I understand that FA is meant as a backup for the private market when it comes to writing high-risk business, therefore in an ideal world the FA's share would be very minimal. But can you clarify how they are trying to achieve this goal of minimizing their market share?
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Lets consider the answer to this in terms of the FARM and RSP.
The FARM provides a residual automobile insurance market for owners and operators of motor vehicles who may otherwise have difficulty obtaining automobile insurance otherwise. Insurers are required to participate in the FA’s residual market mechanism (which can result in a profit or loss, although more likely a loss). Since they share in the FA’s losses and expenses, they have an incentive to find ways to insure more risks themselves rather than allowing policies to be placed in the FA.
The RSP allow automobile insurance companies to transfer certain personal automobile insurance exposures to an industry-wide pool. This allows insurers to manage their risk while still keeping the exposures in the private market.
That is helpful. Thank you for detailed explanation!