PUB Automobile Insurance Order A.I. 36 (2000-2001)

Background

Facility Association (Facility) is a non-profit association of insurers created by statute (s.97 Insurance Companies Act) and is best described as a concept whereby voluntary market insurers cooperate to provide automobile insurance through a risk-sharing pool for vehicle owners and/or drivers who, without this arrangement, would not be able to obtain insurance. Simply, Facility is a risk sharing pool funded totally by voluntary market insurers to provide a last resort for high-risk drivers. Facility itself is not a licensed insurer and has never issued a policy of insurance in Newfoundland or elsewhere. When voluntary market insurers choose not to accept an insurance risk individually, they provide the insurance through Facility, which acts as an administrator, or manager, of the risk-sharing pool.

The Articles of Association establishes the organization and structure of Facility, including membership, voting rights, meetings, Board of Directors and administration. The Articles also cover servicing carrier appointments and allowances, eligibility and sharing of risks, liability for Facility business, records and reports, and auditing of members. The Operating Principles establish, in Part II, the eligibility requirements and service standards to be used by the Board of Directors of Facility in its appointment of servicing carriers. Part III sets out the guidelines for appointments of brokers to servicing carriers and Part IV of the Operating Principles deals with the risk sharing pool and claims procedures. Appendix C of the Plan of Operation sets out the commission rates.

The Plan of Operation of Facility as required by s.98 (2) of the Insurance Companies Act and as approved by the Superintendent of Insurance (the Superintendent) provides in Article V that:

“Profit shall be credited or distributed to each member and loss shall be charged against each member in accordance with the member’s appropriate participation ratio determined in the manner hereinafter set forth in this Article V.”

On April 22, 1997 the Board received from the Superintendent a copy of a letter dated April 15, 1997 sent to Mr. Bernard Webber, then President & CEO of Facility, by the Superintendent. In his letter concerns were raised about the fact that Facility had generated excess profits and planned to distribute these excess profits to the members. The Superintendent’s contention was that, since Facility is, by legislation, a non-profit association, any excess profits of Facility should be used to reduce premiums and not be returned to the member companies.

On December 19, 1997 the Board received a rate filing from Facility requesting approval of an average increase in rates of +28.8% for private passenger automobile and +14.7% for commercial automobile insurance written by servicing carriers on behalf of Facility in the Province. This filing was made as part of the regular business conducted by Facility. The filing was based on indicated rate changes on average of +47.5% for private passenger and + 16.1% for commercial automobile insurance.

Subsequent to receipt of the rate filing by Facility, the Board asked its actuaries, Milliman & Robertson, Inc., (Milliman & Robertson) to review the filing and the financial performance of Facility in the context of the proposed rate changes outlined in the filing. Milliman & Robertson filed their report on June 5, 1998 suggesting that Facility’s filing be revised to reflect their 1997 experience.

This recommendation was accepted by the Board and Facility was requested to revise their filing accordingly.

This revision was made and after further consideration the Board denied Facility’s rate application of December 1997. Following further correspondence and discussion between the Board and its staff, the Board decided to engage Milliman & Robertson to review the causes of operating surpluses generated by Facility in Newfoundland in recent years.

Milliman & Robertson filed its report with the Board on September 29, 1999. The report included a detailed analysis along with a summary of the major findings. On October 19, 1999, a copy of this report was forwarded to Stanley I. Griffin, President and Chief Executive Officer, Facility and Winston Morris, Assistant Deputy Minister, Commercial and Corporate Affairs and Superintendent of Insurance, Government of Newfoundland and Labrador requesting their comments. Upon review of the responses from each party and further consideration of the matter the Board determined that a public hearing should be held.

The Hearing

On January 26, 2000, the Board published, in various newspapers throughout the Province, notice of a public hearing to commence on March 27, 2000 for the purpose of investigating the rates charged by the unincorporated non-profit association of insurers known as Facility.

