What’s behind reduced auto risk sharing pool usage

The use of risk sharing pools for private passenger auto insurance in Ontario and Alberta dropped last year, according to Facility Association.

And when it came to the overall usage of risk sharing pools across the country, there was a drop in market share, albeit slight.

At the Facility Association annual general meeting last week, FA’s president and chief executive officer Saskia Matheson highlighted Alberta as having its FARM (Facility Association Residual Market) sit at just one-tenth of a percent of the market. Meanwhile, the risk sharing pools in the province is at 4.7%. That means the entire residual market for private passenger in the province is at about 4.8%.

The FARM provides a residual automobile insurance market for owners and operators of motor vehicles who are required by law to have insurance, but who may be having difficulty obtaining it. The market covers risks in Alberta, Ontario, Nova Scotia, Prince Edward Island, New Brunswick, Newfoundland and Labrador, Yukon, Northwest Territories, and Nunavut.

Risk sharing pools operate in Alberta, Ontario, New Brunswick, Nova Scotia and Newfoundland & Labrador. They, too, are operated by FA. Each jurisdiction has its own guidelines for risk eligibility. In Nova Scotia, for example, the pool is designed to accommodate inexperienced drivers — those with six years of driving experience or less with no driving convictions or collisions.

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In Ontario, meanwhile, the residual market makes up about 2.5% of the private passenger market. Like Alberta, the FARM makes up a small amount, about a tenth of a percent, with the rest being part of the risk sharing pool.

And, like Alberta, fewer people were in need of the residual market in Ontario.

“What is behind those shifts in pool usage is a bit unclear,” Matheson said.

She pointed to two major influences in Alberta last year as possible explanations. “First, following the lifting of the cap on rate increases in Alberta there was significant rate action in the market in late 2019,” Matheson said. “While it makes sense to conclude that this resulted in a drop in the use of the RSPs, the pandemic and the consequent industry reaction complicated the issue.”

Furthermore, reaction by businesses to economic shutdowns in Alberta varied across the province. “Some increased their use of the pools, while others pulled business out,” Matheson said. “In addition, companies gave rate relief, which for some resulted in risks having to be pulled from the grid pool.”

Either way, it’s uncertain whether it was price or the pandemic that had the biggest effect here, she said.

“Overall, risk share pool market share in Alberta dropped, but that is in total, and is not indicative of every member,” Matheson said.

Indeed, in Newfoundland, where the risk sharing pool was only introduced in July 2020, almost the entire residual pool is made up of FARM clients, the opposite of Alberta. The province saw its total residual market increase in 2020 compared to 2019. That’s the same story for New Brunswick and Nova Scotia.

Feature image by iStock.com/Orbon Alija