June 13, 2002 by Canadian Underwriter
In it submission to the New Brunswick select committee on auto insurance, the Facility Association is asking that it be subject to the same “file and use” rate system as the rest of the industry. Although 1997 legislation in New Brunswick allows the voluntary market flexibility to increase rates through the “file and use” system, Facility was not given such leeway, explains Facility CEO Dave Simpson in his report to the committee.
“To make matters worse, in the 1997 legislation, all references to any time limitation for decisions respecting our filing were removed,” he adds. He cites the example of Facility’s February, 2001, filing, which was not approved until March, 2002. Given the 90 days required to implement the rate changes by carriers, this meant the new rates were not in use until 17 months after the filing with New Brunswick’s Public Utilities Board (PUB).
He says that this system is part of the reason Facility marketshare has risen in the province. While the 1997 changes caused marketshare to drop below 1%, as the voluntary market was able to raise rates, the current upswing in rates in the voluntary market is making Facility rates much to attractive. Rather than being a “market of last resort” for high-risk drivers, it is becoming a competitive option.
“The reality is that allowing Facility Association’s rates to be inappropriately low relative to the voluntary market is bad public policy” because it puts Facility in competition with private insurers, says Simpson. “In particular, insurers specializing in the “non-standard” segment are squeezed out of the marketplace, thereby reducing choice for consumers.”
He adds that not only has Facility become an attractive option, but also, insurers have had to subsidize losses in the province because the association’s combined ratio has risen. Last year, member insurers were assessed a $2.75 million charge, and this year the number will likely be $6-8 million. “That means companies, and presumably their customers and their shareholders, have been subsidizing those drivers insured through Facility Association.”
He asks the committee to either allow Facility to implement the “file and use” system, or at the least to go back to pre-1997 terms where there was a 60-day statutory time limit on filing decisions.
New Brunswick broker Bob Kimball, chair of Facility’s operating committee in that province, also addressed the committee, noting that some brokers in the region have no other market but Facility. Facility has agreed to sponsor brokers’ licenses for these brokers, but this is a “Band-Aid solution at best”, says Kimball.