Intervenor Submissions were received from:

Mr. Winston Morris, Assistant Deputy Minister, Commercial and Corporate Affairs, Superintendent of Insurance, Department of Government Services and Lands, Government of Newfoundland and Labrador;

Norman J. Whalen, Q.C., and Kevin F. Stamp, Q.C., Martin, Whalen, Hennebury & Stamp, Counsel for Facility; and

Geoff Wedgwood, President, the Insurance Brokers Association of Newfoundland (the Brokers)

The public hearing was held on March 27^th & 28^th, November 30^th, December 1^st, 11^th, 12^th, 13^th, 2000, and January 8^th, 9^th, 15^th, 16^th, 2001. Written argument was submitted on February 2^nd, 2001 and final oral argument was heard on February 19^th, 2001.

The following parties appeared at the hearing:

Norman Whalen, Q.C. and Kevin Stamp, Q.C., Counsel for Facility;

Winston Morris, the Superintendent; and

Geoff Wedgwood, representing the Brokers.

During the hearing the Board was assisted by its Counsel, J. Randall Pelletier, G. Cheryl Blundon, Board Secretary and Barbara Thistle, Assistant Board Secretary.

Prior to the re-commencement of the public hearing on November 30, 2000, Dennis Browne, Q.C., Browne, Fitzgerald, Morgan, was retained to represent the Superintendent. When the hearing re-convened on November 30, 2000, and for the remainder of the hearing, Dennis Browne, Q.C. and Stephen Fitzgerald represented the Superintendent.

Also, prior to the hearing re-convening on November 30, 2000, and for the continuation of the hearing, Barry Fleming was present as President of the Brokers and Mr. Wedgwood as Immediate Past-President. For the purposes of this hearing Mr. Wedgwood continued to act on behalf of the Brokers.

The following witnesses appeared:

For the Board:

Robert S. Byrne, Director of Regulatory and Advisory Services for the Board.

Chris M. Suchar, Milliman & Robertson, Inc., Actuarial Consultant to the Board.

For the Superintendent:

Winston Morris, Assistant Deputy Minister, Commercial and Corporate Affairs and Superintendent of Insurance, Government of Newfoundland and Labrador.

For the Brokers:

Geoff Wedgwood, Immediate Past-President, the Brokers.

For Facility:

David Ross, Partner, Deloitte and Touche, Auditors for Facility;

Stanley I. Griffin, President and Chief Executive Officer, Facility;

Brian G. Pelly, Eckler Partners Ltd., Actuarial Consultants for Facility.

In addition, pre-filed evidence was circulated in advance of the hearing and the parties exchanged additional information by way of information requests.

Written argument and final oral arguments were presented by:

Norman Whalen, Q.C., and Kevin Stamp Q.C., for Facility;

Dennis Browne, Q.C., and Stephen Fitzgerald for the Superintendent; and

Geoff Wedgwood for the Brokers.

Issues Arising

There were a number of separate issues raised at the hearing by all parties. For the purposes of this decision the Board has separated the issues into those relevant issues which the Board can or will deal with as part of this Order, and those which the Board will not be dealing with in this decision.

The Board will make a decision on:

i) the Board’s jurisdiction;

ii) adequacy of notice;

iii) surpluses and deficits;

iv) rates;

v) its jurisdiction to deal with commission rates; and

vi) its jurisdiction to deal with consumer representation on the Board of Directors of Facility.

The Board will comment only on the following issues:

i) servicing carriers, members, brokers and agents;

ii) the Report of the Select Committee of the House of Assembly to Review the Property and Casualty Insurance Industry in Newfoundland and Labrador;

iii) underwriting guidelines;

iv) grey market insurers; and

v) premium tax and health levy.

Issues for Comment

i) Servicing Carriers, Members, Brokers and Agents

There are approximately 55 automobile insurance companies licensed by the Office of the Superintendent actively writing business in Newfoundland and Labrador. All are required to be “members” of Facility. Approximately 10% to 20% of them are appointed from time to time as “servicing carriers” who underwrite the risks, produce the policies and distribute them directly to the brokers. In addition, servicing carriers distribute the Facility manual of rules and regulations to all brokers and agents, handle and investigate claims which occur on policies placed in Facility, and issue claims cheques when required. Brokers and agents must be appointed to be a servicing carrier

in order to place risks in the Facility pool. In approximate numbers, there are 500 individual insurance agents employed by 20 brokerage firms who represent the 55 automobile insurance underwriting companies. Further discussion of the roles of the servicing carriers and brokers can be found throughout the Order.

