Canadian Underwriter

Prospect of FA withdrawal highlights Newfoundland auto woes

June 16, 2004   by Canadian Underwriter

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The potential for the Facility Association (FA) the industry’s pool for high-risk drivers to exit Newfoundland should be a sure sign to the province’s government that auto reforms newly legislated are a step in the wrong direction, says one risk manager.
Craig Rowe, president of the Newfoundland and Labrador chapter of the Risk and Insurance Management Society (RIMS) says the possibility of FA leaving could force the government to devise its own insurer of last resort as many drivers in the province will be left “virtually uninsurable”. The FA was created by the industry as a pool mechanism to offer insurance to drivers who, because they represent a high risk, could not obtain insurance privately.
Rowe says Premier Danny Williams needs to consider the ramifications of the recently passed Bill-30, which has already caused several insurers to signal their withdrawal from the market, and which will be up for discussion at a special meeting of the FA on June 21. “The Williams government needs to stand back from its position and see what is happening,” Rowe says. “They cannot ignore the results of their actions on the drivers of Newfoundland and Labrador.”
Rowe as echoed insurers’ unhappiness with the legislation, which would freeze and then rollback rates, but does not add a cap on pain and suffering for minor injuries.
“If the Williams government doesn’t change its reform package and insurers and FA leave the province, they [the government] will be forced to react in order to repair the damage created. Finding new markets for consumers, including high-risk drivers, will be an impossible task.”
FA CEO David Simpson says there are a number of options up for discussion at the special meeting. Board members are concerned about the mandated rate rollback in Bill-30 putting pressure on an industry which is already losing money in the province. Added to this are the announcements by companies representing about 40% of the market that they intend to withdraw, and this means the burden of losses will be spread amongst a much smaller pool. FA marketshare in Newfoundland reached a historic high of 7.5% in 2003, and for 2004 the pool expects at least a $9.5 million loss in the province.
“I think the preference of all concerned is that Facility Association would remain in the province,” Simpson says, but this is only possible if it is economically feasible. As to what the alternative to FA might be, Simpson says he cannot say. “Presumably some other type of mechanism would have to be established. What that would be, I don’t know.”