Transcript Chapter Outline - University of Rhode Island

Auto-Insurance
• Third party liability
• First party medical payments
• In no-fault states: PIP coverage for medical expenses
and lost income
• Uninsured and underinsured motorists
• Physical damage
Ins301- Ch 13
Liability Coverage
• Single limit
• Split limits
• Example:
• 100,000 per person for bodily injury
• 300,000 per accident for bodily injury
• 50,000 per accident for property damage
Ins301- Ch 13
Liability Coverage
• Compulsory liability
• Most states make minimum limits mandatory
• RI is an exception
• Financial responsibility laws
• Penalize negligent drivers who cannot pay minimum
damage amount
• All states have such laws
• Liability insurance satisfies laws
Ins301- Ch 13
Liability Coverage
• Who is insured and when?
• Named insured plus
• resident spouse
• other family members
• others who use the covered auto with permission
• Covered auto is vehicle listed on the policy plus
• newly acquired vehicles
• temporary substitute vehicles
Ins301- Ch 13
Liability Coverage
• Types of exclusions
• Intentional injury or damage
• Injury to an employee covered under WC
• Business vehicles
• Vehicles with less than 4 wheels
Ins301- Ch 13
Medical Payments Coverage
• In tort liability states
• Optional
• Limits are generally low (e.g., $1,000 - $2,500)
• Payments regardless of fault
• Payments not coordinated with other medical expense
insurance
• could collect twice
Ins301- Ch 13
Medical Payments Coverage
• In no-fault states:
• Personal injury protection (PIP)
• Often compulsory
• Also provides limited loss of income coverage
Ins301- Ch 13
Uninsured and Underinsured Motorists Coverage
• Coverage if liable party has no or insufficient coverage
• Coverage for all damages that otherwise would have
been paid
• medical expenses
• lost income
• pain and suffering
• Compulsory in many states
Ins301- Ch 13
Physical Damage Coverage
• Collision
• Covers damage from collisions and rollovers
• Other-than-collision (comprehensive)
• Covers damage from
• falling objects, explosions, glass breakage,
• earthquake, windstorms, hail,
• contact with an animal
• Deductibles generally used for both
Ins301- Ch 13
Auto Insurance Price Increases
Ins301- Ch 13
Rating Factors
• Driver characteristics
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Age
Gender
Marital status
Use of the auto
Number of autos
Other factors
• Driving Record
• Territory
Ins301- Ch 13
Restrictions on Rating Factors
• Examples
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Gender
Marital status
Use driving experience instead of age (MA)
Territory
Ins301- Ch 13
Underwriting
• Insurers have discretion to deny coverage in most
states
==> Underwriting criteria
• Typically, lower rates are associated with more
stringent underwriting criteria
• Example:
• deny if potential insured drinks alcohol
• charge lower rates than competitors who do not use this
criteria
Ins301- Ch 13
Government Restrictions on Underwriting
• Some states require insurers to accept all applicants,
I.e., no underwriting
• Underwriting restrictions are generally related to rating
restrictions
• otherwise rating restrictions can be circumvented
• Disadvantages of restrictions (see Ch. 8)
• Prices do not reflect expected costs as closely ==>
distorts behavior
• Costly to enforce
Ins301- Ch 13
Residual Markets
• Provide insurance at a regulated price to those who
otherwise would find it difficult to buy insurance
• All states have one
• Market shares vary widely
• Higher market share in states with
• more restrictions on rating and underwriting
• more regulation of rate changes
Ins301- Ch 13
Residual Market Share by State
Ins301- Ch 13
Types of Residual Market Plans
• Assigned risk plans
• Most states
• Applicants assigned to insurers in proportion to their
market share
• Insurer receives the (regulated) premium and pays
claims
Ins301- Ch 13
Types of Residual Market Plans
• Reinsurance facilities
• Each insurer sells to all applicants
• Insurer can reinsure unwanted insureds to state reinsurer
• Deficit of reinsurer is paid
• by all insurers in proportion to their market share
• by all policyholders (recoupment fee)
Ins301- Ch 13
Types of Residual Market Plans
• Joint underwriting associations
• State hires several insurers to insure unwanted
policyholders
• Agents submit applications to these insurers
• Deficit is paid by all insurers in proportion to their market
share
• State insurer (MD)
• Deficit is paid by all insurers in proportion to their market
share
Ins301- Ch 13
No-fault versus Tort Liability
• Tort liability
• Drivers that cause accidents can be sued for the losses
incurred by others
• Pure no-fault
• Drivers pay their own costs regardless of fault
• No law suits
• No state has pure no-fault
• Tort liability is restricted, not eliminated
Ins301- Ch 13
No-fault Laws
• Mandatory PIP coverage
• Varies across states
• Under $10,000 in MA, unlimited in MI
• Limitations on suits
• Cannot sue for losses covered by mandatory PIP
• Cannot sue for pain and suffering unless
• losses exceed a monetary threshold
• losses meet verbal threshold
Ins301- Ch 13
Arguments For and Against No-fault
• For
• More efficient compensation system
• Less pain & suffering compensation
• Faster compensation
• Lower legal costs
• Against
• Reduces safety
• Not “fair”
Ins301- Ch 13
Effect of No-fault on Premiums
• Depends on
• Limitations on tort liability
• Level of mandatory PIP coverage
Ins301- Ch 13