ii) The Report of the Select Committee of the House of Assembly to Review the Property and Casualty Insurance Industry in Newfoundland and Labrador

This Committee, chaired by Hon. Rick Woodford, submitted its report to the House of Assembly in March 1998. The Superintendent entered a copy of the report (Exhibit SOI-1) into evidence at the hearing and, in commenting on the report stated that two of the report’s recommendations have been implemented and that the balance of the report is under active consideration by his department officials and Ministers of Government.

iii) Underwriting Guidelines

The automobile insurers have established underwriting guidelines that are used in the process of examining, accepting or rejecting insurance risks, and in classifying those risks selected, in order to charge the proper premium. The purpose of underwriting is to spread the risk among a pool of insureds in a manner that is equitable for the insureds and profitable for the insurer.

Some jurisdictions in Canada, such as Ontario, regulate underwriting guidelines. In this province there is no regulation of the guidelines nor is there any requirement to file them with the regulatory authorities for information purposes. However, all insurance companies file their underwriting guidelines voluntarily with this Board since without them it is practically impossible for the Board to determine how insurance rates are to be applied to the multiplicity of risks that exist in the market place.

At this hearing the underwriting guidelines were frequently mentioned and discussed but were not debated as to the pros and cons of requiring regulation in any form nor was such a debate contemplated by the Board when it gave notice of the hearing. The Board, therefore, will not be dealing with the matter of the underwriting guidelines in this Order.

iv) Grey Market Insurers

The term grey market insurers was used extensively during the hearing and describes underwriting insurance companies whose market niche is between the high end of the voluntary market and the lower end of the Facility market. In the absence of grey market insurers those risks not accepted by the voluntary market will end up in Facility. At the present time there are very few grey market insurers in Newfoundland. The explanation given for this was that rates of Facility were held at 1997 levels due to the ongoing investigation leading up to this hearing and the fact that the last application of Facility, dated December 17, 1997 for a rate increase was denied. It was also suggested that the grey market insurers can only function effectively if there is sufficient difference between the voluntary market rates and those of Facility to create the niche their marketing thrust is aimed at.

The principle witness for Facility, Stanley I. Griffin, stated that his goal is to de-populate Facility so that the market is shared among its members individually. In order to accomplish this he is of the opinion that there must be room in the marketplace for the grey market insurers to operate. Because of the situation in Newfoundland at the present time there is a very restricted niche for the grey market insurers, consequently Newfoundland has the highest per capita number of insureds in Facility in Canada. This may not be a desirable situation for the public or for the automobile insurance industry since borderline risks are obviously confronted with very little choice, except Facility.

v) Premium Tax and Health Levy

The accounting issues surrounding these taxes were subject to considerable discussion that, while interesting in the context of understanding certain elements of the evidence, was not relevant to the issues coming out of the hearing that require a decision. Consequently, there will be no findings on the accounting issues surrounding the premium tax or the health levy.

Issues for Decision

i) The Board’s Jurisdiction

In paragraph VI of their intervenor’s submission Facility raised the matter of the adequacy of the published notice given by the Board in advance of the hearing. The notice of the hearing stated that the Board, of its own motion, determined that a public hearing should be held “for the purpose of

investigating the rates charged by the unincorporated non-profit association of insurers known as Facility Association” and that the investigation and hearing were being conducted pursuant to s.102 (4) of the Insurance Companies Act.

In its intervenor’s submission, opening statement and final argument, Facility challenged the Board’s jurisdiction to deal with the rates under the provisions of s.102 (4) of The Insurance Companies Act. They argued that s.102 (4) provides the Board with the authority to investigate rates that had previously been approved for Facility. Facility agreed, however, that the Board’s witnesses should be heard following which they would be in a better position to comment and offer argument on the Board’s jurisdiction.

