The new approach to installation to prevent truckers from “gaming the system”
Nova Scotia has endorsed the Facility Association’s approach to rating commercial vehicles so truckers can’t “game the system” and get Nova Scotia’s lower premium rates when they drive more often in other Canadian provinces.
Essentially, an “overload matrix” will be used to assess trucking companies used more than 50% outside the Atlantic Provinces and Quebec.
“The proposed surcharge matrix is based on comparisons of three-year average premiums in other regions,” explains the Nova Scotia insurance regulator. “The goal is to have the premium surcharged, when the vehicle is used primarily in another province outside of the Atlantic Provinces and Quebec, approximate the premium that would be charged in that region.”
The matrix consists of dividing the country into four different regions: Eastern Canada, Ontario, Western Canada and the Territories. Average premiums earned, scaled to current rate levels, were examined on an aggregate or total premium basis and for third party liability (i.e. bodily injury, property damage and direct collision physical damage combined).
Using this information, the Nova Scotia regulator explains in its decision to accept the approach, the Facility Association developed a matrix that represented the ratio between the premium of the region where the vehicle is used and the premium of the region of registration.
“For example,” notes the regulator, “the three-year average total premium at current levels for Eastern Canada was $9,936 and for Ontario was $31,558. For a vehicle registered in Eastern Canada but used in Ontario, the premium should be 318% of the Eastern Canada premium. A similar comparison of liability premiums suggests that the premium should be 419% of the Eastern Canada premium under the same circumstances.
Essentially, Facility has made some adjustments to the base ratios above, but if the truck is used outside of Atlantic Canada for more than 50% of the time, the surcharge rates apply. The surcharge would be that of the territory where the truck operates the most. If it is not clear where the truck operates the most – for example, it operates 33% of the time in Western Canada, 33% in Ontario and 33% in Atlantic Canada – then the supplement that produces the premium higher will apply.
When asked why weighted averages would not be used, Facility replied that the matrix surcharge approach would add more conditions for agents and brokers to assess, and more steps to follow, to rate long distance risks. But they would also have a system that is easier to explain to customers who operate in multiple jurisdictions.
The matrix system evolved to prevent truckers from registering in the jurisdiction with the lowest premium (i.e. Nova Scotia), but operating more often in other jurisdictions, such as the notes the province’s insurance regulator.
“The facility has noticed a significant increase in the number of vehicles registered in Nova Scotia but operated elsewhere,” observes the regulator. “This registration aims to access better rates than those that the vehicle would receive if it were registered in Ontario.
“Misrepresentation of where the vehicle is used results in increased claims for Nova Scotia, with premiums below need, resulting in lower experience and loss ratios in Nova Scotia. This experiment will result in increased rates for all intercity trucks in Nova Scotia.
Featured image by iStock.com/shaunl