Dutil.FA

Question 1

What is the goal of FA?

Answer 1

Ensure auto insurance availability for all owners & licensed drivers when legally required

Question 2

Decribe of FA (who created FA, etc…)

Answer 2

The insurance industry.
unincorporated non-profit

Question 3

Missions of FA (Facility Association) (3)

Answer 3

1. Administer residual market mechanisms
2. Enhance market stability through RSPs
3. Minimize market share, so consumers benefit from private mkt

Question 4

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

Answer 4

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

Question 5

Describe the key purpose of FARM?

Facility Association Residual Market (FARM)

Answer 5

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.

Question 6

Describe the key purpose of RSPs.

Answer 6

Enhance market stability by allowing insurers to pool bad risks that have passed their own U/W criteria (premiums & losses are shared)

Question 7

What is the key purpose of UAF?

Uninsured Automobile Fund (UAF)

Answer 7

Provide compensation in cases of no insurance or inadequate insurance.

Question 8

Compare RSP and FARM with respect to:
1. Rates & Rules
2. servicing carriers
3. policyholder awareness

Answer 8

Rates & Rules:
- RSP: Rates are insurer's own standard manual rates and rules.
- FARM: uses FA rates and rules.
Servicing carriers:
- RSP: serviced by the ceding company (member)
- FARM: policies/claims administered by servicing companies.
Policyholder awareness:
- RSP: policyholder is not aware of assignment.
- FARM: policyholders know they are a FARM risk.

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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.

Question 11

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

Answer 11

RATE CHANGES: approve rate changes & filings
EXPENSES: authorize expenses
STANDARDS: establish standards for servicing carriers & RSP users
COMMITTEES: appoint committees & subcommittees

Question 12

Identify 5 classes of business that determine a member’s participation in the Facility Association results ?

Answer 12

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

Question 13

Compare RSP and FARM with respect to:
1. limit of risk.
2.type of risk.
3.admission

Answer 13

Limit of risk:
- RSP: there can be a limit of risk you can transfer to the RSP
- FARM: No limit of risk
Type of risk:
- RSP: PPA only
- FA: Any vehicle that is not PPA and PPA declined by other insurers for specific reasons.
Admission:
- RSP: Use U/W rules of ceding company
- FARM: Only if agent/broker can’t place risk with voluntary company

Question 14

What does the ON 5% transfer limit prevent for?

Answer 14

(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.

Question 15

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

Answer 15

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

Question 16

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

Answer 16

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.

Question 17

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

Answer 17

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.

Question 18

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

Answer 18

• 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
• ALSO: ceding the maximum amount lowers PR for RSP

Question 19

Is it possible to sustain a RSP running a profit?

Answer 19

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.

Question 20

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

Answer 20

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)

Question 21

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

Answer 21

Total LR = (Cie non-ceded losses + Prov ceded Losses*Part%) / (Cie non-ceded Prm + Total pool premium * % participation + Cie Ceded premium * %Expense allowance)

Total losses = Cie non-ceded losses + RSP Losses share
Total prm = Cie non-ceded prm + RSP prm share + prm reductribution Cie ceded

Question 22

Identify the 4 changes to RSPs following the new bulletin

Answer 22

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 PPA from current restrictions for inexperienced operators
4. NS: amend member transfer limit from none to 5% +
   expend eligibility criteria to allow all PPA from current restriction for inexperienced operators

Question 23

identify differences between the ON and AB RSPs

Answer 23

difference 1:
- ON has 1 RSP
- AB has 2 RSPs (GRID & non-GRID)
difference 2:
- ON has a 5% limit on risks that can be ceded
- AB GRID has no limit (non-GRID has 5% limit)

Question 24

identify differences between AB RSPs : GRID Pool vs Non-Grid Pool

( idea, limit)

Answer 24

GRID Pool:
- To transfer risks that are subject to (grid premium) - the statutory maximum premium.
- no limit on the number of risks that can be transferred
- This is based on the philosophy that the law requires insurance companies to accept risks for which they have no control over price

Non-Grid Pool:
- Similar with other rsp - help companies cope with the “take all-comers” environment in Alberta
- 5% limit on the number of risks that can be transferred