobus zair prati").
 Private owned truck (or any other commercial vehicle which is not listed below as noneligible) which weighs less than 4,000 kgs.
Throughout these rules, the term "auto" is used to refer to the vehicles listed above.
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Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
The following vehicles are not eligible for rating in this section: corporate owned vehicles, motorcycles,
taxis, buses (other than private mini-buses), trailers, trucks and any vehicles weighing over 4,000
kilograms.
Rule 2 - Premium Determination
The premium for each auto is determined as follows:
1. Determine the auto's Driver Classification rating factor according to Rule 3 - Driver
Classification.
2. Add the applicable Accidents factor determined in Rule 4 - Accidents to the Driver Classification
rating factor determined in Rule 3.
3. Add the applicable Major Convictions factor determined in Rule 5 - Major Convictions to the Driver
Classification rating factor determined in Rule 3 and the Accidents factor determined in Rule 4.
4. Refer to Rule 6. to determine the applicable rating factors for:
 Airbag-equipped autos
 Engine Size
These factors are applied multiplicatively.
5. The premium for each auto is determined by multiplying the base rate by the final classification
rating factor determined in steps 2., 3. and 4. above.
Rule 3 - Driver Classification
1. For the youngest operator of the auto on a regular basis, determine a rating factor from the table
below based on the driver's age, gender and number of years licensed. This factor shall be used for
Premium Determination purposes.
DRIVER CLASSIFICATION FACTOR TABLE
AGE
Under 21
21 - 24
25 – 49
50 – 64
MALE
1.05
1.025
1.00
0.95
65+
0.95
GENDER
FEMALE
1.03
1.015
1.00
0.95
YEARS LICENSED
YEARS
Factor *
Less than 2
+0.05
>=2-<4
+0.025
4 or more
0.00
0.95
* Add the Years Licensed factor to the Age/Gender factor to develop the Driver Classification factor.
2. Classification Definitions:


Regular Basis, which applies to the “Major Convictions”, “Accidents”, “Age”, “Gender” and
“Years Licensed” rating factors, refers to operators who have access to the vehicle and who drive
it on a fairly consistent basis. This excludes individuals who drive on particular or rare occasions
Age means the age attained on the last birthday for the youngest regular operator.
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
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
Years Licensed means the number of years the youngest regular operator has been licensed to
drive this type of vehicle in Israel.
If the month of the year licensed is not known, the years licensed should be calculated by assuming
that the driver was licensed on July 1st of that year. That is, the number of years licensed would be
calculated by: subtracting the month and year licensed (month would be July in this case) from the
effective month and year of the insurance policy and then truncating to whole years.
The one exception to this rule is if the year licensed is equal to the effective year of the policy, and
the effective month of the policy is anytime from January through June; in this case the years
licensed automatically equals 0.
For example,
If the effective date of a policy is January 15, 2003, and the policyholder obtained his license in
2002, the calculation would be January 2003 minus July 2002, which equals 6 months; truncating to
whole years results in 0 years licensed.
If the effective date of a policy is March 15, 2003, and the policyholder obtained his license in 2003,
the number of years licensed is 0.
If the effective date of a policy is January 15, 2003, and the policyholder obtained his license in
1998, the calculation would be January 2003 minus July 1998, which equals 4 years and 6 months;
truncating to whole years results in 4 years licensed.
3. Multi-car households:
A driver shall not be used to determine the Driver Classification factor on more than one auto owned
by the insured, unless there is only one licensed driver in the household.
Rule 4 - Accidents
The Accidents rating factor is determined based on the number of compulsory liability insurance
accidents within the last 3 years.
In determining the number of accidents, insurers should include accidents for the last three years for all
who drive the vehicle on a regular basis, while operating an automobile. Only accidents that generated a
claim under the compulsory automobile liability insurance should be considered. Accidents for both
private owned and corporate owned automobiles should be considered.
Add the applicable Accidents factor to the Driver Classification rating factor determined in Rule 3.
ACCIDENTS rating factors
Number of Accidents
0 or 1
2
3 or more
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Factor
0.00
+ 0.025
+ 0.05
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106763622
Proposed for 2003
March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
Rule 5 - Major Convictions
Major Convictions refers to any conviction that results in license confiscation on its own, unless
overturned by the court. In determining the number of major convictions, insurers should include major
convictions for the last three years for all who drive the automobile on a regular basis, while operating an
automobile. Major convictions for both private owned and corporate owned automobiles should be
considered.
Add the applicable Major Convictions factor to the Driver Classification rating factor determined in Rule
3. and the Accident rating factor determined in Rule 4.
MAJOR CONVICTIONS rating factors
Number of Major Convictions
0
1 or more
Factor
0.00
+ 0.05
Rule 6 - Vehicle Specific Factors
1. Airbag Indicator:
Determine the Airbag Indicator Autos rating factor according to whether the auto is equipped with
either (1) at least one airbag, or (2) no airbags. This factor is applied multiplicatively in the premium
determination process.
AIR BAG INDICATOR rating factors
Airbag Indicator
There is at least one Air-Bag in the vehicle
There are no Air-Bags in the vehicle
Factor
0.975
1.00
2. Engine Size:
Determine the Engine Size in cubic centimeters for Private Owned autos. The factor is applied
multiplicatively in the premium determination process.
ENGINE SIZE rating factors
Vehicle Engine Size in Cubic Centimeters
Less than or equal to 1,050
1,051 – 1,550
1,551 – 2,050
2,051 – 3,050
3,051 or more
Factor
1.00
1.00
1.00
1.00
1.00
Rule 7 - Endorsements
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Israeli Compulsory Vehicle Insurance
Part A - Section A
Private Owned Automobiles
1. Change in Rated Operator: If during the policy term, there is a change in the rated operator, this
would require a change in the policy rating and premium and thus require the reporting of a policy
endorsement.
2. Change in Vehicle: If during the policy term, there is a change in the vehicle, this would require a
change in the policy rating and premium and thus require the reporting of a policy endorsement.
