Study 6 – Underwriting the Risk: Automobile
1. What features of automobile insurance regulation are common all provinces and territories in Canada
1. In all provinces, policy forms for automobile insurance are government approved.
2. In most provinces, rates charged by insurers are approved by and filed with the government. Even in other provinces, governments retain supervisory powers for their superintendents of insurance and allow “courtesy filings” to be made.
3. In many provinces, underwriting rules, particular the rules that an insurer uses to decline a risk, are filed with the government.
4. In all provinces, compulsory insurance laws make it mandatory that every automobile owner have access to insurance.
2. Why is it important for an underwriter to use the “power of why” when assessing automobile insurance risk?? (p. 4)
It is used to ensure that the additional exposure is properly identified and accepted on appropriate terms.
3. What steps should an underwriter be sure to take in underwriting any automobile insurance risk? (p. 5)
For any automobile insurance risk, the underwriter should be sure to do the following:
· Review the automobile insurance application.
· Learn about the applicant.
· Identify the lessor or lessors of any leased vehicles.
· Examine the applicant’s relationship with the broker.
· Ask about the use of the vehicle.
· Identify the type or class of vehicle.
· Ask about any aftermarket modifications that might have been made to the vehicle(s).
· Find out about any repairs that might have been made to the vehicle or vehicles.
· Identify and distinguish between the registered owner and the actual owner of each vehicle.
· For each vehicle, establish the driver’s age and investigate their Canadian experience.
· Look for some consistency between the age and other characteristics of a driver and the type of vehicle that he or she will be driving and for which insurance is sought.
· Investigate the maintenance planned for the vehicle(s).
· Make the underwriting decision.
4. Why is it becoming more of a challenge for an underwriter to obtain a signed application form? (p. 4-5)
In all Canadian jurisdictions, the law concerning automobile insurance requires insurers to obtain a signed application from any applicant who becomes an insured.
It can be a challenge as more and more insurance is sold over the telephone or by Internet. When an applicant buys auto insurance over the two mediums, the underwriter will record the information required on the applicant and often bid or deny coverage at that time. If the underwriter accepts the risk, they must then follow up with the applicant and obtain a signed application.
5. Why is it important for an underwriter to identify all persons who are to be insured under a policy? (p. 6)
To determine and verify insurable interest and the exposures linked to other possible drivers.
6. Why is it useful for an underwriter to know about other types of insurance the applicant has with the insurer? (p. 8)
Knowing about other insurance the applicant has with the insurer can be useful because it may give the underwriter access to financial information about the applicant gleaned during the underwriting of a policy. The file in accumulating the applicant’s other policy may include other information that could be useful to the underwriting of the current policy.
7. What does the potential ambiguity of indirect financial information indicate about the nature of underwriting? What does this suggest about the essence of an underwriter’s work? (p. 9)
The potential ambiguity of indirect financial information such as credit history is a good example of an observation we have made before about the nature of the underwriting enterprise: An underwriter never has perfect information. Furthermore, the available information is rarely complete and may be unclear or ambiguous no matter how much information the underwriter has.
8. Explain why the applicant for insurance on a leased vehicle is usually the lessee. (p. 10)
Generally, a lease agreement makes the lessee responsible for insuring the leased vehicle under an Owners policy, with the lessor shown on the policy as the owner of the vehicle and the lessee added as an additional insured under the endorsement that grants the lessee permission to rent or lease. Thus, the applicant for insurance on a leased vehicle is usually a lessee.
9. Why is it important for an underwriter to know the age of a leased vehicle? (p. 11)
It is also important for an underwriter to know the age of the leased vehicle. Most respectable leasing operations have a constant turnover that allows them to lease late-model cars to their customers.
10. Why is it important for an underwriter to know about the broker from whom the application comes? (p. 10-11)
Knowing the broker from whom the application comes can reveal much to the underwriter about the applicant. The underwriter will want to know about the broker’s relationship with the applicant or the principal driver as the applicant may be a less desirable risk to the underwriter if he/she was unknown to the broker before walking into the broker’s office.
11. What is the difference between personal use, commercial use and business use of a vehicle? (p. 12-13)
Personal Use: broadly defined as the use of an automobile for pleasure and are typically private passenger vehicles.
Commercial Use: broadly defined as the use of an automobile in the course of commercial activity.
Business Use: broadly defined as a type of commercial use that combines elements of personal and commercial use. It entails the use of an automobile for pleasure, business, or both.
12. What are the major classes that automobile risks are usually divided into for rating purposes? Give an example of each? (p. 13)
For rating purposes, automobile risks are usually divided into the following major classes:
· Private passenger vehicles (pleasure and business use)
· Commercial vehicles (trucks and delivery autos)
· Public automobiles (buses and taxicabs)
· Recreational vehicles (motorcycles, snowmobiles, all-terrain vehicles ATVs)
· Garage risks (road hazard and dealership risks)
Non-owned automobiles.
Non-owned automobiles.
13. Why is it important for an underwriter to know whether the business use of a vehicle will result in the driver being in unfamiliar driving territory? (p. 14)
When a driver is not familiar with the area, the possibility for loss is greater than if the territory is familiar.
