Ins301- Ch 13 Auto-Insurance Third party liability First party medical payments In no-fault states:...
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Transcript of Ins301- Ch 13 Auto-Insurance Third party liability First party medical payments In no-fault states:...
Ins301- Ch 13
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
Rating Factors
• Driver characteristics
• Age• Gender• Marital status• Use of the auto• Number of autos• Other factors
• Driving Record
• Territory
Ins301- Ch 13
Restrictions on Rating Factors
• Examples
• 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
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”