3. If the rated driver attains a birthday or if anyone who drives the vehicle on a regular basis
accumulates accidents/major convictions during the policy term which would result in a different
rating classification, an endorsement would not be reported, but these changes would be reflected
when a new policy is written or the policy is renewed.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
Section B: Proposed Israel Classification Plan for Private Owned
Motorcycles
Executive Summary
This section of the document pertains specifically to the proposed Israel classification plan for
private owned motorcycles, which will become applicable sometime in 2003.
The initial classification rating plan that is being proposed was developed based on a combination of
Israel driver and accident experience as compiled by the Central Bureau of Statistics, United States
No-Fault insurance data for personal automobiles (No-Fault is the coverage most similar to
compulsory automobile insurance in Israel), and information gathered from ISO Israel’s visits to
Israeli insurance companies in 2000. As time goes on and Israel insurance experience is compiled in
the ISO Israel database, the Israel insurance experience will be analyzed, and revisions to the factors
noted below will be proposed, as necessary.
Due to the limited availability of Israel automobile experience, the proposed factors have been
selected in consideration of possible differences between Israel and the United States; to moderate
the initial effects of the new rating structure on individual insureds, and to comply with the Ministry
of Finance’s provision that the net premium for each vehicle may not exceed 96% of the Pool’s net
premium. As time goes on and Israel insurance experience is compiled in the ISO Israel database, the
Israel insurance experience will be analyzed, and revisions to the factors noted below will be
proposed, as necessary.
Following is a summary of the current versus the proposed classification rating variables, and
associated factors, for private owned motorcycles in Israel:
Age and Gender
Female Operators Aged less than 21
Male Operators Aged less than 21
Female Operators Aged 21-24
Male Operators Aged 21-24
Operators Aged 25-49
Operators Aged 50-64
Operators Aged 65-74
Operators Aged 75 & Over
Current Factor Proposed Factor (Primary)
N/A
1.03
N/A
1.05
N/A
1.015
N/A
1.025
N/A
1.00
N/A
0.95
N/A
0.95
N/A
0.95
Years Licensed in Israel
Less than 2 years
At least 2 but less than 4 years
4 or more years
Current Factor
N/A
N/A
N/A
Proposed Factor (Additive)
+0.05
+0.025
0.00
Number of Accidents
0 or 1
2
3 or More
Current Factor
N/A
N/A
N/A
Proposed Factor (Additive)
+0.00
+0.025
+0.05
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Number of Major Convictions
0
1 or More
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Current Factor
N/A
N/A
Part A - Section B
Private Owned Motorcycles
Proposed Factor (Additive)
+0.00
+0.05
Additionally, ISO Israel is suggesting that detail for some of the following variables be captured
through the Israel statistical plan, so that analyses of these variables can be performed in the future,
for possible refinement to the initial classification plan for private owned motorcycles.






Income Potential (i.e., Education Level) [optional]
Principal vs. Non-Principal Operator Status
Driver Marital Status (optional)
Horsepower (optional)
Number of Operators of Vehicle
Model Year of Vehicle
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
Introduction
This section of the document pertains specifically to the proposed Israel classification plan for
private owned motorcycles.
Proposed Classification Plan and Factors
Following are the proposed classification rating variables, and associated factors, for private owned
motorcycles in Israel:
Age and Gender
Female Operators Aged less than 21
Male Operators Aged less than 21
Female Operators Aged 21-24
Male Operators Aged 21-24
Operators Aged 25-49
Operators Aged 50-64
Operators Aged 65-74
Operators Aged 75 & Over
Proposed Factor (Primary)
1.03
1.05
1.015
1.025
1.00
0.95
0.95
0.95
Years Licensed in Israel
Less than 2 years
At least 2 but less than 4 years
4 or more years
Proposed Factor (Additive)
+0.05
+0.025
0.00
Number of Accidents
0 or 1
2
3 or more
Proposed Factor (Additive)
+0.00
+0.025
+0.05
Number of Major Convictions
0
1 or More
Proposed Factor (Additive)
+0.00
+0.05
Thus, the final classification factor for a particular risk would be obtained as follows:
(Age and Gender Factor + Years Licensed in Israel Factor + Number of Accidents Factor + Number
of Major Convictions Factor)
Further details regarding the classification plan rating rules can be found in the section “Israel
Classification Plan Rating Rules for Private Owned Motorcycles”.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
Support for the Variables Included in the Proposed Classification Plan For Private Owned
Motorcycles
In the United States, No-Fault coverage is not available through the standard automobile market for
motorcycle risks. As a result, United States insurance experience for motorcycles was not readily
available for analysis. However, ISO Israel believes that with the exception of the presence of airbags, the factors that affect loss potential for private owned automobiles are the same factors that
would affect loss potential for private owned motorcycles; air bags are simply not available for
motorcycles. Additionally, since engine size is already a factor included in the motorcycle tariffs,
there is no need to add it to the class plan for motorcycles. Aside from the exceptions noted above,
ISO Israel proposes using the same variables that are used to classify private owned automobiles to
classify private owned motorcycles.
Other Variables Not Included in the Proposed Classification System for Israel
ISO Israel has also identified additional variables that may further refine the classification and rating
of private owned motorcycles in Israel. These variables are as follows:







Income Potential (i.e., Education Level)
Principal vs. Non-Principal Operator Status
Driver Marital Status
Garaging Location of Risk (i.e., Territory)
Horsepower
Number of Operators of Vehicle
Model Year of Vehicle
However, at the present time, there is not enough experience available for either Israel or the United
States to sufficiently support their inclusion in a classification plan for motorcycle risks in Israel. As
a result, with the exception of income potential and garaging location, ISO Israel has suggested that
detail for these variables be captured through the Israel statistical plan, so that future analyses on
these variables can be performed. The exclusion of the income potential and garaging location is at
the request of the Ministry of Finance.
However, since the potential for long term disability type claims exists, ISO Israel will collect
information on future income potential of the youngest operator through the statistical plan, so that
future analyses of this variable can be performed. For data collection purposes, the education level of
the drivers will be used as a proxy for future income potential.
