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Exam 6C - F2022 > Dutil.FA > Flashcards

Dutil.FA Flashcards

1
Q

What is the goal of FA?

A

To ensure auto insurance availability for all owners & licensed drivers unable to obtain coverage through the voluntary market.

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2
Q

FA was created by…?

A

The insurance industry.

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3
Q

FA is an ________ of all auto insurers.

A

unincorporated non-profit

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4
Q

What are the 3 types of risk-sharing mechanisms administered by FA?

A
  1. Facility Association Residual Market (FARM)
  2. Risk-Sharing Pools (RSPs)
  3. Uninsured Automobile Fund (UAF)
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5
Q

Describe the key purpose of FARM?

A

Provide auto insurance to drivers who can’t find it in the voluntary market.

It is an insurer of last resort, ensuring that compulsory insurance can be sold to risks that no insurer will write.

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6
Q

Describe the key purpose of RSPs.

A

Allow insured to cede risks on their own books for which they consider premiums to be inadequate.

Allows insurer to write a riskier set of insureds and pool the costs to limit their losses.

Enhance market stability.

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7
Q

Compare RSP and FARM with respect to Rates & Rules.

A

RSP: Rates are insurer’s own standard manual rates and rules.
FARM: uses FA rates and rules.

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8
Q

Compare RSP and FARM with respect to servicing carriers.

A

RSP: serviced by the ceding company (member)
FARM: policies/claims administered by servicing companies.

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9
Q

Compare RSP and FARM with respect to policyholder awareness.

A

RSP: policyholder is not aware of assignment.
FARM: policyholders know they are a FARM risk.

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10
Q

Compare RSP and FARM with respect to treatment of losses in ON PPA filing.

A

RSP: Included in loss analysis
FARM: Excluded in loss analysis

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11
Q

Identify the 5 minimum requirements that a risk must meet in order to be eligible for transfer to one of the FA RSPs.

A
  1. Must be PPA
  2. Must not be eligible for FARM
  3. Must have statutory TPL limit
  4. Must use approved rates
  5. Must follow insurer’s classification and rating procedures.
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12
Q

True of False?
Provinces with a crown corporation insurer (BC, SK, MB, QC) are not eligible for FARM or RSPs.

A

True

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13
Q

What is the key purpose of UAF?

A

Provide compensation in cases of no insurance or inadequate insurance.

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14
Q

True or False?
ON is a province where FA administers the uninsured motorist fund.

A

False

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15
Q

What are the 4 functions of FA’s board of directors?

A
  1. Approve rate changes & filings
  2. Authorize expenses
  3. Establish standards of servicing carriers & RSP users
  4. Appoint committees and sub-committees
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16
Q

What are the 5 classes of business for determining a member’s participation ratio?

A
  1. PPA non-fleet, non-pool business
  2. PPA not in (1) or in any RSP
  3. Business ceded to the pool in AB, NB, NS
  4. Business ceded to the pool in Ontario other cat fund
  5. Vehicles in a catastrophic claim or uninsured motorist pool
17
Q

Compare RSP and FARM with respect to limit of risk.

A

RSP: there can be a limit of risk you can transfer to the RSP
FARM: No limit of risk

18
Q

Compare FARM and RSP with respect to type of risk.

A

RSP: PPV only
FA: Any vehicle that is not PPV and PPVs declined by other insurers for specific reasons.

19
Q

Compare RSP and FARM with respect to admission.

A

RSP: Use U/W rules of ceding company
FARM: Only if agent/broker can’t place risk with voluntary company

20
Q

What does the ON 5% transfer limit prevent for?

A

(5% of voluntary, PPA, non-fleet written exposures)

Prevents insurers from simply ceding all new businesses to the pool then cherry-picking the profitable renewal business in the following year.

21
Q

Describe how the financial results of a particular pool are shared among companies.

A

They are shared based on a participation ratio that is based on the voluntary PPA non-fleet, non-pool direct exposures.

22
Q

Describe how the pool operates with respect to actual transfer of premium from a member company to the pool.

A

Member transfers the premium excl. fees like commissions/agents and are subject to a limit depending on the province.
The premium ceded must be the approved one.

23
Q

Describe how the pool operates with respect to P reimbursement from the pool to a member company.

A

The premium returned is based on the participation ratio calculated, and in addition, the pool reimburses an expense fee for the cost of writing and handling the policy.

24
Q

How does a company use RSP to lower its total loss ratio?

A

Company should cede as many unprofitable risks as possible.

This will reduce their participation ratio, increase the expense allowance received from the pool and reduce its non-ceded risk loss ratio.

25
Q

Is it possible to sustain a RSP running a profit?

A

If business can be written at a profit, insurers will keep this business and not cede it to the RSP.
Only risks insurer will be willing to cede are the unprofitable ones, so overtime the RSP would not be profitable.
This pool is not sustainable as it won’t operate at a profit.

26
Q

How does a rate freeze (at inadequate rates) impact availability of coverage? How to solve it?

A

Insurers will start rejecting applications to insureds that would have inadequate premiums, resulting in an availability crisis.
They should introduce a RSP that allow to cede underpriced risks. Result of the pool would be distributed between all insurers in that jurisdiction in function of their voluntary business in auto.
This will increase the availability of that class of risk.

27
Q

Justify ROE = 15% for high-risk business (vs regulators’ ROE of 10%)

A

Higher risk justifies higher returns to compensate.
Using lower ROE may cause insurers not offer product = reduces availability for consumers.

28
Q

How do you calculate the loss ratio for a company’s share of pool?

A

LR for share pool = (Share of losses) / (Share of P + allowance for ceded P)
Share of losses = Part% * Prov ceded losses
Share of P = Part% * Prov ceded P
Allowance for ceded P = Cie ceded P * ExpAllow%
Part% = (Earned car years not ceded)/(Tot industry)

29
Q

How do you calculate the total LR for a cie (incl. RSP)?

A

Total LR = (Cie non-ceded losses + Prov ceded LossesPart%) / (Cie non-ceded P + Prov ceded PPart% + Cie ceded P*ExpAllow%)

30
Q

How do you calculate the revised total LR if the cie chooses not to cede any risks to RSP?

A

Revised LR = Revised Loss / Revised Premium
Revised Loss = Tot losses + Revised Part%(Prov ceded losses - Cie ceded losses)
Revised P = Tot P + Revised Part%(Prov ceded P - Cie ceded P)
Revised Part% = Tot earned Exposures / (Prov non-ceded exposures + cie ceded exposures)

31
Q

Identify the 4 changes to RSPs following the new bulletin

A
  1. ON: amend 85% cession limit to 100% to harmonize with other provinces
  2. AB (non-grid): amend member transfer limit from 4% to 5%
  3. NB: amend member transfer limit from 8% to 5% + expend eligibility criteria to allow all PPV from current restrictions for inexperienced operators
  4. NS: amen member transfer limit from none to 5% +
    expend eligibility criteria to allow all PPV from current restriction for inexperienced operators

Exam 6C - F2022 (58 decks)

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