FA delivers postmortem on difficult 2003

The Facility Association (FA) the industry’s pool for high-risk drivers is coming off a challenging 2003, where volumes rose and losses topped $490 million.At the FA’s agm in Toronto Wednesday, CEO David Simpson explained that premium volume for 2003 was up 303% to almost $1.1 billion, representing 5.1% marketshare. Last year produced a combined ratio of 166%, even worse than the 160% reported in 2002.Chair Andrew Cartmell notes the board worked last year to deal with these losses, including investment in more timely data to support pricing. As well, the FA submitted new rate filings in provinces where rates were deemed inadequate. Claims audits, meetings with the Financial Services Commission of Ontario (FSCO) and review of the Ontario private passenger rates were also undertaken, Cartmell adds.Ontario was a sore spot for FA in 2003, contributing $488 million of last year’s loss, on a combined ratio of 204%. The FA marketshare quadrupled in Ontario, Simpson adds, hitting 3.5% and challenging the pool’s servicing carriers with increased volumes.Struggles continue in the Atlantic provinces as well, although successful reduction of New Brunswick volumes, planned to hit 2.5% by August, was achieved on the heels of tort reform and an FA rate increase. The province also improved its combined ratio to 104% last year, compared to 182% the year prior.”By contrast, in Nova Scotia, where the government mandated an industry wide rate reduction and imposed a rate freeze, our volumes continued to climb,” Cartmell explains. In that province, marketshare was a record 7.1% in 2003, and the combined ratio hit 127%.In Newfoundland, Simpson notes, marketshare has reached 7.5%, “easily its highest level in over 10 years”. “Our concerns, of course, are that given the difficult market conditions in the province, our volumes will continue to increase and our losses will worsen.” Notwithstanding a recently announced 15% rate rollback, a $9.5 million loss is projected in Newfoundland for 2004.In Alberta, the FA has just finished amendments to its plan of operation to coincide with a new “market availability plan” for Alberta, including the traditional FA model, as well as aspects of an assigned risk plan and risk sharing pool. While Alberta produced a strong combined ratio of 94.6%, FA marketshare grew to 3.2% from 1.28% in 2002.Moving forward, the FA intends to add the “cost of capital” to its future rate filings, and has recently used this for the first time in PEI.