In the future, after sufficient experience collected through the Israel statistical plan has been
accumulated, ISO Israel will analyze the additional predictive power these variables provide. If any
of these variables is deemed significant in further classifying and rating compulsory motorcycle risk
potential, then ISO Israel will propose including such variables in a future refinement to the Israel
classification plan.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
Rating Distinctions in Tariffs
Currently rating distinctions for several types of vehicles are maintained in the tariff. ISO Israel is
proposing that the rating distinctions for the following vehicles continue to be done via the tariff.
Vehicle Type
Private Owned Motorcycle
Subclass
0-50 CC
51-250 CC
251-500 CC
> 500 CC
Private Owned, Used for Driving Lessons
Private Owned, Antique
More than 1 Driver
With a Sidecar
Israel Classification Plan Rating Rules
Rule 1 - Introduction - The Included Motorcycle
This section provides the motorcycle insurance rating rules applying to the following types of
personally-owned motorcycles:



mopeds
motorcycles with a side-car
all other motorcycles
Throughout these rules, the term "motorcycle" is used to refer to the vehicles listed above.
Rule 2 - Premium Determination
The premium for each motorcycle is determined as follows:
1. Determine the motorcycle's Driver Classification rating factor according to Rule 3.
2. Add the applicable Accidents factor determined in Rule 4. Accidents to the Driver Classification
rating factor determined in Rule 3.
3. Add the applicable Major Convictions factor determined in Rule 5. Major Convictions to the
Driver Classification rating factor determined in Rule 3 and the Accidents factor determined in
Rule 4.
4. The premium for each motorcycle is determined by multiplying the base rate by the final
classification rating factor determined in steps 2. and 3. above.
Rule 3 - Driver Classification
1. For the youngest regular operator of the motorcycle on a regular basis, determine a rating factor
from the table below based on the driver's age, gender, and number of years licensed. This factor
shall be used for Premium Determination purposes.
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Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
DRIVER CLASSIFICATION FACTOR TABLE
Age
Less than 21
21 - 24
25 - 49
50 – 64
65+
GENDER
Male Female
1.05
1.03
1.025
1.015
1.00
1.00
0.95
0.95
0.95
0.95
YEARS LICENSED
Years
Factor *
<2
+0.05
>=2 - < 4
+0.025
4 or more
0.00
* Add the Years Licensed factor to the Age/Gender factor to develop
the Driver Classification factor.
2. Classification Definitions



Regular Basis, which applies to the “Major Convictions”, “Accidents”, “Age”, “Gender”
and “Years Licensed” rating factors, refers to operators who have access to the vehicle and
who drive it on a fairly consistent basis. This excludes individuals who drive on particular or
rare occasions.
Age means the age attained on the last birthday for the youngest regular operator.
Years Licensed means the number of years the youngest regular operator has been licensed
to drive this type of vehicle in Israel.
If the month of the year licensed is not known, the years licensed should be calculated by
assuming that the driver was licensed on July 1st of that year. That is, the number of years
licensed would be calculated by: subtracting the month and year licensed (month would be July
in this case) from the effective month and year of the insurance policy and then truncating to
whole years.
The one exception to this rule is if the year licensed is equal to the effective year of the policy,
and the effective month of the policy is anytime from January through June; in this case the years
licensed automatically equals 0.
For example,
If the effective date of a policy is January 15, 2003, and the policyholder obtained his license in
2002, the calculation would be January 2003 minus July 2002, which equals 6 months; truncating
to whole years results in 0 years licensed.
If the effective date of a policy is March 15, 2003, and the policyholder obtained his license in
2003, the number of years licensed is 0.
If the effective date of a policy is January 15, 2003, and the policyholder obtained his license in
1998, the calculation would be January 2003 minus July 1998, which equals 4 years and 6
months; truncating to whole years results in 4 years licensed.
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Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
3. Multi-vehicle households
A driver shall not be used to determine the Driver Classification factor on more than one
motorcycle owned by the insured, unless there is only one licensed driver in the household.
Rule 4 - Accidents
The Accidents rating factor is determined based on the number of compulsory liability insurance
accidents within the last 3 years.
In determining the number of accidents, insurers should include accidents for the last three years for
all who drive the motorcycle on a regular basis, while operating a motorcycle. Only accidents that
generated a claim under the compulsory automobile liability insurance should be considered.
Accidents for both private owned and corporate owned motorcycles should be considered.
Add the applicable Accidents factor to the Driver Classification rating factor determined in Rule 3.
ACCIDENTS rating factors
Number of Accidents
0 or 1
2
3 or more
Factor
0.00
+ 0.025
+ 0.05
Rule 5 - Major Convictions
Major Convictions refers to any convictions that results in license confiscation on its own, unless
overturned by the court. In determining the number of major convictions, insurers should include
major convictions for the last three years for all who drive the motorcycle on a regular basis, while
operating a motorcycle. Major convictions for both private owned and corporate owned motorcycles
should be considered.
Add the applicable Major Convictions factor to the Driver Classification rating factor determined in
Rule 3. and the Accident rating factor determined in Rule 4.
MAJOR CONVICTIONS rating factors
Number of Major Convictions
0
1 or more
Factor
0.00
+ 0.05
Rule 6 - Endorsements
1. Change in Rated Operator: If during the policy term, there is a change in the rated operator, this
would require a change in the policy rating and premium and thus require the reporting of a
policy endorsement.
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Israeli Compulsory Vehicle Insurance
Part A - Section B
Private Owned Motorcycles
2. Change in Vehicle: If during the policy term, there is a change in the vehicle, this would require
a change in the policy rating and premium and thus require the reporting of a policy
endorsement.
3. If the rated driver attains a birthday or if anyone who drives the vehicle on a regular basis
accumulates accidents/major convictions during the policy term which would result in a different
rating classification, an endorsement would not be reported, but these changes would be reflected
when new policy is written or renewed.
