Dutil.FA Flashcards
objective/goal of FA
to ensure auto insurance availability for all owners and licensed drivers who are unable to obtain coverages through the voluntary market
who created FA
insurance industry
unincorporated non profit for all auto insurers
mission of FA
- administer residual market mechanisms
- enhance market stability through RSPs
- minimize market share so consumers benefit from private market
3 types of risk sharing mechanisms administered by FA
- FARM
- RSP
- UAF
key purpose of FARM
- provide coverage for risks that cannot be placed privately
- FARM also seeks to minimize market share
key purpose of RSP
- enhance market stability by allowing insurers to pool bad risks that have passed their own uw criteria
- premium and losses are shared
key purpose of UAF
provide compensation in cases of no insurance or inadequate insurance
where does FA operate its various mechanisms?
1) FARM: everywhere except provinces with public auto (BC,MB,SK,QC)
2) RSP: ON, AB, NS, NB. QC operates its own RSP, called PRR
- an rsp has been newly introduced to NL
3) UAF: Atlantic provinces (NB,NL,NS,PEI)
what are the servicing carriers for FARM?
member companies contracted by FA to issue/administer policies and adjust claims
functions of FA’s board of directors
- rate changes: approve rate changes and filings
- expenses: authorize expenses
- standards: establish standards for servicing carriers and RSP users
- committees: appoint committees and subcommittees
5 classes of business for determining a member’s participation ratio
FARM:
1) PPA non fleet non pool
2) all auto excluding 1) and RSPs
3) RSP in ON except CAT claim funds for ON acc benefits from insolvent insurers
4) RSP in AB/NB/NS
5) uninsured and unidentified motorist claims & ON CAT claims fund excluded from 3)
FAMR, RSP areas of operational difference
RACC- P.claims
- Rates
- Admission
- Customer knowledge
- # of Customers places
- Participation ratio
- claims uw and claims admins
FARM, RSP operational differences regarding rates
Farm: set by FA
RSP: uses rates of ceding company
FARM, RSP operational differences regarding admission
Farm: only if agent/broker can’t place risk with voluntary company
RSP: use uw rules of ceding company
FARM, RSP operational differences regarding customer knowledge
farm yes
rsp no
FARM, RSP operational differences regarding # of customers placed
farm can be unlimited
rsp depends on province, usually a percentage of
- total, voluntary PPA, non fleet, TPL direct written exposures
FARM, RSP operational differences regarding participation ratio
farm established separately by jurisdiction, class, AY
RSP total voluntary PPA non fleet third party liability direct earned exposures
FARM, RSP operational differences regarding claims admin and uw
farm done by servicing carrier
rsp done by ceding companies
what are the minimum requirements for rsp transfer eligibility?
- PPA only
- insured can’t be eligible for FARM
- policy must satisfy statutory minimum coverage requirements
- insurer must follow proper classification & rating, and provide documentation
- insurer must use approved rates
describe how RSP operates regarding actual transfer of premium from insurer to pool
transferred premium = premium charged net of premium payment service charges
describe premium reimbursement from pool to insurer
reimbursement = % of WP as an expense allowance
- includes claims adjustment, LAE, acquisition and operating expenses
- excludes taxes, license fees
in ON, why is there a limit of 5% of voluntary PPA, non fleet exposure that can be transferred to the pool?
- insurer keep a percentage so they have an incentive to underwrite prudently 谨慎地
- prevents insurers from sending all new policies to pool for first year, then cherry picking renewals from pool in year 2
identify differences between ON and AB RSPs
1) ON has 1 RSP. AB has 2 RSPs (grid and non grid)
2) ON has a 5% limit on risks that can be ceded, AB GRID has no limit , non grid has 5% limit
how is the RSP used to lower total LR?
- cede policies to RSP that have a higher LR than the RSP average, then other companies will end up subsidizing the losses on these policies
- 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 their non ceded risk loss ratio
is it possible to sustain a RSP running a profit
no, members cede the worst risks so over time the pool would become unprofitable
how does a rate freeze at inadequate rates impact availability of coverage?
availability for that class is reduced, insurer would stop accepting risks because they are unprofitable
calc probs
