Telematics Discount Filing Under Iranian Motor Tariff Rules
An Iranian insurer wants to launch a 15% premium discount for third-party motor liability cover sold to fleets that install telematics. The current filed premium is IRR 12 million per vehicle-year, with a 65% target loss ratio. The insurer has one year of telematics experience: 1,200 vehicle-years, 54 claims, and an average claim cost of IRR 150 million. The files also show that the telematics fleet was selected from brokers' best-performing clients, and no non-telematics control group was retained. The Central Insurance of Iran requires rate filings to be actuarially justified and prohibits unfair discrimination. The CEO wants the full 15% discount filed immediately to win a large tender. The pricing actuary must decide whether to sign the filing and how to present the uncertainty. A competitor has already announced a 10% telematics discount.
1. Calculate the observed loss ratio and the maximum discount supported by the 65% target loss ratio, ignoring expenses. Is the 15% discount supported?
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Observed loss ratio = (54 × 150) / (1,200 × 12) = 8,100 / 14,400 = 56.25%.
At the 65% target loss ratio, the indicated premium per vehicle-year is: P_ind = expected loss / 0.65 = (56.25% × 12) / 0.65 = 6.75 / 0.65 = IRR 10.385 million.
Current premium = 12 million. Maximum indicated discount = 1 − 10.385/12 = 13.46%. A 15% discount gives premium 10.2m and loss ratio 6.75/10.2 = 66.18%, above the 65% target even before any expense strain. Therefore the 15% discount is not supported by the data as filed.
2. Identify the credibility and regulatory concerns in the one-year telematics data and explain how you would address them in the filing.
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Credibility concerns: one year, 54 claims, and fleets that chose telematics are not a random sample; they may already be better risks. The observed 56.25% may be selection bias, not a causal effect of telematics. There is no control group and no allowance for claims development. Regulatory concerns: the discount must be filed and approved within the CII framework; it must be cost-based, not a disguised price war; policyholders must not be unfairly discriminated against; data privacy and consent for telematics must be respected. Address by: (i) computing credibility or at least a confidence interval on the 54 claims; (ii) matching telematics and non-telematics fleets; (iii) loading for expenses and profit; (iv) filing a pilot discount (e.g., 10%) with a monitoring plan; (v) disclosing the uncertainty and re-filing after another year.
3. The CEO proposes filing the 15% discount as a marketing expense outside the tariff. Advise the actuary.
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Filing the 15% as a marketing expense outside the tariff is misrepresentation. It hides a price discount in the expense loading, undermines the filed tariff, and can mislead the regulator and policyholders. The actuary should refuse to sign any filing that characterises the discount this way, document the request, and escalate to the compliance function and audit committee. The correct route is an actuarially justified rate filing, with the discount shown explicitly and supported by evidence. If the company wants a promotional discount, it should seek regulatory approval and account for it as a temporary acquisition cost with a clear expiry, not disguise it.