Nova Scotia accepts tariff provision in last-resort auto-insurance rates

The Nova Scotia Regulatory and Appeals Board approved an overall 11 per cent increase in Facility Association’s private-passenger automobile rates while accepting a disputed allowance for tariff-related repair costs. Its March 19, 2026 decision in Facility Association, 2026 NSRAB 37, attached reporting requirements and a conditional obligation to seek removal of that allowance.

The approval applied to the province’s residual automobile-insurance market, rather than the rates of every insurer. Facility is an association supported by automobile insurers and operates a market of last resort for eligible drivers who need coverage. The reasons said it insured about 11,900 private-passenger vehicles in Nova Scotia.

The 11 per cent figure was an overall rate-level change, not an increase prescribed for every policy. Approved base-rate changes varied substantially by coverage: bodily injury rose 25.7 per cent, collision 9.6 per cent and comprehensive 16.2 per cent, while direct-compensation property damage fell 9.1 per cent and accident benefits fell 10.1 per cent. The board approved July 1, 2026 as the effective date for new and renewal business.

Pricing an uncertain tariff impact

The board had to decide whether the proposed rates and risk classifications were just and reasonable and complied with the Insurance Act and regulations. It used a written hearing process, public notice and a review by consulting actuary Oliver Wyman. No requests to intervene or public letters of comment were received.

Facility proposed a 3 per cent tariff provision for physical-damage coverages: direct-compensation property damage, collision, comprehensive and specified perils. That was an assumption within the ratemaking calculation, not an additional 3 per cent charge applied on top of the overall approved increase to every policy.

Facility’s analysis estimated effects on both repair parts and replacement vehicles. It weighted repairs at 80 per cent of claims costs and total losses at 20 per cent, producing an estimated combined severity impact of about 6 per cent. Because the assumptions were uncertain, it used half that estimate in its filing.

Oliver Wyman recommended rejecting the provision. The consultant accepted that cross-border trade and manufacturing relationships could affect the automobile industry, but considered the relationship between tariffs and Canadian repair costs more complex than Facility’s calculations suggested. The continuing use and actual effect of tariffs remained uncertain, and removing the provision would have lowered the overall indicated rate need by 1.3 per cent.

The board accepted Facility’s more cautious estimate. It reasoned that prior approval requires insurers to price future claims using the information available when they file, even when experience data have not yet revealed a clear trend. Halving the estimated tariff effect helped address the uncertainty, and eliminating it risked worsening under-recovery if costs proved higher.

Conditions were not an automatic refund

The board allowed the provision until tariffs were modified or removed, or experience data demonstrated their effect on claims costs. It also imposed a specific contingency: if the tariffs relied on in the application were permanently removed within six months of the March decision, Facility had to file an overall-decrease application within two months after that removal to take the provision out of rates.

That direction required a further regulatory filing; it was not a refund award to policyholders. Facility also had to quantify the provision’s impact by coverage within 15 days of the board’s order and report actual tariff effects, if any, in or before its next mandatory private-passenger filing. This report does not establish whether the removal contingency later arose, whether a resulting filing was required, or what individual policyholders have paid.

The tariff allowance was not the only contested assumption. Oliver Wyman questioned Facility’s model of claims frequency for direct-compensation property damage, favouring a flatter trend. The board accepted Facility’s approach, including its treatment of the change to the compensation system and exclusion of an unusually high 2015 data point associated with bad weather. It treated that choice as a matter of actuarial judgment supported on this record.

The board did update the health-services levy used in the calculations from the older $42.70 value to $49.58. That increased the overall indicated need by 0.4 per cent, but the board considered the effects by coverage negligible and did not require higher proposed rates. Facility’s 11 per cent return-on-equity target and 6.1 per cent profit provision were ratemaking assumptions, not findings of profits actually earned.

Carrier costs and financing fees remained in place

Facility’s servicing carrier administers policies, collects premiums and handles claims. Its operating-cost and fee allowance totals 10 per cent of written premiums under Facility’s plan of operation. Oliver Wyman proposed using a lower allowance based on recent actual costs, while Facility pointed to technology investment, an appropriate return for the carrier and its contractual obligation to pay the established allowance.

The board retained the 10 per cent allowance on the evidence before it, but noted that the reimbursement levels had last been made effective in 2003. It urged continued review and required Facility’s next mandatory filing to include operating-cost data, planned technology-maintenance costs and support for a reasonable carrier profit. Approval did not make the decades-old allowance immune from scrutiny.

The board also declined to offset the carrier’s premium-financing fees against Facility’s rate needs. It maintained its earlier view that paying an annual premium by instalments was a separate financing service between the carrier and policyholder: Facility did not receive the fees. It therefore rejected the consultant’s proposed expense reduction to reflect that revenue.

The decision permitted expanded use of class and driving-record variables for specified coverages, but only with initial differentials of 1.00, producing no immediate rate effect from those additions. Facility must apply with supporting reasons and evidence before assigning any other differential. This was not unrestricted approval to introduce new surcharges later.

The next mandatory private-passenger filing date was set for August 1, 2027, and an updated electronic insurance manual was required by the rate changes’ effective date. The reasons said a separate order would issue. The decision establishes the approved approach and its safeguards, not current tariff policy, subsequent compliance or the present price of a particular driver’s coverage.