Let’s Talk Insurance: Bad Drivers Cost Everybody…

by Mark J. Ram

We all have our bad driver stories. But have you considered how much they are actually costing you? Not by crashing into you or making the road unsafe but by how much they are adding to your insurance premiums.

Of course, no self-respecting insurer is gladly underwriting some guy who has been at fault in multiple serious accidents and has an embarrassing number of reckless driving charges on his record.

But someone is. The federal government has mandated that everyone has a right to auto insurance and is making it possible for these road demons to carry on terrorizing the Canadian highways and byways.

Enter the Facility Association: a government-mandated body set up to provide auto insurance to all high-risk drivers and companies.

The Facility Association ensures that automobile insurance is available to all owners and licensed drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the voluntary insurance market.

Risks are grouped into two pools: personal cars and everybody else. Everybody else means all commercial vehicles including taxicabs, minivans, couriers, buses and yes, freight trucks.

Last year 3.5 per cent of all commercial auto vehicles in Canada went into this commercial pool, from tractor-trailers to taxis. So far in 2004, 3.7 per cent are in the pool.

The first problem with the Facility Association is that it has its own pricing mechanism for determining rates for these high-risk accounts.

These rates are still higher than what the account would pay through a regular insurance company (if any insurer were crazy enough to take them on) – but not nearly high enough to offset the dramatic loss experience that they’ve been having.

The larger problem is the way Facility Association costs are divvied up… and the way these costs get funneled back to the insurance companies. After all, at the end of the day these are costs that insurance companies have to recoup, thus impacting your insurance rates. The costs (losses) of the Facility Association are not absorbed by the government.

Instead, they are allocated to all Canadian insurance companies that write auto insurance. It would seem logical to divide up costs based on the number of vehicles an insurer writes.

But it doesn’t work that way. Costs are allocated to insurance companies based on their pro-rata share of collected premiums.

Now, everyone knows long haul trucking premiums, especially for those driving to the U.S., are significantly higher than premiums for a guy driving a cab.

And that trucks represent only a small percentage of total commercial vehicles in Canada.

Nevertheless, the Facility Association is billing insurers that handle long haul trucks a disproportionate percentage of the costs because of the size of their premiums.

These costs are not nominal and they are on the rise. Last year, our company’s Facility Association costs alone were just under $4 million dollars.

This year it’s estimated to be double that. All this to pay for what, in many cases, are losses caused by terrible accounts we’d never insure, most of who are not even driving a truck!

At the end of the day, when any commercial vehicle insured by the Facility Association gets in an accident, you can rest assured that your trucking insurer will be picking up the tab for more than the long-haul trucking industry’s fair share. And this means you’re paying for it in your insurance. To be fair to truckers, we believe the allocation system to insurance companies should be based on the number of vehicles insured, not premiums. But until then, this is just one more unfair bias against the trucking industry.

– Mark J. Ram is president and CEO of Markel Insurance Company of Canada. Please send your questions, feedback and commentary about this column to letstalk@markel.ca. For more information about Markel, visit www.markel.ca

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