B - Dutil (Facility Association) Flashcards
DUTIL (FACILITY ASSOCIATION)
Origin of FA
Role of FA
Goal of FA
Origin: created by insurance industry as non-profit entity to ensure AVAILABILITY of compulsory Auto insurance in Canada
Role : to administer the involuntary residual market
Goal
To ensure AVAILABILITY of compulsory auto insurance
DUTIL (FACILITY ASSOCIATION)
Provinces where FA is operating
Provinces in which FA is NOT operating.
Why FA is not operating in those provinces?
- -OPERATING IN–
- YK, NWT, NU
- Alberta
- Ontario
- NB, NS, PEI, NFL
–NOT OPERATING IN–
BC, Sask, Manitoba, Qc
Why : provinces with provincial public automobile insurance.
DUTIL (FACILITY ASSOCIATION)
3 risk mechanisms of FA
1) RSP (Alb, On, NS, NB)
2) Residual Markets (FARM)
3) Uninsured Automobile Funds (in Atlantics)
DUTIL (FACILITY ASSOCIATION)
Describe RSP as a risk mechanism of FA
- Invisible to consumer
- Insurers transfer higher-risk exposures to an industry-wide pool.
- Companies underwrite policies under own rates and rules
- Results pooled among all insurers (as all are required by law to belong to FA)
DUTIL (FACILITY ASSOCIATION)
Describe RESIDUAL MARKET (FARM) as a risk mechanism of FA
- Known by consumer
- Provides a residual market to customers who cannot find insurance in voluntary market
- A servicing carrier issue/administer policies and adjust claims on behalf of FA.
- Subject to rates, rules and classification of FA
- Results pooled among all insurers (as all required by law to belong to FA)
DUTIL (FACILITY ASSOCIATION)
Describe UNINSURED AUTOMOBILE FUNDS (in Atlantics) as a risk mechanism of FA
Compensate for damages to persons who :
- cannot obtain it from an insurance contract
- where no other insurance or non-sufficient insurance
DUTIL (FACILITY ASSOCIATION)
2 requirements to quality as a Residual Market (FARM) Risk.
1) Any motor vehicle that is not a PPA
2) Any PPA for which the insurer is authorized by law to decline or refuse to renew contract
DUTIL (FACILITY ASSOCIATION)
4 responsibilities of the Board of Directors of FA
1) Approve rate changes and filings
2) Maintain standards to be followed by servicing carriers
3) Authorize expenses
4) Appoint committees and sub-committees
DUTIL (FACILITY ASSOCIATION)
Explain how voting in FA works
- Total volume of auto TPL DWP of last CY in all province determines the number of votes
- If a matter affects only one province, weights of votes is premium volume in the province.
DUTIL (FACILITY ASSOCIATION)
5 requirements for a risk to be eligible for transfer to a RSP
1) To be PPA
2) Not be insured through FARM
3) To have TPL
4) To follow appropriate classification and rating
5) Premium charged must be the appropriate premium of insurer without modification
DUTIL (FACILITY ASSOCIATION)
Discuss Ontario RSP
- Covers 85% or every risk transferred (15% remaining stays with insurer). All other pools cover 100%.
- Maximum transfer is 5% of PPA written exposure
DUTIL (FACILITY ASSOCIATION)
Discuss Alberta RSP
- 2 RSPs, Grid Pool and Non-Grid Pool
- Main difference between the two is the number of risk that can be transferred to each
-No limit for Grid Pool, because of the philosophy that law requires to accept risk on which we have no control over price.
- Non-Grid pool limited to 4% of written exposures not transferred to grid pool.
- Purpose is to help to cope with the “take all-comers” environment in Alberta
DUTIL (FACILITY ASSOCIATION)
Contrast NB and NS RSPs
NEW BRUNSWICK :
“First Chance” RSP limited to 8% written exposures
- First chance : recently licensed drivers with good driving record
NOVA SCOTIA:
“Inexperienced Driver” RSP
-No limit
-To accommodate inexperienced drivers with good driver experience.
DUTIL (FACILITY ASSOCIATION)
Discuss how a company can use a RSP to lower its total LR
should cede as many unprofitable risk as possible.
this will reduce their participation ratio
this will increase the expense allowance received from the pool
this will reduce the non-ceded risk loss ratio
DUTIL (FACILITY ASSOCIATION)
How financial results of a RSP are shared among member companies
shared based on a participation ratio =
PPA non-fleet non-pool TPL Direct EE of insurer /
PPA non-fleet non-pool TPL Direct EE of industry