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March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A – Section C
Corporate Owned Vehicles
Section C: Proposed Israel Classification Plan For Corporate Owned
Vehicles
Introduction
This section of the document pertains specifically to the proposed Israel classification plan for
corporate owned vehicles, which will become applicable sometime in 2003. This plan is based on the
current system in place in Israel to rate corporate owned vehicles.
Proposed Classification Plan and Factors
Vehicles in Israel are currently grouped into different categories to allow for rating. The new
classification rating plan for corporate owned vehicles will use a similar type of system. All
corporate owned vehicles will fall into one of the following categories:








Corporate Owned Automobiles
Corporate Owned Motorcycles
Trucks
Taxis
Buses
Special Vehicles
Dealers
Trains
Unlike non-corporate owned vehicles, corporate owned vehicles will not be rated on any driver
characteristics. Instead they will be rated only on the specific vehicle that is being insured. The
corporate owned vehicles can not be rated the same as non-corporate owned vehicles because there is
generally no specific driver that will be operating the vehicle.
IMPORTANT!!! Private owned buses, taxis and trucks will be rated using the factors displayed in
this section of the classification plan. Specific driver information is not required.
Each vehicle category has different classification rating plan variables and requires different
information to be reported to ISO Israel. Each of these vehicle categories corresponds to a different
module in the Statistical Plan. Following are the variables and the factors that will be used for each
category. In each instance all of the factors for a category are multiplied together and then the result
is rounded to three decimal places, using standard rules for rounding. This total factor is then applied
to the base rate to produce a final rate for the vehicle being rated. At this time ISO Israel is adding
only Air Bags Indicator as a new classification factor. Other new classification variables are all being
introduced with a factor of 1.000 and the Used for Driving Lessons factor is being maintained at the
current 1.250.
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Israeli Compulsory Vehicle Insurance
Part A – Section C
Corporate Owned Vehicles
Corporate Owned Automobiles
A corporate owned automobile is a vehicle with four wheels and modest size. This vehicle is
normally a car, minivan, sport utility vehicle (SUV) or commercial vehicles which weigh less than
4,000 kgs.
Vehicle Use
Tourism
Drive for Private Purposes
Used for Driving Lessons
Business (other than tourism/driving lessons)
1.000
1.000
1.250 *
1.000
* Note: The factor for driving lessons is already reflected in the tariffs for corporate owned autos.
Air Bags Indicator
There is at least one Air-Bag in the vehicle.
There are no Air-Bags in the vehicle.
0.975
1.000
Corporate Owned Motorcycles
A motorcycle is any two wheeled vehicle that is self-propelled. This vehicle could have a sidecar or
not. This category includes mopeds.
Vehicle Use
Tourism
Drive for Private Purposes
Business (other than tourism/ driving lessons)
1.000
1.000
1.000
Trucks (Private and Corporate)
Standard cargo-carrying vehicles that are generally larger than automobiles. This category includes
both single-unit trucks and GORERIM (that which pulls a trailer).
Vehicle Type
Truck
GORER (Pulls the Trailer)
1.000
1.000
Additional Variables
There are three additional variables that are widely used in the US. These factors have been shown to
be very useful in rating risks in the US. While it is believed that these factors will be very useful to
rating vehicles in Israel, the factors can not be selected currently. They can’t be selected until after
sufficient Israel-only data is available. These three variables are: postal code, fleet indicator and
radius of use.
The postal code is used to identify the location of the principle garaging of a vehicle. This is
probably the most important single variable used in the rating of corporate owned vehicles in the US.
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Israeli Compulsory Vehicle Insurance
Part A – Section C
Corporate Owned Vehicles
The fleet indicator identifies a vehicle that is a member of a fleet of 5 or more vehicles. In the US it
has been shown that there is a difference in experience between vehicles that are part of a fleet versus
those that are not.
Radius of use might be an important variable for which data will be collected from Israel.
For corporate owned motorcycles, horsepower information will be collected but not rated on at this
time.
Please note that these variables might not be used at all in Israel if the Israel-specific experience
shows that there is no difference between rating different risks.
Rating Distinctions in Tariffs
Currently rating distinctions for several types of vehicles are maintained in the tariff. ISO Israel is
proposing that the rating distinctions for the following vehicles continue to be done via the tariff.
Vehicle Type
Private Vehicles
Subclass
Corporate Owned, Used for Driving Lessons
Corporate Owned, Antique
Corporate Owned, Rented < 1 Year
Corporate Owned, Rented >= 1 Year
Corporate Owned, Rental Fleet (> 400 vehicles)
Corporate Owned Motorcycles
0 – 50 CC
51 – 250 CC
251 – 500 CC
> 500 CC
More than 1 Driver
Used for Driving Lessons
With a Sidecar
Antique
Rented < 1 Year
Rented >=1 Year
Dealerships
Cars
Motorcycles
Policy issued for more than one named driver
Policy issued for more than one commercial plate
Driving of an additional person for presentations
Buses
Private 1-15 Passengers
Private 16-20 Passengers
Private 21+ Passengers
Public 1-20 Passengers
Public (touring & others) 21+ Passengers
Public (licensed lines) 21+ Passengers
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A – Section C
Corporate Owned Vehicles
Taxis
1-6 Passengers
7+ Passengers
Used for Touring
Policy for 1 Driver
Commercial Vehicles
<= 4 Tons
> 4 Tons
Other Commercial Vehicles
Used for Driving Lessons
Desert/Special Desert
Bending Truck
Truck with Crane
Hazardous Material
Antique
Rented for >= 90 Days
Rented for < 90 Days
Special Vehicles
Supported Vehicle
Supported Bending
Supported for Transporting Fuel, Gas, Inflammable or
Exploding Materials
Engineering Equipment
Ambulance
Fire Truck
Hearse
Street Sweeper
Kalnoa/Ravnoa/Golf Cart
Trailer for Tractor
Bending Trailer for Tractor
Agriculture and Forestry Vehicle
Tractor for Other Activities
Tractoron, Tractoron 6x6
Tractoron, Tractoron 6x6, Rented
Trailer
Trailer, Bending
Trailer for Transporting Fuel, Gas, Inflammable or
Exploding Materials
All Other Vehicles
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March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part A – Appendices
Appendices
Bailey’s Minimum Bias Procedure
BAILEY’S MINIMUM BIAS PROCEDURE
for Israel Private Owned Vehicles Classification Plan
To increase the credibility of the results, the age and gender classifications can be grouped according
to major convictions, years licensed and accident classifications. This produces larger groups with
correspondingly more reliable class indications than if all of the subdivisions had been done
simultaneously. Using the procedure developed by R.A. Bailey in “Insurance Rates with Minimum
Bias” (Proceedings of Casualty Actuarial Society, Volume L) these factors, surcharges and discounts
were fitted to an additive model.
