Canadian Underwriter

Inside Facility Association’s plan to harmonize commercial auto rates

March 14, 2022   by Alyssa DiSabatino

Private and commercial vehicles drive down a scenic highway. The high bridge at the Pennsylvania Turnpike on the sunny spring day. Lehigh Valley, Poconos region, Pennsylvania, USA.

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Facility Association will introduce a harmonized rating program for commercial and non-private passenger vehicles, which will help automate the rating process and put the brakes on truck operators trying to game the system, according to FA President and CEO Saskia Matheson.  

“In 2021, we focused on working with our regulator stakeholders to find a path to move to a harmonized rating program that enabled fair pricing of commercial vehicles insured with FA, based on where they operate, not just where they locate their head offices,” Matheson said during FA’s annual general meeting earlier this month.  

Matheson’s comment follows from last year’s AGM, when FA started to clamp down on operators who are trying to “game the system” for lower rates — they found truck operators were registering their business in jurisdictions with lower rates, such as Atlantic Canada, while maintaining their operations elsewhere.  

Heat maps show rate increases of up to an average of 20% for commercial auto policies in Atlantic provinces, specifically Newfoundland and Labrador, and heavy increases in New Brunswick and Alberta as well.  

Alberta has had an “ongoing rate adequacy issue,” and FA has seen a “profitability issue” alongside a growing number of non-private passenger vehicles in Nova Scotia. 

Heat map: All Jurisdictions Residual Market – Non Private Passenger Market Share and Indicated Rate Changes (as of December 31, 2021).

Image provided by Facility Association.

“In 2022, we will continue that collaboration and begin to implement a harmonized rating approach for the commercial and non-private passenger vehicles book generally,” Matheson added during the AGM.  

Matheson explains how the harmonized rating program will work in an interview with Canadian Underwriter. 

“Private passenger [business] is very driven by the formula algorithm. In fact, pretty much every company writes it in a similar way, and therefore, establishing a formula for the rating is straightforward,” Matheson says. “What is often challenging with the other lines of business, particularly commercial, is that there tends to be more unique [ways to calculate rate, varying] by class of business. Different companies and jurisdictions calculate their rates in very different ways.

“Our approach is, can we take all these different rating schemes and schemas that we have across the country and implement a single structure? [Individual rates] would be different. It costs more to insure a truck in Toronto than it does in in Halifax or in Saint John, New Brunswick. But can we make the structure the same?” Matheson poses.  

“In making the structure the same, we make the rates much easier to calculate and open the door to automation.” Matheson says automation will make rates simpler to navigate, and more efficient for consumers and brokers.  

This change is sparked in part by the increase in non-private passenger vehicle business that FA has seen in recent years. 

“At the close of 2021, we were writing just under $500 million in business in the [residual market],” Matheson says. “If we were to go back five to 10 years, those commercial lines were a very small portion of the overall book, and so the fact that they were manually dealt with was not really a big issue.”  

In order to better service customers and brokers, a more efficient work-stream is needed, she says.  

FA received support from the Canadian Auto Insurance Rate Regulators (CARR) Association for their harmonized rating program last year.

“Now we still have to go through each province, and we have to file the new rate program and get it approved,” Matheson said. “We will be doing that province-by-province and we have a goal of getting at least half of them in by the close of this year.”  

She says FA is hoping to have this program implemented by mid-2023.