Automobile Insurance C14

Chapter 15 – Industry Programs for Insurance Availability

General considerations

·         Insurance must be available to all licensed drivers

·         Auto insurance is more subject than most other types of property/casualty insurance to periodic cycles of rate inadequacy and severe u/w losses

·         The primary objectives of any special industry program should include:

o    The immediate availability of a market to brokers/agents and the public

o    Equitable sharing of the residual market by all insurers

·         Residual markets – special programs to ensure insurance availability for less desirable and more hazardous risks from an u/w standpoint

·         To develop a residual market program, it is essential to have support and cooperation of all segments of the industry

·         The number of people who obtain insurance through the residual market will relate to current u/w conditions and experience w/in the auto insurance business.  Good times – few people insured through the program, ‘tight’ market – the people insured in the residual market will increase

The Facility Association

·         Facility Association (the ‘association’) – is an unincorporated nonprofit association of insurers created Jan 28, 1977.  It provides auto insurance for owners and operators who may otherwise have difficulty obtaining insurance through regular markets

Jurisdiction, legislative authority and date of commencement

Jurisdiction	Legislative Authority	Date of Commencement
NB	The Insurance Act of NB	July 1, 1983
Nfld	The Insurance Act of Nfld	November 1, 1985
NWT & Nunavut	NWT Insurance Act	December 1, 1986
NS	The Insurance Act of NS	July 1, 1981
ON	The Compulsory Automobile Insurance Act	December 1, 1979
PEI	The Insurance Act of PEI	September 1, 1982
Yukon Territories	Yukon Insurance Act	April 30, 1986

Plan of operation

·         An insurer licensed to write auto liability insurance must be a member of the Association and share in the operation of the Association

·         The u/w and claims functions are provided by a limited number of designated members (servicing carriers) who are compensated by operating and service fees

·         In Ontario a Risk Sharing Pool forms a part of the Plan of Operation

·         In any jurisdiction where the Pool is in operation, servicing carriers are not permitted to write risks unless they qualify for the residual market

·         In Ontario the risk qualifies for the residual market only after having been refused in the regular market

·         Members are permitted to transfer risks to the Pool and share the experience of that risk in accordance w/ their share of the market and their usage of the Pool

Rules of operation

·         The Association maintains the following manuals:

o    Accounting and statistical manual

o    Manual of rules and rates

o    Claims guide

o    Risk sharing pool procedures manual

·         Members of the Association and servicing carriers are required to follow the rules of operation as set out in the plan

Sharing of results

·         In jurisdiction where the Association operates, all insurers who write auto liability insurance are members and share in the results

·         Association results are shared proportionately on the basis of voluntary business written by each insurer: private passenger business based on car years insured; other business based on their party liability premium written

Servicing carriers

·         Servicing carriers issue policies and provide agents and brokers w/ policyholder service for business submitted to them

·         Servicing carriers are representative of the various methods of marketing auto insurance – includes agents/brokers and direct writers

Board of directors

·         Comprises of:

o    Senior officials of member companies

o    Representative of servicing carriers

o    Representative of non servicing carriers

o    3 broker members:

§  One representing AB, NWT and Nunavut and Yukon

§  One representing ON

§  One representing Atlantic Canada

·         The Operating Committee for each jurisdiction comprises of servicing and non-servicing carriers and 2 brokers.  It is responsible for the operation of the Association and ensure adherence to the standards of service required of servicing carriers

Agents and brokers

·         If agents/brokers have difficulty arranging insurance in the open market, they may bind coverage in the name of the servicing carrier in Facility – rates are those shown in the Association rate manual

·         Servicing carriers prepare monthly statements for the agency/brokerage assigned to them and pay them Facility Association levels of commission

·         In ON only Facility Association rates do not include a commission.  Agents/brokers add on a fee

Premium deposits

·         Each servicing carrier has special accounts with a bank designated by the Facility Association.  This is necessary b/c the funds belong to all insurers as members of the Association

Servicing carrier compensation

·         Servicing carriers receive expense allowances agreed to by the members to compensate them for the cost of acting on behalf of the Association

The risk sharing plan (Quebec)

·         The Groupement des assureurs auto administers the Risk Sharing Plan or P.R.R (Plan de repartition des risques)

·         All auto insurers licensed in Quebec who write third party liability participate in the P.R.R.

