The FA Faces “Repopulation” Growth Dilemma

The Facility Association (FA), the industry’s pool to insure high-risk drivers, says its overall marketshare rose year-on-year by 64% to 2.8% for 2002 versus the 1.7% share for the year prior. The FA’s combined ratio also hit a high of 160% for 2002 compared with the 137% ratio reported for the previous year.

The FA’s Ontario marketshare rose to 2.8% during 2002 with the combined operating ratio reaching 188%. Similarly, in New Brunswick, the association’s marketshare climbed to 4.8% with the combined ratio clocking in at 182%, while its share of the Nova Scotia market reached 4.9% – although the combined ratio eased back to 151% from 164% in 2001. The FA’s Newfoundland/Labrador marketshare rose to 6.63% from 3.84% a year earlier, while the combined ratio dropped slightly to 137%. Alberta was the only major province where the FA produced a combined ratio below 100%, which came in at 99.2%, while its marketshare was up only slightly to 1.28%.

FA president Dave Simpson says the population of FA, intended as a “market of last resort”, is linked to premiums coming to close to those of the regular market. The result is the placement of risks in FA which could go to the voluntary market, and a financial burden on insurers as they shore up FA losses which topped $192.8 million in 2002. “We will continue our aggressive pursuit of rate adequacy to do all we can to avoid being a drag on our members’ return to financial health, as well as to try, as much as possible, not to be in competition with our member companies.”

Last year, FA was granted rate hikes in several provinces, with residual market written premiums up 100% between 2001 and 2002, to just over $355 million, notes chair Bob Cooke of State Farm. FA has also been taking its case to several provinces in the process of rewriting auto legislation and reviewing the association’s role. Notably, Newfoundland has been a trouble spot, with legislation recently introduced that would see significant controls put on the FA’s operations. Cooke says the legislation, if passed, “will require the formation of a separate residual market mechanism in that province, adding significant cost to the auto insurance system”.