DUTIL.FA

Question 1

3 types of risk-sharing mechanisms administered by FA

Answer 1

RSPs
FARM (residual market)
UAF (Uninsured Automobile Fund)

Question 2

Goal of FA

Answer 2

to ensure auto insurance availability for all owners & licensed drivers unable to obtain coverage through the voluntary market

created by insurance industry

unincorporated non-profit

Question 3

5 classes of business that determines a member’s participation in the FA results

Answer 3

(1) PPA non-fleet, non-pool business
(2) All auto excl. (1) and RSPs
(3) RSP in Ontario
(4) RSPs in AB, NB, NS
(5) Uninsured & Unidentified motorists claims and the ON catastrophic claim fund excluded from (3)

Question 4

Key purpose of RSPs

Answer 4

Allows insurers to cede risks of their on books for which they consider premiums to be inadequate (enhance market stability)

Question 5

Key purpose of FARM

Answer 5

Provide auto insurance to drivers who can’t find it on the voluntary market

Question 6

Key purpose of UAF

Answer 6

Provide compensation in cases of no insurance or inadequate insurance

Question 7

Areas of operational differences between FARM & RSP (6)

Answer 7

Number of costumer placed
Rates
Admission (or risks insured)
Customer Knowledge
Participation ratio
U/W and claims administration

Question 8

FARM & RSPs operational difference regarding rates

Answer 8

FARM: rates set by FA
RSP: uses rates of ceding company

Question 9

FARM & RSPs operational difference regarding customer knowledge

Answer 9

FARM: yes
RSP: no

Question 10

FARM & RSPs operational difference regarding admission

Answer 10

FARM: only if agent/broker can’t place risk with voluntary market
RSP: use U/W rules of ceding company

Question 11

FARM & RSPs operational difference regarding # customers placed

Answer 11

FARM: can be unlimited
RSP: depends on province, example transfer limit in ON is 5% of the member’s voluntary PPA non-fleet written exposures

Question 12

FARM & RSPs operational difference regarding participation ratio

Answer 12

FARM: varies by class of business (5), jurisdiction and AY
RSP: based on voluntary private passenger, non-fleet, TPL direct EE not ceded to the pool

Question 13

FARM & RSPs operational difference regarding claims administration & U/W

Answer 13

FARM: uses servicing carrier (or 3rd party)
RSP: ceding company handles it

Question 14

Functions of FA’s board of directors (4)

Answer 14

• Approve rate changes and filings
• Authorize expenses
• Establish standards for servicing carriers & RSP users
• Appoint committees & subcommittees to assist them with specific issues

Question 15

Minimum requirements that a risk must meet to be eligible for transfer to one of the pools (5)

Answer 15

• PPA
• insured can’t be eligible for FARM
• at least minimum TPL statutory limit required in the applicable province
• insurer must follow proper classification & rating, and provide documentation
• insurer must use approved rates

Question 16

Describe how the financial results of a particular pool are shared among member companies

Answer 16

They are shared based on the voluntary PPA non-fleet direct exposure that is not ceded to the pool. The insurer is allocated premium and losses from the pool based on the proportion even if they did not cede risks to the pool.

Question 17

Describe how the pool operates in regard to actual transfer of premiums from a member company to the pool

Answer 17

transfer premium should be the premium actually charged net of premium payment service charges

Question 18

Describe how the pool operates in regard to premium reimbursement from the pool to a member company

Answer 18

reimbursement = transferred written premium as an expense allowance to settle all incurred expenses including acquisition, operating and loss adjustments costs

Question 19

Why limit the number of costumer placed in the pool (ex. 5% ON)

Answer 19

so that insurer cannot send all new policies to the pool for the first year, then cherry-picking renewals from pool in second year

Question 20

Differences between ON and AB RSPs (2)

Answer 20

ON has one RSP, AB has 2: Grid and Non-Grid RSPs

In ON there is a limit on the number of risks that can be ceded (5%). In Alberta there is no limit for Grid, and there is a limit for Non-Grid (5%)

Question 21

What are the changes to RSPs that FA board passed a resolution to proceed with working towards (4)

Answer 21

ON: amending the 85% sharing (premium & claims) to 100% cession
AB (Non-Grid): amending the transfer limit from 4% to 5%
NB: amending the transfer limit from 8% to 5% and expand the eligibility criteria to all PPA removing the current restrictions for inexperienced operators
NS: amending the transfer limit from none to 5% and expand the eligibility criteria to all PPA removing the current restrictions for inexperienced operators