In its intervenor’s submission the Superintendent stated that the reasons for his intervention were:

· “high profitability of Facility Association, particularly in recent years,

· the refusal of Facility Association to use these profits in determining rates,

· the desire of Facility Association to distribute these profits to its member companies,

· the apparent higher cost of administering Facility Association business than business in the regular insurance market,

· the lack of public representation on the Board of Facility Association to ensure the public’s interest is protected.”

After hearing the comments of the other intervenors and Mr. Pelletier the Board decided to reserve its decision on the adequacy of the notice until it heard the evidence of Mr. Byrne and Mr. Griffin

and arguments of counsel. Regarding the additional issues raised by the Superintendent and outlined above the Board allowed evidence and heard argument but reserved a decision on the relevancy until the Board’s final Order.

Facility, in their final argument, stated that the public notice of the hearing allows the Board to make only such findings as it considers appropriate with respect to the general adequacy or redundancy of the rates previously established by the Board and presently charged by Facility. They stated that other issues, such as the deficits, surpluses and the other matters raised by the Superintendent are outside the scope of the terms of reference for the hearing as prescribed by the Board and beyond the jurisdiction of the Board to deal with. Furthermore, they argued that the authority to deal with these issues is within the Superintendent’s exclusive jurisdiction pursuant to the provisions of the Automobile Insurance Act and the Insurance Companies Act.

The Superintendent argued that in accordance with the provisions of the Public Utilities Act, R.S.N. 1990, c. P-47, The Automobile Insurance Act, R.S.N. 1990 c. A-22 and The Insurance Companies Act, R.S.N. 1990, c. I-10 the Board’s investigation is not limited and it may include an examination of such items as Facility’s service carrier fees, commission expenses and other expenses. He also argued that the Board has discretion to deal with the surpluses generated by Facility and the matters referred to in his intervenor’s submission.

Mr. Wedgwood stated that, based on his understanding of the statutes, the Board had the power to convene a hearing and investigate rates that have already been approved.

Section 102 of the Insurance Companies Act is as follows:

“102. (1) The association shall file with the Public Utilities Board the rates that it proposes to charge for automobile insurance placed through the association.

(2) The Public Utilities Board shall deal with a filing under subsection (1) as if it were a filing made under subsection 49(1) of the Automobile Insurance Act.

(3) Subsection 49(2) and sections 51, 52, 54, 55, 56, 57 and 58 of the Automobile Insurance Act shall apply in connection with a filing under subsection (1).

(4) Where the rates filed in accordance with subsection (1) or the application for a change in rates under section 51 of the Automobile Insurance Act have been approved, the Public Utilities Board may investigate the rates charged for automobile insurance placed through the association, and notwithstanding approval of those rates, may order the association to make a change the Public Utilities Board considers appropriate.

(5) A member of the association shall not, after February 1, 1986, charge rates for automobile insurance placed through the association that have not been approved by the Public Utilities Board in accordance with this section.”

Facility argued that the rates filed by them on December 17, 1997 were not “approved” because the application was denied and for this reason the conditions precedent to further investigation by the Board under s.102 (4) of the Insurance Companies Act have not occurred. They further stated that since the Board is limited to its statutory mandate it therefore lacks the jurisdiction to embark upon the hearing.

After carefully considering the arguments of Counsel and giving due regard to the statutes governing the Board’s jurisdiction the Board concludes that it has the authority to investigate and hear this matter under the provisions of s.102 (4) of the Insurance Companies Act and that Board Order No. A.I.58 (1998-99) denying Facility’s December 17, 1997 application and revision did not alter the status of the previously approved rates. The Board’s action in respect of the amendment being sought at the time was merely to deny any change in the previously approved rates. Thus, when the Board ordered a hearing to investigate Facility’s rates it was acting in full compliance with the governing statutes and, therefore, completely within its jurisdiction.

ii) Adequacy of Notice

In the matter of the adequacy of the notice the Board is not persuaded by the argument of Facility that they did not receive adequate notice. Evidence of Mr. Byrne, Mr. Griffin and Mr. Morris established that in the months leading up to the commencement of the hearing there was an exchange of correspondence among the parties to the hearing as well as a meeting that indicated that the Board was concerned about the rates and their impact on the financial results of Facility’s operations. Furthermore, Facility was informed that the Board had commissioned Milliman & Robertson to conduct a review and prepare a report on the causes of operating surpluses generated by Facility in Newfoundland in recent years and was asked to comment on the report when it was completed.

