No matter where you live in Canada, if you want to drive, you need insurance. But before insurers will give you a quote, they’ll want to know a few things, like how many accidents you’ve been in and how many tickets you’ve received.
Your answers to these questions determine how risky you are to insure. Generally speaking, the riskier you are, the higher your premiums will be. But some drivers are considered too high a risk to insure at all. The threshold for that varies from insurer to insurer, but if an insurer decides you don’t meet its underwriting criteria, then you might need something called facility insurance.
What is facility insurance and how does it work?
Facility insurance is a form of auto insurance for drivers who can’t get approved for traditional insurance because they’ve been deemed too high risk. Each insurance company has its own set of criteria for determining what makes someone high risk, but essentially, it boils down to a few things: number of accidents, number of tickets/fines, whether or not your insurance policy has been cancelled due to missed payments, or whether you’ve been found guilty of misrepresentation (also known as insurance fraud).
Facility insurance is provided through the Facility Association, which is an administrative office that the industry created in 1979 when Ontario made it mandatory for drivers to have insurance. The facility association was created in order to guarantee access to auto insurance. It’s often referred to as the “insurer of last resort."
But the facility association doesn’t actually insure drivers. It relies on three servicing carriers — RSA, belairdirect and The Co-operators — to administer facility insurance policies and adjust claims on its behalf. If you wind up needing facility insurance, you’ll be insured by one of these three companies.
Facility insurance is offered in only the six provinces and three territories that the facility association serves: New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Ontario, Alberta, the Yukon, Northwest Territories, and Nunavut. Any licensed auto insurance company in these provinces automatically becomes a member of the facility association by way of law and remains a member for as long as they’re licensed to sell insurance. The facility association doesn’t serve Quebec, and it also doesn't serve British Columbia, Manitoba, or Saskatchewan, because in these three provinces, auto insurance is provided by the government, not private insurers.
How does facility insurance differ from regular insurance?
Well, for starters, it’s roughly two-to-three times more expensive.
“A facility policy, on average, would probably be $8,000 to 10,000 a year,” says Tino Buntic, a broker with Sound Insurance Services Inc. “But if you’re talking about the worst of the worst… in terms of people with massive tickets and accidents, that can go into the $20,000s. I did one policy in September that was $23,000 a year.” That’s almost $2,000 a month for auto insurance.
Facility insurance costs so much because it’s designed to insure the riskiest drivers. “Risk is typically commensurate with pricing, to the extent that it’s allowed by regulation,” says Dave Simpson, president of the Facility Association. “So, consumers will find that our prices are at the top of or close to the top of the market.”
The other difference is that when you purchase regular auto insurance, you’re participating in what’s called the “voluntary market.” In other words, you are buying insurance from private companies who are voluntarily competing for your business. Facility insurance, on the other hand, exists in what’s called the “facility association residual market,” (known within the industry as the FARM), which is a market for both private and commercial high-risk drivers, who can’t buy in the voluntary market but still require a policy, since auto insurance is mandatory in Canada. The FARM is what facility insurance premiums make up.
The Facility Association also runs what’s called a risk-sharing pool, which is entirely separate from the FARM. Meant only for private passenger vehicle insurance, the risk-sharing pool exists to help insurers absorb the cost of insuring high-risk drivers who still qualify for traditional auto insurance. Insurance companies expect these high-risk drivers to make a lot of claims — and they expect to lose money on them — so in New Brunswick, Ontario, Alberta and Nova Scotia, insurers can transfer these drivers’ monthly premiums to their province’s risk-sharing pool. Then, should that high-risk driver make an expensive claim, the insurance company can be reimbursed for it. In this way, the risk is shared and not the burden of just one insurer.
Is facility insurance my only option?
No. But an insurer who turns you down for regular auto insurance might not tell you that. “Insurance companies are usually trained only in their company’s rules,” says Tino Buntic, a broker at Sound Insurance Services Inc. “So, when somebody hits three tickets, for instance, they’re trained to say ‘you don’t qualify anymore, you’re facility.’ So, “facility” becomes kind of all-encompassing. But there are high-risk insurance companies that will still insure you.”
Those companies are Jevco, Coachman, Echelon, Pafco and Economical — and Buntic works with all of them. Because it’s cheaper, Buntic will always first try to get high-risk drivers insured with one of these five companies before filing an application for facility insurance.
And the facility association encourages this. In one sense, it doesn’t really want your business. “We always want our market share to be as small as possible because consumers benefit from the competitive market,” says Simpson, who, over the last two decades has seen a rise in non-standard insurance writers. In Ontario, Simpson estimates there are around 7.5 million insured private passenger vehicles. He says the facility association has less than 3,000 of those vehicles under facility insurance — or less than 1% of the market.
“Facility makes it as hard as it can to actually get into,” explains Buntic. “Us brokers are expected to try and put people with an actual insurance company before facility. It’s really there as a last resort. By design, facility is meant to insure people that nobody will insure.”
Simpson puts it this way: “If you look at a long hallway with a lot of doors, and each insurance company is a door and they’re all closed, right down at the end of the hall, our door would always be open. But if you could find an open door elsewhere, that’s the one consumers should go through because it’s in their best interest.”
Will I ever get regular rates again?
Yes. While facility insurance rates are near the top of the market, facility insurance is kind of like a risky driver rehabilitation program. It uses negative reinforcement to inspire safer driving. The goal isn’t to punish high-risk drivers with high rates forever — it’s to get them back into the world of regular auto insurance.
Facility insurance is relatively rare, too. Buntic figures he files around six facility applications a year. On average, most people stay insured through the facility association for about two years. Over time, as things like tickets and accidents get wiped from your driving record, your rates will decrease upon each renewal.
“Usually with facility or anyone that’s labelled as high-risk, most people consider them to be bad drivers,” says Buntic. “But most of the time it’s just someone who went through a string of bad luck. Usually, those people understand why they’re paying more, and I find that most of them will drive better and be more careful to get back to where they were.”