·         The P.R.R allows an insurer to transfer into a shred pool any risk that does not meet its u/w criteria – all u/w profit/loss and administration costs are shared

·         If a risk shows many convictions/claims, the P.R.R required that the standard premium in the insurer’s rate manual be surcharged by a specified percentage

·         The P.R.R gives back to the insurer an allowance (normally 25%) of the premium transferred to cover the policy issuing & servicing costs, claims expenses and premium taxes

·         The decision to transfer a risk to the P.R.R is made solely by the insurer.  Insureds and brokers seldom are aware that they are insured with the P.R.R

Industry costs

·         By nature the operations of the Facility Association and the Risk Sharing Pool need to be subsidized by the industry

·         Facility Association – the premium level allowed by the government is inadequate to cover the losses and expenses

·         Risk Sharing Pool – the risk has been transferred here b/c it is believed that the risk does not meet u/w criteria and that losses and expenses would likely exceed the premium charged

 

Alberta

·         As of October 1, 2004, all comers rule requires insurers to accept all new or existing business (mandatory coverage only) eliminating the Facility Association

British Columbia

·         There are no such industry or government programs for insurance availability in BC as ICBC is obligated to provide compulsory coverages

Manitoba and Saskatchewan

·         There is no industry or government programs for insurance availability in Sask and Man as it is inferred in various pieces of legislation that the government is obligated to provide compulsory coverages

Sample Review Questions -  Automobile Insurance (Part 1)

1.     There is a need for special industry programs b/c it ensures insurance availability for less desirable and more hazardous risks from an u/w standpoint.

2.     The Facility Association – an unincorporated non-profit Association of insurers.  It provides auto insurance for owners and operators of vehicles who may otherwise have difficulty obtaining such insurance through a regular market.

3.     The Facility Association is owned and operated under the following legislative authority:

Jurisdiction	Legislative Authority	Date of Commencement
NB	The Insurance Act of NB	July 1, 1983
Nfld	The Insurance Act of Nfld	November 1, 1985
NWT & Nunavut	NWT Insurance Act	December 1, 1986
NS	The Insurance Act of NS	July 1, 1981
ON	The Compulsory Automobile Insurance Act	December 1, 1979
PEI	The Insurance Act of PEI	September 1, 1982
Yukon Territories	Yukon Insurance Act	April 30, 1986

4.     The Facility Association operates in: NB, Nfld, NWT and Nunavut, NS, ON, PEI, Yukon Territories.

5.     Servicing carriers issue policies and provide agents/brokers w/ policyholder service for business submitted to them.

6.     The rates used are those shown in the Association rate manual.

7.     The broker/agent functions with respect to Facility business is to assists their clients to complete the standard application form provided by the Association, which shows the name of the servicing carrier.  The agent/broker may bind coverage in the name of the servicing carrier.

8.     Brokers are compensated by servicing carriers who prepare monthly statements for the agencies/brokerages assigned to them and pay them Facility Association levels of commission.

9.     All premiums and claims payments are made through special accounts with a bank designated by the Facility Association.  This is necessary b/c the funds belong to all insurers as members of the Association.

10.   Servicing carriers receive expense allowances agreed to by the members to compensate them for the cost of acting on behalf of the Association.

11.   The Risk Sharing Plan in Quebec differs from the Facility Association in the other provinces in that:

-          No standard rates are prescribed by the P.R.R and a risk is transferred for the standard premium set by the insurer subject to surcharges

-          The decision to transfer a risk to the P.R.R is made solely by the insurer

12.   All auto insurers licensed in Quebec are participants in the P.R.R risk sharing plan except those who do not write any auto third party liability insurance.

13.   Rates in the Quebec risk sharing plan are determined by using the standard premium in the insurer’s rate manual and then surcharged by a specified percentage.

14.   The decision to transfer a risk to the P.R.R is made solely by the insurer.

15.   Risks are transferred to the Facility Association or the Risk Sharing Plan b/c they are considered less desirable and more hazardous risks from a u/w standpoint.

16.   The insurance industry (insurers) subsidizes the Facility Association or the Risk Sharing Plan when premiums do not cover claim costs.

17.   In BC, ICBC provides the coverages normally provided by the Facility Association.

18.   There are no industry or government programs for insurance availability in Saskatchewan and Manitoba.  They are not necessary as the government insurers must provide basic coverage to all residents who drive registered vehicles that fall w/in the Acts governing auto insurance.