The Minimum Bias procedure is needed to ensure that the net adjustment for any of the smaller
classes formed by this categorization is also done properly. This method uses the larger groupings for
credibility, but also reflects the indications for the smaller classes. The resulting indication for the
individual classes is unbiased in the aggregate and has the minimum-possible bias for the subdivisions. These estimates can thus be qualified as those that fit the data most closely.
Each age and gender classification is subdivided into major convictions, years licensed and accident
categories producing 144 groups of classes for drivers: For each of the 8 age and gender
classifications there are 2 major convictions classifications, 3 years licensed classifications and 3
accident classifications. For each of these classifications, a combined indication based on actual
exposures and losses is developed. Also, a rating factor for each of the aggregate groupings is
developed: one for each age and gender classification, one for each major conviction classification,
one for each years licensed classification and one for each accident classification. Using this method,
the average difference between the estimated relativities and the data for one of the types of
classifications is set equal to zero and new indicated factors for that type are found, either for an age
and gender classification, major convictions, years licensed classification, or an accident
classification. This is done for each of the age and gender classifications, major conviction
classifications, years licensed classifications and accident classifications.
This method is iterative; it continues until a set of estimates is produced which best fits the actual
indications.
Equations for Minimum Bias Procedure
Define rijkl to be the actual indication for the ith age and gender classification, the j th major conviction
classification, the kth years licensed classification and the lth accident classification and let wi be the
estimated rating factor for the ith age and gender classification, xj be the estimated rating factor for
the jth major conviction classification, yk be the estimated rating factor for the kth years licensed
classification and zl be the estimated rating factor for the lth accident classification. Also, let nijkl be
the actual number of exposures for the class formed by the intersection of the i th age and gender
classification, the jth major conviction classification, the kth years licensed classification and the lth
accident classification.
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Part A – Appendices
Then the average difference for the j th major conviction classification equals:
 all i,k,l nijkl (rijkl - wi -xj - yk - zl)
_________________________
 all i,k,l nijkl rijkl
Upon setting this equation equal to zero, solving for xj yields:
 all i,k,l nijkl (rijkl – wi – yk – zl)
xj = _______________________
 all i,k,l nijkl
Analogous equations result for wi, yk and zl.
“Best Fit” Factors Given Selected Surcharges/Discounts classification
The factors and surcharges/discounts resulting from the Bailey's procedure as described are the
minimum-bias estimates for the age and gender classification factors, major conviction surcharges,
years licensed surcharges and accident history surcharges. However, selections were made from the
indications based on consideration of environmental differences between Israel and the United
States, and tempering of extreme indications. Therefore, the indicated age and gender factors may no
longer provide the “best fit” to classification experience once the selections have been made.
It was determined that the indicated age and gender factors and major convictions would change
significantly if selections were made for the years licensed and accident surcharges, rather than using
the indicated surcharges resulting from application of the Bailey's procedure. Thus, the Bailey’s
procedure was rerun with the accident and years licensed surcharges set equal to the selected factors
for these variables.
Upon reviewing the second run indications, it was determined that the indicated age and gender
factors would change significantly if selections were made for the major conviction surcharges and
the years licensed and accident surcharges resulting from the application of the Bailey’s. Once these
selections have been made, only factors for the age and gender classifications need to be determined.
The “best fit” age and gender factors given the selected major convictions surcharges/discounts,
years licensed and accident surcharges were determined as follows:
Let:
Fijkl = the fitted factor resulting from Bailey's minimum-bias procedure for the ith age and gender
classification, the jth major conviction classification, the kth years licensed classification and the lth
accident classification.
nijkl= number of exposures in the i-j-k-lth cell
_
xj = the jth selected major conviction surcharge
_
yk = the kth selected years licensed surcharge
_
zl = the lth selected accident surcharge
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Israeli Compulsory Vehicle Insurance
Part A – Appendices
Then we find wi’s (age and gender factors) that minimize the weighted least squares fit to the fitted
factors Fijkl, i.e., minimize the expression:
_ _ _
 all i,j,k,l nijkl (Fijkl – wi - xj - yk – zl)2
The wi's that minimize this are given by:
_ _ _
wi =  all j,k,l nijk (Fijk – xj – yk – zl) /  all j,k,l nijkl for each i.
These resulting wi's are the “best fit” primary factors given the selected surcharges/discounts x j, yk
and zl and are shown in the column labeled “Bailey’s indications” on Exhibit 7B.
Information about private owned automobiles – Exhibits 1A - 8
Exhibits 1A - 8 (20 exhibits overall) that support the "Risk Classification Plan" for private owned
vehicles.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Part B - Proposed Offsets to 2003 Tariffs
Section A: Offsets and Underlying Exposure Distributions
Executive Summary
In order to implement the proposed Israel Compulsory Liability Coverage Vehicle classification plan
on a revenue-neutral basis (i.e., to ensure that the total premium collected under the new class plan is
identical to the total premium that would have been collected under the old class plan), offsets must
be applied to the indicated base rates by vehicle type. Offsets are calculated as the ratio of the old
class plan average rating factor divided by the new class plan average rating factor. These offsets are
multiplied by the indicated base class rates by vehicle type to derive the final indicated base class
rates for use with the new class plan.