The notice that was published and forwarded to Facility prior to the hearing is only one form of notice. Notice is a concept and not just a single, isolated action or event. The notice through correspondence, discussions and reports prior to the actual calling of the hearing, along with the intervenors’ submissions and the evidence that was given during the first two days of the hearing through Mr. Byrne and Mr. Suchar clearly indicated the full spectrum of the concerns of the Board and the parties to the hearing. Furthermore, because of the time that elapsed between the published notice and the conclusion of the hearing, approximately 13 months, there was more than adequate opportunity for Facility to respond to any of the issues in any way it chose to do so. The Board concludes, therefore, that proper and adequate notice was given to Facility in this matter.

iii) Surpluses and Deficits

There was considerable evidence and argument on the matter of the annual financial results of Facility’s operation on behalf of its member companies. Prior to the hearing the Board commissioned its actuaries, Milliman & Robertson, to review and report on the causes of operating surpluses generated by Facility in Newfoundland in recent years. Their report, dated September 29, 1999 was entered into evidence at the hearing by Mr. Byrne as part of his pre-filed evidence. Mr. Suchar, in giving evidence on the report of Milliman & Robertson, explained that the report had two main purposes. One was to break down the sources of Facility’s surpluses, and the other was to investigate possible causes of a bias in the rate levels that were of an actuarial nature. Mr. Suchar

noted that the report did not address the Facility rate filings made in 1997 and 1998 since those years’ loss experiences were not mature enough to support a hindsight review. Their major findings, as contained in summary form on page 3 of their report and discussed in evidence at the hearing are, in essence, as follows:

Facility’s operating results in Newfoundland through October 1996 averaged a surplus of about 8% of premium. When the accounting issues, as explained in his report, are netted out the results are practically break-even. The operating surpluses in fiscal years ending October 1997 and 1998 rose dramatically to 44% and 73% of premium, respectively.

The main causes of the large surpluses were favourable development on private passenger third party liability losses and a very favourable investment environment.

In hindsight, the rate filings in 1992, 1993 and 1995 over-estimated private passenger third party liability loss costs. This over estimation began to surface in the last half of the decade beginning in 1996.

The methods and major assumptions used in all of the filings reviewed (from 1987 through 1996) were reasonable based on the information available at the time.

The main reason for the over-estimation in the filings from 1992 through 1995 was unexpectedly favourable loss development in 1996 and later.

Expense loadings included in Facility rates are similar to industry average levels on a percentage basis. However, on a dollar-per-vehicle basis they are significantly higher for expenses such as commission and operating expenses.

Milliman & Robertson concluded that there was no systematic bias toward over or under estimating detected nor was there any way to anticipate the favourable loss development based on the data available at the time the filings were made. The Board agrees with these conclusions.

In his direct evidence at the hearing Mr. Suchar, in response to Mr. Pelletier, stated:

“…the actuarial considerations that go into the rate making process are, I would say, purely prospective in that they are purely focused on projecting what future claims costs and related expenses are going to be.” [Transcript, March 28, 2000, Vol 1, p7, lines 7-11]

Mr. Suchar went on to say that, in setting rates for the future, actuaries are not concerned with profits or losses on past business and would not take them into account in evaluating a rate filing.

Stanley I. Griffin testified that surpluses and deficits are dealt with in accordance with the Plan of Operation approved by the Superintendent. The same Plan of Operation applies to Facility in all other jurisdictions in Canada where Facility operates.

The role of the Plan of Operation with respect to how Facility operates in this province was raised by all parties at the hearing, in the discussion of a number of issues. The primary point was how the Plan of Operation affected the decisions of Facility in respect of distribution of surpluses.

The issue also arose regarding the status of Facility’s compliance with s.97 of the Insurance Companies Act where Facility is referred to as “a non-profit association of insurers”. There was considerable evidence and argument on this issue debating the status of Facility depending on how one reviewed their modus operandi.

