Canadian Underwriter

Results deteriorate, marketshare rises for Facility

April 23, 2003   by Canadian Underwriter

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The industry’s pool for high-risk auto insurance is seeing its marketshare increase, and its combined ratios deteriorate, despite attempts to raise premiums.
At its agm in Toronto today, the Facility Association (FA) told member insurers that across the country marketshare is up 2.85% versus 1.76% last year, and the combined ratio has hit 160% versus 137% a year ago.
Ontario and the troubled Atlantic markets are largely to blame. In Ontario, marketshare rose to 2.8% from 1.85% a year earlier, while the combined operating ratio hit 188% from 144% in 2001.
Similarly, in New Brunswick, marketshare was up to 4.85% from 1.51% in 2001, and the combined ratio deteriorated to 182% form 149% the year prior. Nova Scotia saw marketshare rise to 4.94% from 1.88% a year earlier, although the combined ratio dropped to 151% from 164% during the same comparative period. And Newfoundland & Labrador saw marketshare rise to 6.63% versus 3.84% a year earlier, while the combined ratio dropped slightly to 137% in 2002 from 189% in 2001.
Alberta was the only major province to produce a combined ratio below 100%, clocking in at 99.2%, down from 104% a year prior. Marketshare was up only slightly to 1.28% from 0.95%.
FA president & CEO Dave Simpson says the population of FA, what is supposed to be a “market of last resort” for high-risk drivers who are refused coverage in the voluntary market, can be linked to premiums which are coming to close to those of the regular market. The result is not only the placement of inappropriate risks in the FA pool which could go to the voluntary market, but also a “drag” on insurers trying to return to profitability. Last year, FA lost $192.84 million overall (including both its residual market and Ontario risk sharing pool), during a year in which insurers’ own results were the worst on record. “We will continue our aggressive pursuit of rate adequacy to do all we can to avoid being a drag on our members’ return to financial health, as well as to try, as much as possible, not to be in competition with our member companies,” says Simpson.
Last year, FA was granted rate hikes in several provinces, with residual market written premiums up 100% between 2001 and 2002, to just over $355 million. But premium hikes are not the whole story. The FA has been taking its case to several provinces in the process of rewriting auto legislation and reviewing FA’s role. Most notably, Newfoundland & Labrador has been a trouble spot for FA, with insurance superintendent Winston Morris and former Government Services and Lands Minister Walter Noel pushing for changes to the FA system. Legislation recently introduced would see the superintendent given authority to veto any part of FA’s operating guidelines. Hearings before the province’s Public Utilities Board took 15 days, versus a day to one and a half days for similar hearings in Nova Scotia and New Brunswick. FA has also had difficulty obtaining approval for rate hikes in Newfoundland, having now waited eight months for a decision.
In his remarks, outgoing FA chair Bob Cooke of State Farm noted that the “take all comers” rule for auto insurance has been challenged in New Jersey where the Governor has said it will be lifted. “I would offer the hope that our political and regulatory leaders throughout Canada would embrace similar wisdom,” says Cooke.

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