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Look for Facility Association numbers in Ontario to increase in 2010, former FA chair predicts


October 1, 2009   by Canadian Underwriter


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Given the ongoing deterioration of Ontario auto insurance results, Facility Association is looking at a potential situation in 2010 that might “look and feel a lot like 2003,” Rob Wesseling, an immediate past chair of FA, told the National Insurance Conference of Canada (NICC) in Ottawa.
“Individual insurer results may finally have gotten bad enough that insurers are going to look at the capacity they have in the marketplace, and they are going to start saying: ‘You know what? As painful as it is, it makes sense to start pulling that capacity out.,” said Wesseling, the chief operating officer and senior vice president of The Sovereign General Insurance Company.
“I hope that I’m wrong here,” said Wesseling. “But I’m fearful that if things don’t change, the capacity’s going to get pulled back, and 2010 might look and feel a lot like 2003.”
Pulling capital out of the marketplace typically means an insurer no longer has an appetite for writing high-risk drivers. As a result, more drivers must look for their auto insurance from FA. 
Facility Association is a non-profit organization of all insurers that makes sure all auto risks are underwritten across the country. Typically, FA is known for underwriting “the worst of the worst” auto risks in the country — risks that the standard auto insurance market might not take.
David Simpson, the CEO of Facility Association, moderated the panel discussion on ‘Facility’s Role in the Auto Cycle.’  Simpson led off the NICC presentation by noting that “reminiscent of 2000-01” — when auto lines hardened, premiums increased and the ensuing public outcry led to government reforms of the auto product — the number of risks in the residual market in 2009 is at a “record” lows.
But that can change quickly. In New Brunswick, FA went from writing a record high of 25,000 risks in 2003 to a record low of 6,000 in 2008.
“The problem is, of those 25,000 in 2003, the majority of them were there not for bad records or for fault on [the drivers’] part,” said panelist Ron Godin, consumer advocate at New Brunswick’s Office of the Consumer Advocate. “They were simply there because [capital in] the market was unavailable in certain parts of the province.”
Panelist Bob Tisdale, president and chief operating officer of Pembridge Insurance Company, said there are significant differences between the 2001-03 era and the 2009-2010 era.
For one thing, he said, FA has done a good job since 2003 of making sure its prices are the highest in the market, so as not to compete with the pricing in the standard auto insurance market.
Secondly, Tisdale said, the 2001-03 era was preceded by 10 years of losses before structural changes such as minor injury auto caps were established.
“We saw some fundamental changes in the marketplace, so while I think we certainly have issues going on in Ontario, I think the one thing that’s tempering [more business being placed in FA] is that companies today, particularly in that Ontario market, seem to be very aggressive in trying to retain market share,” said Tisdale.
Wesseling said his fears focused primarily on the Ontario auto market, precisely because of the existing caps in Atlantic Canada and Alberta.
In fact, he added, if capacity in Ontario decreases, it could be very well re-deployed to other parts of the country, such as Alberta and Nova Scotia, provided the caps stay in place and the capital is available to be re-deployed.


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