May 1, 2001 by Vikki Spencer
A recent decision by the Newfoundland Public Utilities Board has created the platform for a “sure victory” for the property and casualty insurance industry’s Facility Association (FA). This development has also produced a heady start for Stan Griffin, the current president of the FA. After a long career with the Insurance Bureau of Canada, Griffin was brought in over a year ago to put his political acumen to work for the FA as it came under the scrutiny of regulators. Now Griffin is prepared to enter the political arena again, to educate regulators and the industry itself on what he describes as an “elegant solution to a thorny problem” – insuring high-risk drivers.
When Stan Griffin joined the Facility Association in 1999, he was only supposed to stay for one year. The FA board had sought Griffin out specifically for the post, seeing the development of conflict with Newfoundland insurance regulator Winston Morris, and wanting Griffin’s expertise in legislative matters to help quell the situation. The FA, which takes drivers who otherwise could not get auto insurance because of their high risk status, and then spreads that risk over the pool of all insurance companies, had been making a profit in Newfoundland. In 12 days of hearings before the provincial Public Utilities Board (PUB), Morris made the case that the FA is a non-profit body, and that any profit should go to lowering rates.
Griffin maintains that while the FA itself only covers its own expenses, member insurers have the right to turn a profit, just as they are expected to absorb losses from their involvement. A recently released decision by the Newfoundland PUB supports this view. “It’s a good decision,” Griffin says, “in that it is well written and a good overview of how the FA works.” In fact, he adds, the hearings were a blessing of sorts for the association in being able to “educate” regulators and even members about the system. “There are a lot of people in our industry who don’t understand how the FA works, let alone government officials and regulators,” he notes.
The lack of “understanding of how the FA works” seems to have been a sore point in the hearings and remains so. Since the PUB’s report, Morris has said he questions the right of the board to decide on whether FA can distribute any profits to its member insurers. But Griffin counters that the decision makes sense. Morris’ plan to put profits back into lower rates does not make good business or public policy sense. “We’re supposed to be the insurer of last resort, our rates should be higher.” In fact, an FA study finds that where its rates are closest to those of the voluntary market, a greater percentage of the marketplace is placed in FA. This is especially true in Newfoundland, where rates are closest to market and FA covers more than 5% of drivers. Using profits to lower rates, “would only make that worse”, Griffin says.
And, as regulators set the rates to begin with, they have control over the actuarial soundness of the process that goes into that decision. It is a case his is also now making to Ontario superintendent Dina Palozzi. “We’ve said to Dina and Winston, in both cases, and in every other jurisdiction we operate in, they regulate the rates…they have the levers already”. There has to be a separation of financial results and the actuarial process that goes into setting rates, he contends, just as there should be for any company. “You have to let that go [as a regulator]”.
The scrutiny under which the FA has been placed by provincial regulators points to an even greater problem for the industry at large, Griffin warns. “This is a good indication that regulators have become confrontational with the industry…they are pushing the limits of regulatory responsibility into areas that are questionable.” Regulators were once seen as responsible for the overseeing the financial solvency of insurers, to ensure claims could be paid out in the event of a disaster. Now, regulators are moving more forcefully into the realm of consumer protection, a move Griffin says is dangerous. “The whole issue of regulators almost looking for more authority, becoming consumer advocates rather than insurance regulators,” is of concern to the entire industry.
And, while Griffin accepts the importance of consumer advocacy, he does not think that is the primary concern for regulators. “Their primary concern is a healthy insurance industry.” Regulators becoming too heavy-handed could be an even more significant issue for the FA, which has to operate in all provinces except those with public insurance programs. “We don’t want one jurisdiction going off on a tangent different from the other eight we do business in.”
As it stands, rules on who is placed in FA differ from province to province. Underwriting guidelines are fully regulated in Ontario, but both New Brunswick and Nova Scotia require brokers to keep a binder registry, recording the reason each insured was placed in FA. It is a system Griffin thinks works well. “It makes the broker stop and think, ‘why am I putting this person in FA?'”
In fact, Griffin contends, this system was suggested to help deal with Morris’ concerns that too many people were being placed in FA in Newfoundland. But no response was received from the regulator. “The trail of correspondence went cold.” The Newfoundland broker association has said publicly that part of the reason more drivers are being placed in FA are that its rates are often lower than those in the voluntary market, further indication to Griffin that lowering rates is no solution.
The same concerns over profits are now being voiced in P.E.I., and Griffin has the same response for regulators there. “They’ve go to understand you can’t have it both ways. You can’t have lower rates in FA and nobody [placed] there.” While Ontario had conducted a review of the association a year ago, this process was stalled pending the Newfoundland decision. “We’ll have to see where that goes,” Griffin says. “I don’t see any urgent need for any drastic changes to the FA mechanism.”
At the same time, the association has been working on several improvements of its own. Among these is a faster system for compiling data and accomplishing rate filings and changes, which can now take more than a year. Another important step is publishing the FA manual online. Unlike other insurers who operate only in select brokers’ offices, “we have to be in every broker’s office”, he explains, and the printing costs involved are large. He hopes in future to add rates to the website.
The FA’s future focus will remain on the regulatory front, Griffin confirms. The crunch of regulators may lose some force given the turn in first quarter results this year, especially in Atlantic Canada, where they are down sharply. But the question remains as to whether regulators will accept filings for rate increases from the association, and what the effect of a hardening voluntary market will be if they do not. Griffin admits some people are predicting that higher rates in the voluntary market may result in an increase in FA placement.
Griffin is no stranger to the role of “diplomacy” and debate with the various insurance regulators. His experience in the Ontario auto market as vice president for the IBC in that region came at perhaps the most tumultuous decade, that of the 1990s. While he came to the IBC in a research and actuarial capacity, by the late 1980s he was named chair of the newly formed Ontario committee. At the time, “auto insurance became more of a public issue” and following the short-lived Ontario Motorists Protection Plan, the New Democrats were elected in Ontario with a plan to nationalize public auto insurance.
Griffin was part of the IBC effort to fight the plan, and while the effort was successful, Bob Rae shortly announced unexpected changes to the provincial auto insurance system. The changes were a concern for the industry, which said it could not meet the demands of “The Road Ahead” while still keeping a lid on costs.
In anticipation of the NDP fal
ling in the 1995 election, Griffin was part of the “Omega Project”, the industry’s own plan for no-fault insurance. This lead to Bill-59, and a more industry-friendly auto insurance system. Griffin now turns his attention to coming discussions with insurance regulators in Ontario and across the nation. He believes it is important to retain the independence of the industry’s response to the requirement for all drivers to be insured. “The FA is,” he says, “an elegant solution to a thorny problem…I think it works very well”.