The Superintendent, in his intervenor’s submission and in direct evidence, stated that in his opinion Facility was required to operate as a non-profit association and could not, under legislation, distribute profits to its members. He also stated that regardless of the provisions of the Plan of Operation the legislation takes precedence.

From the evidence of witnesses and argument of Counsel, the Board concludes that Facility is a non-profit association that operates as nothing more than the administrator of a risk sharing automobile insurance pool. The servicing carrier companies of Facility underwrite the business risks and, on behalf of the member companies Facility carries out an administration function including, inter alia, investment of funds, administration of the bank accounts, issuing of reports on the status of funds and accounts, distribution of members profits and issuing assessment notices for losses incurred. Facility’s expenses are paid by the member companies and that is all Facility is paid. As their revenues can never exceed their expenditures, Facility can never earn a profit.

While there may be profits generated by Facility’s operations on behalf of its members, and regardless of to whom these profits belong, the Board agrees with the expert actuarial evidence of Mr. Suchar and Mr. Pelly that these profits should not be used in setting rates for the future.

The Board derives its rate setting and approval authority from the Automobile Insurance Act and under that Act there is no requirement for the Board to deal with profits or losses of insurance companies or of Facility. As a matter of record, the Board does not require insurers to file financial statements in support of rate applications but relies on loss cost data and other parameters.

iv) Rates

The hearing was called to investigate the rates of Facility and the factors that caused the surpluses. On the question of rates, the Board relies on the findings contained in the report of Milliman & Robertson and the evidence of Mr. Suchar. He concluded that the high profits in 1996, 1997 and 1998 were the result of unforeseen and favourable loss costs occurring in the 1996 to 1998 period. He further stated that these results were, in hindsight, caused by private passenger third party liability rates that were set too high in the early nineties, although actuarially sound at the time the rates were approved by the Board. The other reason for the high profits, in the period 1996 to 1998, was the very favourable investment environment existing during the mid to late nineties. At least half of the profits during the period in question came from the investments.

The Board is satisfied that the rates that were approved for Facility in the early nineties were based on sound actuarial principles and the best information available and that the favourable loss costs and investment environment that ensued were unpredictable at the time the rates were approved.

v) Commission Rates

The issue of commission rates paid to agents or brokers for writing insurance policies obtained through the mechanism of Facility was raised by the Superintendent in his intervenor’s submission and in direct testimony. Brokers are compensated by a commission, which varies between 6 to11% of the premium depending on the type of vehicle being insured. The commission rate for voluntary market business is 15 to17% of the premium.

The Superintendent suggested that the commission rates appear to provide an incentive for insurance agents and brokers to place business with Facility rather than in the voluntary market. While no evidence was presented to support this suggestion, the reason given for his conclusion was that, while commission rates may be lower for Facility business, the higher dollar value of the premium would result in a higher net commission for Facility business. It was also suggested by the Superintendent that there is no additional cost to administer or to write applications for Facility policies than voluntary market insurers. This statement, again unsupported by evidence, was contradicted by Mr. Wedgewood who maintained the opposite view.

In his report to the Board, Mr. Suchar stated that actual commissions paid on Facility business on a per vehicle basis are higher than commissions paid in the regular market ($129 versus $73). Mr. Suchar also looked at the total expense loadings for Facility, which are $317 on average, compared to $191 on average for the voluntary market. The Superintendent observed that this seems to suggest

that Facility business is more expensive to administer and the Board should investigate whether these

fees and commissions are excessive and whether they should be reduced as part of the rate setting process.

The Superintendent stated that the issue of commission rates has not been explored with Facility and that consideration has to be given to Facility’s contracts with servicing carriers and servicing carrier contracts with brokers.

Mr. Wedgwood testified that the work for brokers and agents associated with placing policies with Facility is much greater than that associated with placing policies in the voluntary market, and that this actually results in a disincentive to place business with Facility. It was also acknowledged by Mr. Wedgwood that brokers and agents are trying to find the best priced product for their clients and that if this were with Facility they would choose that route, even if it meant additional work and a lower premium compared to the voluntary market rate.

