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    • FA permitted to include cost of capital
        (Copyright Thompson’s World Insurance News
        Not to be redistributed by individual recipients.)
        The Facility Association has been given the green light to include cost of capital in its auto insurance rates in Nova Scotia.
        The Nova Scotia Utility and Review Board said there is nothing in the Insurance Act which explicitly prevents it from allowing FA “to include such a cost of capital provision in its proposed rates, or which prevents the board from approving such rates, provided they are just and reasonable.”
        The board found that allowing FA to include a cost of capital provision eliminates what would otherwise be the subsidization of FA’s insureds by either the insureds or shareholders of the member companies.
        An amount or level for the cost of capital provision will be the subject of a later hearing.
        In its submission, FA said that in the interest of market stability the maintenance of a residual market with its current size and composition is appropriate.
        In order to do this, FA rates must be “at the top of the market” which is commensurate with the associated risks.
        The Insurance Brokers Association of Nova Scotia supports a three tier rating system which would encompass FA’s rates at the highest level and the “voluntary” market at the lowest.
        In between those two levels, the “grey” or “mid-market” insurers would operate.
        The difficulty for grey market insurers is that they sometimes find themselves in competition with FA.
        Customers with higher than average risk profiles found it less expensive to insure through FA.
        More in our May 31, 2010 edition
        
    		 


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