Ontario Risk Sharing Pool shows signs of improved results in 2011 H1, a possible indicator of effectiveness of auto reforms

Ontario’s Risk-Sharing Pool (RSP) and Facility Association Residual Market’s auto loss ratios showed signs of improvement in the first half of 2011, possibly indicating a positive effect of the 2010 auto reforms, said Graham Gersdorff, senior valuation analyst at the Facility Association.
Gersdorff spoke at KPMG’s 20th Annual Insurance Issues Conference in Toronto on Nov. 24. He offered insights into whether or not the 2010 auto insurance reforms are helping to stem soaring loss ratios.
Gersdorff offered several caveats and insisted it is still too early to draw a concrete conclusion as to whether or not the improvement of loss ratios in both the RSP and FARM are a result of the reforms. But by looking at the data, one could infer the possibility that the reforms are having a positive impact, he said.
The Ontario RSP is roughly comprised of the worst performing 3% of policies of each company in the market, so its results are highly correlated with the industry as a whole, he explained. At 2010 year-end, the loss ratio of the RSP was 170%. By June 30, 2011, this figure had improved to approximately 140%.
“Because the RSP[‘s results] go up and down with the industry, we can make the inference that if the RSP loss ratio, which is the data I have access to, improves from 2010 to 2011, it’s a good indicator that the industry will improve as well,” Gersdorff said.
He also compared Ontario’s RSP loss ratio with those of other jurisdictions in Canada. “If improvement in Ontario is due to reforms, we’d hope to see differences between Ontario and other provinces[‘s results],” he said.
It is too early to say anything concretely, he qualified, but he did note that as of June 30, 2011, Ontario’s RSP loss ratio had dropped dramatically (168% to 140%) when compared with other provinces. In fact, Alberta’s grid and non-grid markets, and New Brunswick’s RSP all experienced an increase in loss ratios.
“Ontario’s loss ratio is coming down much more dramatically than other provinces,” he said. “This is a sign that something is happening,” he said.