Chapter 9 - Facility Association Flashcards
FACILITY ASSOCIATION, THE ROLE OF THE FINANCIAL SERVICES REGULATORY AUTHORITY OF ONTARIO, AND STANDARD POLICY FORMS
The Facility Association (FA) is an organization of Canadian insurers who co-operate to provide insurance for vehicle owners and/or drivers who, without this arrangement, would have difficulty obtaining insurance. Drivers that require the FA market typically have poor driving records (such as impaired driving convictions) or too many accidents or claims.
However, the FA has never issued a single insurance policy — that’s because it is not a licensed insurer. The existence of the FA allows individual insurers to avoid accepting undesirable business, while at the same time ensuring that legislated compulsory automobile insurance requirements are met by all drivers/vehicle owners. When individual insurers choose not to insure a risk, they provide the insurance at their collective cost through the FA. The FA is the administrator of this collective mechanism.
BASICALLY IF NO VOLUNTARY MARKET IS WILLING TO INSURE, YOU CAN GO TO THIS PLACE AND PAY A PREMIUM AND THE FA WILL MAKE IT WORTH WHILE TO AN INSURER
The Broker’s Role
After determining the client’s needs, the broker will survey the various insurance companies they represent to see if there is a market where they can place their client, at the best price and terms that can be negotiated with the insurer. (It’s worth noting that there may be some voluntary markets that may write a risk that others will not. Since no single broker represents all the companies in the marketplace, some brokers may have a market for a risk that others do not.)
If the broker cannot obtain a voluntary market insurer, then they will have no option but to place the insured through the FA. FA servicing carriers do not provide quotes, so the broker must complete the application, following the rules in the Manual of Rules and Rates. All brokers use the same manual. The manual is complex, which serves to ensure all insureds are treated fairly and consistently. Additionally, to qualify the applicant, the broker must include a rejection letter from a voluntary market insurer with the application. The application is then submitted to the broker’s designated servicing carrier.
In Ontario, there are rules and procedures for retention of business in the FA — that is, automatically removing risks that have improved and may qualify for the voluntary market. Outside Ontario, there are no such rules. Therefore, some risks that could get voluntary market coverage may stay in the FA if the broker does not check all its markets at renewal.
The FA commission rate is an incentive to remove risks. It is generally lower than the commission rate for the voluntary market, especially considering special commissions and bonuses that are offered in the voluntary market (for example, contingent profit commission). Furthermore, the FA does not offer any special commission to switch portfolios of business, nor does it offer any overriding commission to brokers for any special work they perform that would usually be completed by the insurer.
FA policies are more difficult to administer than voluntary market policies. The FA insists on signed and fully completed applications, including binder numbers and completion of a binder register. FA policies also require completion of additional forms for motorcycles, as well as commercial, garage, and public vehicles, which is more time consuming than handling voluntary market business — and all at a lower commission rate than the voluntary market.
Consumer Complaints Resolution
If a consumer has a complaint, the complaints process is as follows:
1) The consumer makes a complaint to the insurance company.
2) If the company is unable to resolve the complaint, the consumer will request a letter from the company stating its final position.
3) The consumer will write to the Market Conduct Division.
4) The Market Conduct Division will review the written complaint.
Credit Rating
The list of unfair and deceptive acts or practices, as outlined in Regulation 7/00 of the Insurance Act, came into effect on September 1, 2010. Under this Regulation, Section 2(1)4 states that an insurer is prohibited to use credit information for any aspects of automobile insurance, including:
- Processing or responding to requests for a quotation.
- Processing or responding to requests for an application.
- Processing or responding to completed and signed applications.
- Processing offers to renew existing policies.
Insurers are also prohibited from using unfair or deceptive acts or practices, as defined in Regulation 7/00, to refuse or limit the amount in a statutory accident benefit claim.
9.4.2.3Accident Benefits Dispute Resolution
MOTOR VEHICLE ACCIDENT CLAIMS FUND
The law guarantees Ontario residents who are involved in an automobile accident the ability to make a claim to receive accident benefits or sue the at-fault driver for compensation. Individuals who are not protected by any automobile insurance policy can apply to receive accident benefits from the Motor Vehicle Accident Claims Fund (MVACF).
In addition, a lawsuit may be filed against the uninsured driver and owner of the at-fault vehicle. The MVACF provides accident benefits and liability limits of $200,000 plus some legal expenses. The MVACF will attempt to recover the amount paid out by the fund from the at-fault uninsured driver.
Driver’s Policy (OAP 2)
hen an individual drives a vehicle belonging to another person and does not have an automobile insurance policy which could extend to provide the required coverage for borrowed vehicles, or when there is uncertainty whether the owner of the vehicle has insurance, the Driver’s Policy (OAP 2) is available to provide coverage. However, since these circumstances are rare, there are relatively few OAP 2s issued.
An automobile is considered non-owned in the following situations:
•The insured is personally in control of the automobile as the driver or occupant in an automobile:
○Not owned by the driver.
○Not registered in the driver’s name.
