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FA origin, role, goal
- origin: to ensure availability of compulsory auto insurance across Canada.
- role: provide a residual market for auto insurance and try to have as small a market share as possible.
- goal: provide auto insurance to drivers who can’t find it in voluntary market (last resort)
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FA board responsibilities
- approve rate changes
- authorize expenses
- establish and maintain standards for servicing carriers and RSP members
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Membership rights
- Mandatory FA membership for insurers licensed to write auto liab in jurisd FA operates
- Votes based on member's TPL direct WP for latest complete year in all jurisds FA operates
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FARM goal
Residual auto insurance market for those unable to obtain insurance in voluntary market for PPV/COV
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FARM determination of participation ratios
Participation ratio used to allocate P/L for each class - PPV non-fleet non-pool auto
- all auto other than (1) or transferred to a RSP
- transferred to a RSP other than pool in AB, NB, NS, ON CAT claim fund
- transferred to a RSP in AB, NB, NS
- all UM claims related to a pool or ON CAT claim fund
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RSP goal
allow insurers to cede risks they consider premiums to be inadequate (allow them to write more high risks)
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FARM vs. RSP
- risk insured:: PPV and COV; unable to find insurance in voluntary market
- RSP: PPV not qualified for FARM; high risks insured by insurer
- Awareness:: p.h. unaware; FARM: p.h. aware
- Rating / UW
- RSP: insurer approved rates and rules; FARM: FA rates / rules
- Type of risk:: any PPV/COV vehicle declined by insurers; RSP: PPV only not qualified for FARM
- Service provider:: contracted a few service carriers to issue/admin policies and adjust claims on behalf of FA
- RSP: insurers who issue policy
- coverage requirement:: must have min stat limits; FARM: not required
- Limit of # risks:
- can be a limit for transfering to RSP; No limit to FARM
- treatment of losses in ON PPV Filing:: include; FARM: excluded as it’s not business of the insurer
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RSP participation ratio
results pooled among members in the prov: - participation ratio based on voluntary PPV, non-fleet, TPL direct exposures (car years) not ceded to RSP
- incl those who do not transfer
- ON: ratio also depends on # of risks ceded to RSP
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RSP - Premium ceded and reimbursed
- ceded: premium charged net of service charges to insured (commission), subject to limits by prov
- member then receives expense allowance (% of ceded WP) to settle acq, op and LAE but not premium tax and prof fees
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RSP - 5 min req'ts for risk to be eligible for RSP
- PPV
- not eligible for FARM
- min TPL limit
- insurer's risk classification
- insurer's approved rate
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RSP - Limitations on transfer
- proportion of each risk that can be ceded
- transfer of coverages (max limits or min ded)
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ON RSP
- Covers 85% of every risk transfered (other provinces 100% subject to limits)
- rationale - incentive for insurers to maintain adequate UW/pricing and manage claims
- Total up to 5% of voluntary PPV non-fleet WEXP
- rationale
- prevent company from using RSP as marketing tool to attract NB (higher expenses than RN)
- incentive for insurers to maintain adequate UW/pricing as transfer is limited
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AB RSP
- Grid pool:
- Covers risks that are subject to stat max prem
- no lim to # of risks ceded. rationale: company has no control over price
- Non-Grid pool:
- total up to 4% of voluntary PPV non-fleet WEXP not ceded to Grid pool. rationale: help cope with 'take all comers' in Alberta
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NB RSP
- covers exposures with > 1 driver who receives discount for 'recently licensed driver with good driving records'
- up to 8% of voluntary PPV non-fleet WEXP
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NS RSP
- covers exposures with > 1 driver with < 6 years of driving experience and no accidents / convictions
- no lim on # of risks ceded
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ATL UAF (Uninsured auto funds)
compensate when unable to recover from cases of no insurance or under-insurance
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