Dutil.FA

Question 1

objective/goal of FA

Answer 1

to ensure auto insurance availability for all owners and licensed drivers who are unable to obtain coverages through the voluntary market

Question 2

who created FA

Answer 2

insurance industry
unincorporated non profit for all auto insurers

Question 3

mission of FA

Answer 3

• administer residual market mechanisms
• enhance market stability through RSPs
• minimize market share so consumers benefit from private market

Question 4

3 types of risk sharing mechanisms administered by FA

Answer 4

• FARM
• RSP
• UAF

Question 5

key purpose of FARM

Answer 5

• provide coverage for risks that cannot be placed privately
• FARM also seeks to minimize market share

Question 6

key purpose of RSP

Answer 6

• enhance market stability by allowing insurers to pool bad risks that have passed their own uw criteria
• premium and losses are shared

Question 7

key purpose of UAF

Answer 7

provide compensation in cases of no insurance or inadequate insurance

Question 8

where does FA operate its various mechanisms?

Answer 8

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)

Question 9

what are the servicing carriers for FARM?

Answer 9

member companies contracted by FA to issue/administer policies and adjust claims

Question 10

functions of FA’s board of directors

Answer 10

• rate changes: approve rate changes and filings
• expenses: authorize expenses
• standards: establish standards for servicing carriers and RSP users
• committees: appoint committees and subcommittees

Question 11

5 classes of business for determining a member’s participation ratio

Answer 11

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)

Question 12

FAMR, RSP areas of operational difference

Answer 12

RACC- P.claims
- Rates
- Admission
- Customer knowledge
- # of Customers places
- Participation ratio
- claims uw and claims admins

Question 13

FARM, RSP operational differences regarding rates

Answer 13

Farm: set by FA
RSP: uses rates of ceding company

Question 14

FARM, RSP operational differences regarding admission

Answer 14

Farm: only if agent/broker can’t place risk with voluntary company
RSP: use uw rules of ceding company

Question 15

FARM, RSP operational differences regarding customer knowledge

Answer 15

farm yes
rsp no

Question 16

FARM, RSP operational differences regarding # of customers placed

Answer 16

farm can be unlimited
rsp depends on province, usually a percentage of
- total, voluntary PPA, non fleet, TPL direct written exposures

Question 17

FARM, RSP operational differences regarding participation ratio

Answer 17

farm established separately by jurisdiction, class, AY
RSP total voluntary PPA non fleet third party liability direct earned exposures

Question 18

FARM, RSP operational differences regarding claims admin and uw

Answer 18

farm done by servicing carrier
rsp done by ceding companies

Question 19

what are the minimum requirements for rsp transfer eligibility?

Answer 19

• 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

Question 20

describe how RSP operates regarding actual transfer of premium from insurer to pool

Answer 20

transferred premium = premium charged net of premium payment service charges

Question 21

describe premium reimbursement from pool to insurer

Answer 21

reimbursement = % of WP as an expense allowance
- includes claims adjustment, LAE, acquisition and operating expenses
- excludes taxes, license fees

Question 22

in ON, why is there a limit of 5% of voluntary PPA, non fleet exposure that can be transferred to the pool?

Answer 22

• 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

Question 23

identify differences between ON and AB RSPs

Answer 23

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

Question 24

how is the RSP used to lower total LR?

Answer 24

• 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

Question 25

is it possible to sustain a RSP running a profit

Answer 25

no, members cede the worst risks so over time the pool would become unprofitable

Question 26

how does a rate freeze at inadequate rates impact availability of coverage?

Answer 26

availability for that class is reduced, insurer would stop accepting risks because they are unprofitable

Question 27

calc probs