- The automobile is not in operation by, but is in the personal care, custody, or control of the insured.
- An “automobile” includes a trailer. An automobile with a trailer is considered to be one vehicle under OAP 1, Section 1: Introduction, Section 2: What Automobiles Are Covered? and Section 4: Accident Benefits Coverage, and as separate vehicles under Section 3: Liability Coverage, including deductibles.
An OAP 2 may be purchased (probably in a residual risk market, such as the FA) by a driver who is excluded under OAP 1, OPCF 28A: Excluded Driver. OAP 2s are also frequently issued to facilitate filing proof of financial responsibility that the applicant may require to obtain a valid driver’s license.
The OAP 2 is organized in a similar manner to OAP 1. It contains the following:
- Section 1: Third Party Liability.
- Section 2: Accident Benefits.
- Section 3: Liability for Damage to Non-Owned Automobiles.
- Section 4: Uninsured Automobile Coverage.
- Section 5: General Provisions, Definitions and Exclusions.
- Section 6: Statutory Conditions.
The coverages under the OAP 2 match those of the OAP 1 except, of course, that the OAP 2 deals with coverages for vehicles not owned by the insured.
Rating
The insurer will need to know the full details of the type of vehicles likely to be driven and their type of use, as if liability for damage is assumed by agreement. The insurer will then rate the policy for the highest exposure.
The OAP 2 is purchased by businesses which operate or deal in the sale, repair, detailing, storage, parking, or servicing of automobiles in any fashion. The basic structure of the policy is very similar to the OAP 1. It is designed to cover the liability, accident benefits, uninsured automobile, and DCPD exposures of owners, active partners, and full-time employees when driving automobiles that are registered in the business’s name.
Garage Policy (OAP 4)
Ontario also has a Garage Policy, known as the OAP 4. The major difference between the OAP 2 and the OAP 4 is the policies’ treatment of damage to automobiles. The OAP 4 is designed for businesses relating to automobiles. It provides coverage for both owned and non-owned automobiles for loss or damage that occurs while being operated by an owner, active partner, or full-time employee. Vehicles belonging to the business’s customers would be considered non-owned automobiles.
The garage business is responsible for the customer’s vehicle while it is in the care, custody, and control of the business. The customer’s OAP 1 will not respond to damage caused by a garage employee, because this damage is specifically excluded under that policy (see Section 1.8.4: Garage Workers Not Covered). The non-owned automobile coverage available under the OAP 4 fills this gap.
The OAP 4 consists of the following sections:
- Section 1: Third Party Liability.
- Section 2: Accident Benefits.
- Section 3: Uninsured Automobile Coverage.
- Section 4: Direct Compensation – Property Damage.
- Section 5: Loss or Damage to Owned Automobiles.
- Section 6: Liability for Damage to a Customer’s Automobile While in the Care, Custody or Control of the insured.
- Section 7: General Provisions, Definitions and Exclusions.
- Section 8: Statutory Conditions.
Standard Policy Forms
Standard Policy Forms (SPFs) are legislated and administered by the Superintendent of Insurance to protect the insuring public. All provincially licensed insurance companies who issue automobile insurance in Ontario must use these approved forms (although their underwriting rules of acceptance and rating may be different).
Some of the most common Standard Policy Forms (SPFs) are described below.
SPF 6: Standard Non-Owned Automobile Policy
SPF 6: Standard Non-Owned Automobile Policy has been designed to meet the needs of employers who may be held responsible for damages caused by employees operating their own (or others’) vehicles in the course of regular business. The coverage is normally sold to anyone operating a business where there can be regular or occasional use of vehicles that the business does not own.
This policy covers the insured, who is the employer, as well as every partner, officer, or employee if they drive a non-owned automobile in the business of the employer on the policy. These persons are not covered if the automobile is owned by or licensed in the name of the insured, the person driving, or a resident of the dwelling premises of the insured or the driver.
Coverage applies to automobiles not owned by the insured. The automobiles may be owned by the employees, rented or leased by the insured, or operated under contract for the insured.
SPF 7: Excess Automobile Policy
SPF 7: Excess Automobile Policy is used in provinces with government-run automobile insurance policies. This is an extension policy to provide additional or excess coverage for liability and accident benefits, over and above the government’s primary insurance policy.
The government policy always pays first, and that coverage must be exhausted before SPF 7: Excess Automobile Policy will respond. This policy often provides coverage to pay the deductibles on the standard government policies for physical damage to the automobile.
SPF 8: Lessor’s Contingent Automobile Policy
SPF 8: Lessor’s Contingent Automobile Policy provides coverage on a contingency basis for businesses that lease vehicles on a long-term basis. Coverage is applied secondary to coverage already in place on the vehicle (which the lessee is responsible for purchasing).
If the lessee has not purchased the required insurance, or has somehow violated a policy condition and therefore forfeited the coverage, SPF 8: Lessor’s Contingent Automobile Policy will respond and pay the lessor their interest in the vehicle and/or its loss or damage.
