B - Dutil (Facility Association)

Question 1

DUTIL (FACILITY ASSOCIATION)

Origin of FA
Role of FA
Goal of FA

Answer 1

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

Question 2

DUTIL (FACILITY ASSOCIATION)

Provinces where FA is operating

Provinces in which FA is NOT operating.
Why FA is not operating in those provinces?

Answer 2

• -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.

Question 3

DUTIL (FACILITY ASSOCIATION)

3 risk mechanisms of FA

Answer 3

1) RSP (Alb, On, NS, NB)
2) Residual Markets (FARM)
3) Uninsured Automobile Funds (in Atlantics)

Question 4

DUTIL (FACILITY ASSOCIATION)

Describe RSP as a risk mechanism of FA

Answer 4

• 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)

Question 5

DUTIL (FACILITY ASSOCIATION)

Describe RESIDUAL MARKET (FARM) as a risk mechanism of FA

Answer 5

• 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)

Question 6

DUTIL (FACILITY ASSOCIATION)

Describe UNINSURED AUTOMOBILE FUNDS (in Atlantics) as a risk mechanism of FA

Answer 6

Compensate for damages to persons who :

• cannot obtain it from an insurance contract
• where no other insurance or non-sufficient insurance

Question 7

DUTIL (FACILITY ASSOCIATION)

2 requirements to qualify as a Residual Market (FARM) Risk.

Answer 7

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

Question 8

DUTIL (FACILITY ASSOCIATION)

4 responsibilities of the Board of Directors of FA

Answer 8

1) Approve rate changes and filings
2) Maintain standards to be followed by servicing carriers
3) Authorize expenses
4) Appoint committees and sub-committees

Question 9

DUTIL (FACILITY ASSOCIATION)

Explain how voting in FA works

Answer 9

• 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.

Question 10

DUTIL (FACILITY ASSOCIATION)

5 requirements for a risk to be eligible for transfer to a RSP

Answer 10

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

Question 11

DUTIL (FACILITY ASSOCIATION)

Discuss Ontario RSP

Answer 11

• Covers 85% or every risk transferred (15% remaining stays with insurer). All other pools cover 100%.
• Maximum transfer is 5% of PPA written exposure

Question 12

DUTIL (FACILITY ASSOCIATION)

Discuss Alberta RSP

Answer 12

• 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

Question 13

DUTIL (FACILITY ASSOCIATION)

Contrast NB and NS RSPs

Answer 13

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.

Question 14

DUTIL (FACILITY ASSOCIATION)

Discuss how a company can use a RSP to lower its total LR

Answer 14

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

Question 15

DUTIL (FACILITY ASSOCIATION)

How financial results of a RSP are shared among member companies

Answer 15

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

Question 16

DUTIL (FACILITY ASSOCIATION)

Describe how RSP operates for

1) transfer of premium from company to pool
2) premium reimbursement from poll to company

Answer 16

1) premium must be the one actually charged without modification. some pools limit the % of premium that can be ceded to prevent cies from using the RSP as a marketing tool
2) premium returned is based on participation ratio calculated. Also the pool returns an expense allowance for the cost of acquisition and claim handling

Question 17

DUTIL (FACILITY ASSOCIATION)

4 classes of business that determines a member’s participation in FA

Answer 17

(1) non-fleet non-pool PPA
(2) auto business other than (1) or transferred to a RSP
(3) business transferred to a RSP other than in AB, NB or NS
(4) business transferred to a RSP in AB, NB or NS
(5) all uninsured or unidentified motorist claims