As stated previously, the activities of Facility which are conducted in accordance with the Plan of Operation provides for, among other things, arrangements for the payment of commissions to agents and brokers. In the province of Newfoundland the Plan of Operation is approved by the Superintendent as required by legislation. The Board agrees with Facility that there is no separate or parallel jurisdiction for the Board to approve, monitor or amend the Plan of Operation, and thus no jurisdiction for the Board to alter the provisions in the Plan of Operation dealing with payment of commissions to agents and brokers.

The Board has no jurisdiction to deal with the issue of the payment of commission rates to brokers and agents and will make no other finding or determination with respect to this matter.

vi) Consumer Representation on the Facility Board of Directors

The Superintendent raised the issue of the membership of the Facility Board of Directors in his intervenor’s submission suggesting that there should be consumer representation on the board.

The Board of Directors of Facility is established under s.99 (1) of the Insurance Companies Act, which states:

“99 (1). The affairs of the association shall be administered by a board of directors established in accordance with its articles of association”.

Section 99(2) requires Facility to notify the Superintendent of the names and residence addresses of the officers and directors elected or appointed, and that the Superintendent may make this information available to the public. Section 101 requires that Facility file with the Superintendent, for approval, any by-law and an amendment, revision or consolidation of the Articles of Association or by-laws of the association.

The Board has no jurisdiction to deal with the issue of the representation or structure of the Board of Directors of Facility and will make no other finding or determination on this matter.

Board Findings

After carefully considering the evidence and arguments of Counsel, this Board therefore finds that:

1. Board’s Jurisdiction:

The Board has the authority to investigate and hear this matter under the provisions of s.102 (4) of the Insurance Companies Act and that Board Order No. A.I.58 (1998-99) denying Facility’s December 17, 1997 application and revision did not alter the status of the previously approved rates. The Board’s action in respect of the amendment being sought at the time was merely to deny any change in the previously approved rates. Thus, when the Board ordered a hearing to investigate Facility’s rates it was acting in full compliance with the governing statutes and, therefore, completely within its jurisdiction.

2. Adequacy of Notice:

The notice that was published and forwarded to Facility on January 27, 2000, is only one form of notice. Notice is a concept and not just a single, isolated action or event. The notice through correspondence, discussions and reports prior to the actual calling of the hearing, along with the intervenors’ submissions and the evidence that was given during the first two days of the hearing through Mr. Byrne and Mr. Suchar clearly indicated the full spectrum of the concerns of the Board and the parties to the hearing.

Furthermore, because of the time that elapsed between the published notice and the conclusion of the hearing, approximately 13 months, there was more than adequate opportunity for Facility to respond to any of the issues in any way it chose to do so. The Board concludes, therefore, that proper and adequate notice was given to Facility in this matter.

3. Surpluses and Deficits:

(a) The Board concludes that Facility is a non-profit association that operates as nothing more than the administrator of a risk sharing automobile insurance pool. The servicing carrier companies of Facility underwrite the business risk on behalf of the member companies. Facility carries out an administration function including, inter alia, investment of funds, administration of the bank accounts, issuing of reports on the status of funds and accounts, distribution of members profits and issuing assessment notices for members losses incurred.

(b) While there may be profits generated by Facility’s operations on behalf of its members, and regardless to whom those profits belong, the Board agrees with the expert actuarial evidence of Mr. Suchar and Mr. Pelly that these profits should not be used in setting rates for the future.

4. Rates:

5. Commission Rates:

The Board has no jurisdiction to deal with the issue of the payment of commission rates to brokers and agents and will make no other finding or determination with respect to this matter.

6. Consumer Representation on the Facility Board of Directors:

The Board has no jurisdiction to deal with the issue of the representation on or structure of the Board of Directors of Facility and will make no other finding or determination on this matter.

7. Costs:

All parties will pay their own costs pertaining to the hearing. The Board makes no order with respect to its expenses.

DATED at St. John’s, Newfoundland this 30^th day of March 2001.

G. Fred Saunders,

Commissioner (Presiding Chair)

Darlene Whalen, P.Eng.,

Vice-Chairperson.

Gary R. Vey, R.P.A.,

Commissioner.

__________________________

G. Cheryl Blundon,

Board Secretary.

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