1. L26 – Spring 2011 Module 11 L26: Automobile Insurance Objective: Illustrate contract characteristics through auto insurance policy

2. L26 – Spring 2011 Module 12 What can be lost? Bodily Injury Property Damage/Theft Liability (Negligence)

3. L26 – Spring 2011 Module 13 Types of coverage Personal Auto Policy (PAP)- a package policy for four coverage –“ Third-party ” Liability coverage –“ First-party ” Medical payments coverage –Uninsured and underinsured motorists coverage –Damage and other losses to autos

4. L26 – Spring 2011 Module 14 Third Party Liability Coverage Bodily injury or property damage because of an auto accident Who is insured? –Named insured (stated clearly on the dec page) Owner, resident spouse, family members and other person have the permission of the owner Scenario 1: Suppose you are insured under your PAP, if you used other people ’ s car with permission and incurred losses, Covered under your PAP? Covered autos Scenario 2: Suppose your car is the covered auto under your PAP, your friend used your car with your permission and incurred losses, Covered under your PAP?

5. L26 – Spring 2011 Module 15 Liability coverage (cont ’ ) Limit of liability –Single limit Specifies the maximum amount that the insurer will pay for all damages from a single accident –Split limit (100,000/300,000/50,000) 100,000: per person for bodily injury 300,000:per accident for bodily injury 50,000: per accident for property damage Exclusions and “ other insurance ” provisions –Intentional injury or damage –Losses to property, which often are covered under homeowners insurance –Bodily injury to an employee covered by WC –Vehicles used without owner ’ s permission

6. L26 – Spring 2011 Module 16 First-party medical payments coverage Payments regardless of fault Note: in no-fault states, PIP (personal injury protection) is often compulsory, which also provides limited loss of income coverage. (Limit is relatively low) Could collect twice from your group or individual medical / disability /life insurance

7. L26 – Spring 2011 Module 17 Uninsured/underinsured motorists coverage Coverage if liable party has no or insufficient coverage Coverage for all damages that otherwise would have been paid Compulsory in many states What to be covered? –Medical expenses –Lost income –Pain and suffering

8. L26 – Spring 2011 Module 18 Physical Damage and other losses to Autos Collision coverage –Covers the upset (rollover) of a covered auto or impact with another objective –Regardless of the responsibility Other-than-collision (comprehensive) –Covers damage from  Falling objects, explosions, glass breakage  Earthquake, windstorms, hail  Contact with an animal (Deer)  Theft Deductibles generally used for both

9. L26 – Spring 2011 Module 19 Financial responsibility laws Penalize negligent drivers who cannot pay minimum payment amount All states have such laws Purchasing liability insurance with limits equal to or greater than the minimum specified in a state ’ s financial responsibility laws satisfies the law E.g. WI – FR only, license revocation

10. L26 – Spring 2011 Module 110 Compulsory liability insurance law The laws that mandate the purchase of a minimum amount of auto liability coverage by auto owners. e.g. GA mandatory, penalties  up to $1000 fine and maximum 1 yr jail.

11. L26 – Spring 2011 Module 111 No-fault laws First party coverage –Coverage of the insured's own property (e.g., fire insurance, collision and comprehensive coverage of auto insurance) or person (life and health), as opposed to coverage for liability to others. Mandatory PIP( Personal Injury Protection) coverage -- Medical expense and lost wages Can ’ t sue unless exceed “ threshold ” e.g. sue for general damages Ex: Minnesota

12. L26 – Spring 2011 Module 112 No-fault vs. WC

13. L26 – Spring 2011 Module 113 Advantages/Disadvantages of no-fault Advantages –More efficient compensation system Less pain and suffering compensation Faster compensation Lower legal costs Disadvantages –Reduces safety and boost the costs –Not fair

14. L26 – Spring 2011 Module 114 Choice no-fault & Add-on no-fault Choice no-fault Drivers have the option to choose a no-fault policy or a tort liability policy Ex: New Jersey Add-on no-fault benefits In addition to PIP, a policy provision that adds no-fault benefits, where permitted, to automobile liability coverage without restricting the right of the victim to sue the wrongdoer, such as suing for pains and sufferings

15. L26 – Spring 2011 Module 115 Pricing Price determination/rating factors –Driving record –Location –Age/gender –Car make/model –Amount of coverage –Use of car

16. L26 – Spring 2011 Module 116 China vs. US Price determination/rating factors Focus on the car itself, NOT on the insured! Price adjustment when renewing the policy relies on # of accidents, regardless severity. “ 上年没有发生车险赔款的，续保时可打 9 折；连续 2 年无赔款，可打 8 折；连续 3 年及以上无赔款，可打 7 折。反之，如果上年发生 5 次及 5 次以上赔款，保费 则要上浮 3 成；上年发生 4 次赔款，上浮 2 成；上年发生 3 次赔款，上浮 1 成； 新保或上年发生 3 次以下赔款则维持基本费率 ” ( 10% off when renewing the policy if no claims in the previous year. 20% off if no claims in the past two years, 30% off if no claims in the past three years. 30% more if >=5 claims in the previous year, 20% more if 4 claims, 10% more if 3 claims, remain the same if <3 claims. )

17. L26 – Spring 2011 Module 117 How can high-risk people obtain coverage? Residual markets  Ensure access to insurance –Provide insurance at a regulated price to those who otherwise would find it difficult to buy insurance Types of auto insurance residual market –Assigned risk pools –Reinsurance facilities –Joint underwriting associations –State insurer

18. L26 – Spring 2011 Module 118 Assigned risk plans Most states Applicants are assigned to insurers in proportion to their market share Insurer receives the (regulated) premium and pays claims

19. L26 – Spring 2011 Module 119 Reinsurance facilities Each insurer sells to all applicants Insurer can reinsure unwanted insureds to state reinsurer e.g. South Carolina Deficit of reinsurer paid: - by all insurers in proportion to their market share - by all policyholders (recoupment fee)

20. L26 – Spring 2011 Module 120 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 e.g. Missouri

21. L26 – Spring 2011 Module 121 State insurer Deficit is paid by all insurers in proportion to their market share e.g. Maryland