January 11, 2006 by Canadian Underwriter
The Financial Services Commission of Ontario (FSCO) is reminding insurers that any changes to rates and risk classification systems, including territory definitions, must be filed with and approved by FSCO, notwithstanding recent postal code changes made by Canada Post.
“To reflect increases to the population of certain areas over time, Canada Post, using a process it refers to as urbanization, introduces urban style postal codes to areas that may have been previously considered rural,” FSCO’s Web site notes.
Effective Oct. 17, 2005, Canada Post made such changes to postal codes in Brampton and Caledon areas. “As a result of the recent postal code changes, FSCO has received some complaints regarding increases in policyholder premiums,” FSCO posted in an online bulletin.
Rating territory definitions are elements of an insurer’s risk classification system. FSCO’s approval of a risk classification system that defines rating territories based on postal codes is an approval based on the geographic boundaries of those postal codes as they existed at the time of approval, and on the related actuarial data and support that existed at that time.
“Revisions to postal codes subsequently made by Canada Post do not alter an insurer’s existing filing with FSCO,” the regulator notes. “Therefore, insurers must continue to use their approved territorial definitions as they existed when they were approved by FSCO, even where these may be in conflict with the current Canada Post postal code definitions.
“Any of your policyholders who are impacted by the postal code changes must be rated based on the postal codes as they existed at the time your current territorial definitions were approved, whether for mid-term changes, renewals or new business.”
FSCO notes that Section 2 of the Statutory Conditions of the Ontario Automobile Policy (OAP 1) calls for insurers to refund any premium overpayments as a result of any incorrect classifications.