14. Why is it important for an underwriter to know whether the applicant’s operation and the industry it operates in are stable? (p. 15)
The financial information that the underwriter has been able to obtain about the applicant may offer some picture of the applicant’s stability, but common sense can play a role too as an unstable industry may mean an unstable applicant whom may be unable to pay their insurance premiums or is a moral hazard.
15. What is a Non-owned Automobile policy? When may this type of policy be needed? (p. 17)
A Non-owned Automobile policy is a legal concept of respondeat superior (“let the superior answer”). This legal concept is also referred to as the Law of Master and Servant, and its fundamental principle is that when a servant is engaged in his master’s business, his master is liable for the servant’s careless or negligent acts, even though his master was unaware of them and even though the servant exceeded his authority or disobeyed the express instructions of his master.
This common law principle has been extended by a number of court decisions to make an employer responsible for the operation of an automobile when an employee is operating an automobile not owned by the employer in the employer’s business.
16. What is a temporary substitute vehicle? (p. 17)
A temporary substitute automobile is an automobile not owned by the insured or anyone living in the insured’s home and being used as a substitute for the automobile described in the policy because of that automobile’s breakdown, repair, destruction, or sale.
17. What is the CLEAR system? (p. 18)
Physical damage coverage is now rated on the CLEAR (Canadian Loss Experience Automobile Rating) system which is based on loss costs and passenger injury.
18. What important facts does the MSRP system ignore? (p. 18-19)
1. Most collision claims result in repair rather than replacement of the vehicle.
2. Vehicle price is not the only predictor of repair costs.
3. Features such as antilock brakes, airbags and theft deterrent systems, which add to the price of the vehicle but may lower the likelihood of claims, claim costs, or both, should not necessarily result in higher premiums.
4. Vehicle price is not always the best predictor of claim frequency or severity.
5. Not all vehicles depreciate at the same rate.
6. Vehicles may exhibit different track records for different types of claim.
19. In short, what does the CLEAR system base the premium for physical damage insurance on? (p. 19)
CLEAR is a way of ensuring that vehicle insurance premiums are commensurate with the vehicles’ expected, and wherever possible, actual claim experience. The system provides equity in the rating of different vehicles and helps overcome many of the problems inherent in an MSRP-based system.
CLEAR uses Canadian insurance claims data to accurately and credibly reflect expected and actual experience for all makes, models, and model-years of each vehicle. The IBC annual updates all rate groups determined by the CLEAR in order to most accurately and credibly reflect the relationship between insurance claims and vehicle characteristics.
In short, the CLEAR system bases the premium for physical damage insurance on the likelihood of vehicles’ being involved in claims and what it will typically cost to settle each claim.
20. What are aftermarket modifications? How do they affect the automobile’s exposure to the loss? (p. 20)
Some vehicle owners have work done on their vehicles that makes them significantly different from the way there were when they left the factory. Thus, aftermarket modifications can affect the exposure to loss that a vehicle represents in a similar way to the vehicle’s type and class, making the vehicle more expensive to repair or more likely to be stolen or perhaps both.
21. Why is it important for an underwriter to be aware of any unrepaired damage to a vehicle? (p. 21-22)
Unrepaired damage may make the vehicle less safe or roadworthy and therefore more likely to be involved in an accident and give rise to a claim after coverage has been bound. Damage left unrepaired may also suggest a moral hazard on the part of an applicant too careless or indifferent to their own safety or the safety of others to main the vehicle in good repair.
22. What questions can an underwriter ask to determine how a commercial applicant hires its drivers? (p. 22)
Questions such as the following will help determine how the commercial applicant hires its drivers:
· Does the applicant require prospective drivers to complete application forms?
· Does the applicant interview its prospective drivers before hiring them?
· Are references checked?
· Does the applicant administer written and road tests to prospective drivers?
· Are copies of operators’ licenses kept on file?
· Are credit reference checks undertaken where the applicant’s drivers own the vehicle they operate?
· Is there a driver training program?
23. Why should an underwriter obtain a Motor Vehicle Record for a risk? (p. 23)
The underwriter should obtain a MVR for each driver from the appropriate government office to determine whether the driver has had any convictions or accidents in the last three years. The underwriter should also obtain detailed loss information as well as any claims information those losses that were incurred but not reported as well as the losses that generated insurance claims.
24. What questions should an underwriter ask when assessing the risk posed by a new driver? (p. 24)
· Is this a brand-new driver who just obtained his or her license?
· What class of license did the new driver receive, and was it issued as part of a graduated licensing program?
· Did this new driver take a formal driver training program?
25. What types of information should an underwriter determine about the maintenance of an applicant’s vehicle? (p. 25)
A well maintained vehicle is less likely to fail its driver and thereby be involved in an accident than is a poorly maintained vehicle. The most important concern is whether maintenance is done regularly.
26. What is the first decision to be made by an underwriter? What factors might alter this decision? (p. 25-26)
The decision to be made is first whether to accept or reject the risk on the proposed terms. The underwriter must remember that there may be alternatives or conditions that will allow him/her to accept the risk when the terms initially proposed would make the risk unacceptable. Such alternatives or conditions might include one or more of the following:
· A change in the applicant’s unsatisfactory policies or procedures. The underwriter might accept the risk on the condition that the applicant undertakes certain risk management or loss prevention measures.
· A higher deductible which address the frequency of loss.
· A higher premium.
No comments:
Post a Comment