The resulting offsets by vehicle type are as follows:
Vehicle Type
Offset
Private owned Automobiles
Private Owned Motorcycles
Corporate Owned Automobiles
1.003
0.980
1.014
Since ISO Israel is not proposing changes to the current classification plan in effect in Israel for other
vehicle types at this time (i.e., the class plan for corporate owned motorcycles, trucks, taxis, buses,
special vehicles, dealers and trains are not being revised) offsets are not needed for these vehicle
types. That is, the offsets for these vehicle types are all 1.000 by default.
Details on the calculation of the average rating factors and offsets for each individual vehicle type
listed above can be found in the sections that follow.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Private Owned Automobiles
Calculation of Average Rating Factors and Offset
Exhibit A1 displays the exposure distributions and average rating factors for each individual rating
variable contained in either the old or new Israel Private Owned Automobile class plans. Ideally,
offsets should be calculated by rating each insured vehicle using the old and the new classification
systems, and analyzing the difference in premium to be collected under the two systems. However,
since ISO Israel did not have a data base containing detailed Israeli information for all variables
considered in the old and new class plans readily available for analysis, ISO Israel calculated offsets
by determining the average rating factors for each variable separately, and then using the formula
below to generate the overall average rating factor:
Overall Average Rating Factor =
(Age and Gender average rating factor + Years Licensed average rating factor + Number of
Accidents average rating factor + Number of Major Convictions average rating factor) x Air
Bags Indicator rating factor x Engine Size Rating Factor
Variables which were not included in one of the class plans (i.e., either the old or new class plan)
were assigned average rating factors of 0 or 1, depending on whether the variable was treated as an
additive or multiplicative variable.
The offset was then calculated by dividing the overall average rating factor for the old class plan by
the overall average rating factor for the new class plan. Exhibit A1 displays the underlying exposure
distributions, the average rating factors for the old class plan and the average rating factors for the
new class plan for the Private Owned Vehicles rating variables. Based on Exhibit A1:
The overall average rating factor for the old class system is calculated as:
(1.000 + 0.000 + 0.000 + 0.000) x 1.000 x 1.000 = 1.000.
The overall average rating factor for the new class plan is calculated as:
(0.998 + 0.010 + 0.000 + 0.003) x 0.986 x 1.000 = 0.997.
Thus, the final offset for private owned automobiles is calculated as:
1.000/0.997 = 1.003.
It should be noted that ISO Israel used experience from the United States to test the accuracy of this
method. That is, ISO Israel calculated sample offsets with United States experience using the 2
methods discussed above – re-rating full detail data versus calculating average rating factors on a
variable by variable basis and combining them into a overall average rating factor as described
above. The 2 methods produced nearly identical results, supporting the validity of this approach.
Underlying Exposure Distributions
In calculating the average rating factors and offsets, ISO Israel used experience provided by the Israel
Central Bureau of Statistics, the Israel Ministry of Transportation and the Israel Police to derive the
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Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
underlying exposure distributions. Details on the exposure distribution calculations for each
individual variable are provided below.
Rated Driver Age and Gender Distribution
ISO Israel obtained information on the number of licensed drivers in Israel by age and gender from
the Ministry of Transportation (MOT). However, since there are roughly twice as many licensed
drivers as there are personal cars in Israel, and since the rating rules underlying the new class plan
utilize only the age and gender information of the youngest driver of each vehicle for rating purposes,
ISO Israel needed to adjust the licensed driver age and gender distributions obtained from the MOT
to represent the distribution of rated drivers for this coverage. Specifically, the licensed driver age
and gender distribution obtained from the MOT was assumed to over-represent the percentage of
rated adult drivers, since adult operators will not be considered for age and gender rating purposes in
those situations where a vehicle is driven by both an adult and a youthful operator (where a youthful
operator is defined as an operator under the age of 24). In order to adjust the distribution of adult
operators, ISO Israel scaled back the number of licensed drivers between the ages of 25 and 75 by the
difference between the total numbers of licensed drivers and the total number of private cars in
Israel. This adjustment was applied to the individual age groups (i.e., 25-49, 50-64 and 65–74) based
on each age groups’ percentage of the population of drivers between the ages of 25 and 75.
The 75 and over age group was not adjusted, as it was assumed that the probability of an adult over
the age of 75 sharing a vehicle with a youthful driver would be very small.
The original age and gender distribution as well as the adjusted age and gender distribution are
displayed on Sheet 1 of Exhibit A1.
Years Licensed in Israel Distribution
ISO Israel obtained information on the number of licensed drivers in Israel by years licensed from the
Ministry of Transportation (MOT). Similar to age and gender, the rating rules underlying the new
class plan utilize only the years licensed information of the youngest driver of each vehicle for rating
purposes. As a result, ISO Israel adjusted the MOT data to account for the fact that there are more
licensed drivers in Israel than private cars to be rated. Similar to age and gender, the distribution
obtained from the CBS was assumed to over-represent the percentage of rated adult drivers.
However, since not everyone in Israel receives their drivers license at age 17, adult drivers were not
directly identifiable from the years licensed distribution. In order to adjust the years licensed
distribution, ISO Israel assumed that 10% of the drivers licensed 4 – 8 years were adults which
shared a vehicle with a youthful driver, 20% of the drivers licensed 8 – 16 years were adults which
shared a vehicle with a youthful driver, and 40% of the drivers licensed 16 or more years were adults
which shared a vehicle with a youthful driver. ISO Israel then scaled back the number of drivers
assumed to be adults sharing a vehicle with a youthful operator in these years licensed categories by
the difference between the total number of licensed drivers and the total number of private cars in
Israel. This adjustment was applied to the individual years licensed groups based on their percentage
of the total population assumed to be adult drivers sharing a vehicle with a youthful operator.
The original years licensed distribution obtained from the CBS as well as the adjusted years licensed
distribution are displayed on Sheet 2 of Exhibit A1.
