Nova Scotia has approved Facility Association’s approach to rating commercial auto in a way that trucking operators cannot “game the system” and get Nova Scotia’s lower premium rates when they drive more extensively in other Canadian provinces.
Essentially, a “surcharge matrix” will be used to rate trucking companies that drive more than 50% outside of the Atlantic provinces and Quebec.
“The proposed surcharge matrix is based on comparisons of three-year average premiums in other regions,” as the Nova Scotia insurance regulator explains. “The goal is to make the surcharged premium, when the vehicle is used primarily in another province outside the Atlantic Provinces and Quebec, approximate the premium that would be charged in that region.”
The matrix involves breaking the country down into four different regions: Eastern Canada, Ontario, Western Canada, and Territories. The average earned premiums, brought to current rate levels, were examined based on overall or total premium basis, and for third-party liability (i.e., bodily injury, property damage-tort and Direct Collision Physical Damage combined).
Using this information, the Nova Scotia regulator explains in its decision to accept the approach, Facility Association developed a matrix that represented the ratio of premium from the region where the vehicle is operated to the premium from the region of registration.
“For example,” the regulator notes, “the three-year average total earned premium at current levels for Eastern Canada was $9,936 and for Ontario was $31,558. For a vehicle registered in Eastern Canada but operated in Ontario, the premium should be 318% of the Eastern Canada premium. A similar comparison of the Third-Party Liability premiums suggests the premium should be 419% of the Eastern Canada premium in the same circumstances.”
Essentially, Facility has made some adjustments to the core ratios above, but if the truck operates outside Atlantic Canada for more than 50% of the time, the surcharge rates apply. The surcharge would be the one for the territory where the truck operates the most. If it’s not clear where the truck operates the most — for example, it operates 33% of the time in Western Canada, 33% in Ontario and 33% in Atlantic Canada — then the surcharge that produces the highest premium will apply.
When asked why weighted averages would not be used, Facility responded that the matrix surcharge approach would add more conditions for agents and brokers to evaluate, and more steps to complete, to quote interurban risks. But they would also have an easier system to explain to clients who operated in multiple jurisdictions.
The matrix system evolved to prevent truck operators from registering in the jurisdiction with the lowest premium (i.e. Nova Scotia), but operating more often in other jurisdictions, as the province’s insurance regulator notes.
“Facility noticed a significant increase of vehicles registered in Nova Scotia but operated elsewhere,” the regulator observes. “This registration seeks to gain access to better rates than the vehicle would receive if registered in Ontario.
“Misrepresentation of where the vehicle operates leads to increased claims for Nova Scotia, with lower-than-needed premiums, leading to poorer Nova Scotia experience and loss ratios. This experience will see rates rise for all Nova Scotia interurban trucks.”