Facility Association asks for “equal treatment” in New Brunswick

In it submission to the New Brunswick select committee on auto insurance, the Facility Association is asking that it be subject to the same “file and use” rate system as the rest of the industry.

Although 1997 legislation in New Brunswick allows the voluntary market flexibility to increase rates through the “file and use” system, the Facility Association was not given such leeway, explains CEO Dave Simpson in his report to the committee. “To make matters worse, in the 1997 legislation, all references to any time limitation for decisions respecting our filing were removed.” He cites the example of the Facility’s February, 2001 filing, which was not approved until March, 2002. Given the 90 days required to implement the rate changes by carriers, this meant the new rates were not in use until 17 months after the filing with New Brunswick’s Public Utilities Board (PUB).

He says that this system is part of the reason the Facility’s marketshare has risen in the province. While the 1997 changes caused the Facility’s marketshare to drop below 1%, as the voluntary market was able to raise rates, the current upswing in standard insurer rates has created an opposite reaction. Rather than being a “market of last resort” for high-risk drivers, the Facility has become an attractive “competitive option”, Simpson observes. “The reality is that allowing Facility Association’s rates to be inappropriately low relative to the voluntary market is bad public policy. In particular, insurers specializing in the “non-standard” segment are squeezed out of the marketplace, thereby reducing choice for consumers.”

Simpson points out that the current situation has required insurers to “subsidize” losses in the province as the association’s combined ratio has risen. Last year, member insurers were assessed a $2.75 million charge, and this year the number will likely be $6-$8 million. “That means companies, and presumably their customers and their shareholders, have been subsidizing those drivers insured through Facility the Association.” As such, Simpson has asked the provincial government’s select committee to either recommend a “file and use” system, or go back to the “pre-1997 terms” of a 60-day statutory time limit on filing decisions.

New Brunswick broker Bob Kimball, the chair of Facility’s operating committee in that province, notes that some brokers in the region have no other market but the Facility Association. The association has agreed to sponsor brokers’ licenses in this regard, but this is a “band-aid solution at best”, he adds.