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Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Number of Accidents Distribution
Since accident history information was not readily available on a vehicle basis from the Israel Police,
ISO Israel used accident frequency information obtained from the Central Bureau of Statistics to
estimate the distribution for this variable. According to the CBS, the 2001 personal injury accident
frequency for private cars in Israel was 1.53%. Assuming that the distribution of accidents over a
three year period can be estimated via the Poisson distribution with a parameter of 0.0459 (.0153 x
3): the probability of not being in an accident in a three year period is 95.51%, the probability of
being in one accident in a three year period is = 4.38%, the probability of being in two accidents in a
three year period is = 0.10% and the probability of being in three or more accidents in a three year
period is = 0.01%. This distribution is displayed on Sheet 3 of Exhibit A1.
Number of Major Convictions Distribution
Since major conviction history information was not readily available on a vehicle basis from the
Israel Police, ISO Israel used conviction frequency information obtained from the Israel Police to
estimate the distribution for this variable. According to the Israel Police, there were 1,400,000 total
convictions in Israel in 2001. Since information was not readily available on the number of major vs.
minor convictions, ISO Israel used the ratio of major convictions to total convictions from the United
States (major convictions represent 3% of total convictions in the United States) to estimate the
number of major convictions in Israel. Thus, the total number of major convictions in Israel for 2001
was estimated to be 42,000 (1,400,000 x .03). Since these convictions represent convictions for all
vehicle types, and there are 1,968,605 total vehicles in Israel (per the Ministry of Transportation), the
probability of a vehicle being issued a major conviction in a given year is 2.13%. Assuming that the
distribution of major convictions over a three year period can be estimated via the Poisson
distribution with a parameter of .0639 (.0213 x 3): the probability of a vehicle not being issued a
major conviction in a three year period is 93.81%, and the probability of a vehicle being issued one
or more major convictions in a three year period is 6.19% (.0619 = 1 – .9381). This distribution is
displayed on Sheet 4 of Exhibit A1.
Air Bags Indicator Distribution
The distribution of vehicles in Israel with air-bags was estimated based on the distribution of private
cars in Israel (latest model year in the file is model year 2002) obtained from the Ministry of
Transportation and the assumption that airbags were used as of Model Year 1997 in Israel. The
distribution of private cars by model year (and by the associated age distribution, where age is
defined as the calendar year + 1 minus the model year) is displayed on Sheet 5 of Exhibit A1.
Assuming that the Israeli private car age distribution remains fairly constant over time, in 2003
model year 1997 and newer vehicles will represent vehicles aged 0 – 7. Based on the Israeli age
distribution displayed on Sheet 5 of Exhibit A1, approximately 56.11% of the Israeli vehicles on the
road are aged 0 – 7. Thus, in 2003 approximately 56.11% of the cars on the road will be model year
1997 or newer, and will have air-bags. This distribution is displayed on Sheet 5 of Exhibit A1.
Engine Size
Since the engine size parameter in the initial class plan is being introduced strictly with 1.00 factors
for all engine size classes, the average rating factor is 1.00 by default.
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March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Private Owned Motorcycles
Calculation of Average Rating Factors and Offset
Exhibit A2 displays the exposure distributions and average rating factors for each individual rating
variable contained in either the old or new Israel Private Owned Motorcycle class plans. Ideally,
offsets should be calculated by rating each insured vehicle using the old and the new classification
systems, and analyzing the difference in premium to be collected under the two systems. However,
since ISO Israel did not have a data base containing detailed information for all variables considered
in the old and new class plans readily available for analysis, ISO Israel calculated offsets by
determining the average rating factors for each variable separately, and then using the formula below
to generate the overall average rating factor:
Overall Average Rating Factor =
(Age and Gender average rating factor + Years Licensed average rating factor + Number of
Accidents average rating factor + Number of Major Convictions average rating factor).
Variables which were not included in one of the class plans (i.e., either the old or new class plan)
were assigned average rating factors of 0 (additive variable).
The offset was then calculated by dividing the overall average rating factor for the old class plan by
the overall average rating factor for the new class plan. Exhibit A2 displays the underlying exposure
distributions, the average rating factors for the old class plan and the average rating factors for the
new class plan for the Private Owned Motorcycle rating variables. Based on Exhibit A2:
The overall average rating factor for the old class system is calculated as:
(1.000 + 0.000 + 0.000 +0.000) = 1.000.
The overall average rating factor for the new class plan is calculated as:
(1.008 + 0.009 + 0.000 +0.003) = 1.020.
Thus, the final offset for private owned motorcycles is calculated as:
1.000/1.020 = 0.980.
It should be noted that ISO Israel used experience from the United States to test the accuracy of this
method. That is, ISO Israel calculated sample offsets with United States experience using the 2
methods discussed above – re-rating full detail data versus calculating average rating factors on a
variable by variable basis and combining them into a overall average rating factor as described
above. The 2 methods produced nearly identical results, supporting the validity of this approach.
Underlying Exposure Distributions
In calculating the average rating factors and offsets, ISO Israel used experience provided by the Israel
Central Bureau of Statistics, the Israel Ministry of Transportation and the Israel Police to derive the
underlying exposure distributions. Details on the exposure distribution calculations for each
individual variable are provided below.
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March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Rated Driver Age and Gender Distribution
of licensed drivers in Israel by age and gender from the Ministry of Transportation (MOT).
However, since there are roughly four times as many licensed drivers as there are motorcycles in
Israel, and since the rating rules underlying the new class plan utilize only the age and gender
information of the youngest driver of each vehicle for rating purposes, ISO Israel needed to adjust the
licensed driver age and gender distributions obtained from the Ministry of Transportation to
represent the distribution of rated drivers for this coverage. Specifically, the licensed driver age and
gender distribution obtained from the Ministry of Transportation was assumed to over-represent the
percentage of rated adult drivers, since adult operators will not be considered for age and gender
rating purposes in those situations where a vehicle is driven by both an adult and a youthful operator
(where a youthful operator is defined as an operator under the age of 24). In order to adjust the
distribution of adult operators, ISO Israel scaled back the number of licensed drivers between the
ages of 25 and 75 by the difference between the total numbers of licensed drivers and the total
number of motorcycles in Israel. This adjustment was applied to the individual age groups (i.e., 2549, 50-64 and 65–74) based on each age groups’ percentage of the population of drivers between the
ages of 25 and 75.
The original age and gender distribution obtained from the MOT as well as the adjusted age and
gender distribution are displayed on Sheet 1 of Exhibit A2.
Years Licensed in Israel Distribution
ISO Israel obtained information on the number of licensed drivers in Israel by years licensed from the
Ministry of Transportation (MOT). Similar to age and gender, the years licensed data obtained from
MOT could not be used directly to determine the distribution of rated drivers since there are roughly
four times as many licensed drivers as there are motorcycles in Israel. Based on discussions with the
Ministry of Finance, ISO Israel believes that the distribution of years licensed obtained by the MOT
over-represents the higher number of years licensed categories, since drivers in Israel are more likely
to operate motorcycles when they are younger and first starting to drive. As these drivers age and
become more experienced, they may wind up driving private cars, but not necessarily canceling their
motorcycle driver licenses right away. As a result, ISO Israel judgmentally adjusted the years
licensed distribution obtained from the MOT to scale back the percentage of motorcycle drivers
licensed for more than 16 years and to increase the percentage of motorcycle drivers licensed in all
lower years licensed class groups.
The original years licensed distribution obtained from the MOT as well as the adjusted years licensed
distribution are displayed on Sheet 2 of Exhibit A2.
Number of Accidents Distribution
Since accident history information was not readily available on a vehicle basis from the Israel Police,
ISO Israel used accident frequency information obtained from the Central Bureau of Statistics to
estimate the distribution for this variable. According to the CBS, the 2001 personal injury accident
frequency for motorcycles in Israel was 3.31%. Assuming that the distribution of accidents over a
three year period can be estimated via the Poisson distribution with a parameter of 0.0993 (.0331 x
3): the probability of not being in an accident in a three year period is 90.55%, the probability of
being in one accident in a three year period is = 8.99%, the probability of being in two accidents in a
three year period is = 0.45% and the probability of being in three or more accidents in a three year
period is = 0.01%. This distribution is displayed on Sheet 3 of Exhibit A2.
Page 43 of 46
Copyright, ISO Insurance Services Office of Israel, Ltd., 2001-2003
106763622
Proposed for 2003
March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
Number of Major Convictions Distribution
Since major conviction history information was not readily available on a vehicle basis from the
Israel Police, ISO Israel used conviction frequency information obtained from the Israel Police to
estimate the distribution for this variable. According to the Israel Police, there were 1,400,000 total
convictions in Israel in 2001. Since information was not readily available on the number of major vs.
minor convictions, ISO Israel used the ratio of major convictions to total convictions from the United
States (major convictions represent 3% of total convictions in the United States) to estimate the
number of major convictions in Israel. Thus, the total number of major convictions in Israel for 2001
was estimated to be 42,000 (1,400,000 x .03). Since these convictions represent convictions for all
vehicle types, and there are 1,968,605 total vehicles in Israel (per the Ministry of Transportation), the
probability of a vehicle being issued a major conviction in a given year is 2.13%. Assuming that the
distribution of major convictions over a three year period can be estimated via the Poisson
distribution with a parameter of .0639 (.0213 x 3): the probability of a vehicle not being issued a
major conviction in a three year period is 93.81%, and the probability of a vehicle being issued one
or more major convictions in a three year period is 6.19% (.0619 = 1 – .9381). This distribution is
displayed on Sheet 4 of Exhibit A2.
Corporate Owned Automobiles
Calculation of Average Rating Factors and Offset
Since the only proposed change from the class plan currently in effect in Israel for corporate owned
automobiles are the factors to be applied for the Air Bags Indicator discount, and since all rating
factors for the corporate owned automobiles are multiplicative, the offsets for this vehicle type can
be calculated directly as the average Air Bags Indicator rating factor for the old class plan divided by
the average Air Bags Indicator for the new class plan.
Air Bags Indicator Distribution
The distribution of vehicles in Israel with air-bags was estimated based on the distribution of private
cars in Israel (latest model year in the file is model year 2002) obtained from the Ministry of
Transportation and the assumption that airbags were used as of Model Year 1997 in Israel. The
distribution of private cars by model year (and by the associated age distribution, where age is
defined as the calendar year + 1 minus the model year) is displayed on Sheet 5 of Exhibit A1.
Assuming that the Israeli private car age distribution remains fairly constant over time, in 2003
model year 1997 and newer vehicles will represent vehicles aged 0 – 7. Based on the Israeli age
distribution displayed on Sheet 5 of Exhibit A1, approximately 56.11% of the Israeli vehicles on the
road are aged 0 – 7. Thus, in 2003 approximately 56.11% of the cars on the road will be model year
1997 or newer, and will have air-bags. This distribution is displayed on Sheet 5 of Exhibit A1.
Page 44 of 46
Copyright, ISO Insurance Services Office of Israel, Ltd., 2001-2003
106763622
Proposed for 2003
March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Section A
Offsets and Distributions
As Sheet 5 of Exhibit A1 illustrates:
The Air Bags Indicator average rating factor for the old class system is:
1.000
The Air Bags Indicator average rating factor for the new class system is:
0.986
Thus, the final offset for corporate owned automobiles is calculated as:
1.000/0.986 = 1.014.
Page 45 of 46
Copyright, ISO Insurance Services Office of Israel, Ltd., 2001-2003
106763622
Proposed for 2003
March 14, 2003 update
Risk Classification Plan
Israeli Compulsory Vehicle Insurance
Part B – Appendices
Appendices
Information about offsets and underlying exposure distributions – Exhibits A1 – A2
Exhibits A1 - A2 (9 exhibits overall) that support offsets.
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Copyright, ISO Insurance Services Office of Israel, Ltd., 2001-2003
106763622