Chapter 11 Industry Programs for Insurance Availability Key Point
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Why must automobile insurance be available to any vehicle owner?
What is another name for regular markets?
What are residual markets?
Residual Markets: Special programs to ensure insurance availability for risks that, from an underwriting standpoint, are less desirable and more hazardous.
Give an example of a risk that might have to obtain insurance through residual markets.
Identify 2 objectives of residual market programs.
The primary objectives of any special industry program should include the following:
a) The immediate availability of a market to agents and brokers and the public
b) Equitable sharing of the residual market by all insurers.
What is the Facility Association?
Facility Association: is an unincorporated association of insurers created on January 28,1977.
What is the purpose of the Facility Association?
The Facility Association provides automobile insurance to owners and operators of motor vehicles who may otherwise have difficulty obtaining insurance through the voluntary market.
- In provinces where the Association operates, the underwriting rules of the various automobile insurers serve as guidelines to determine whether a risk qualifies for the insurance through the voluntary market.
- These rules are a list of grounds for which the insurer declines to issue, terminates, or refuses to renew a contract or refuses to provide or continue a coverage or endorsement.
- Since underwriting rules can vary from insurer to insurer, a risk declined by 1 insurer's underwriting rules may be accepted by another insurer's underwriting rules.
- In theory, a risk would be placed in the residual market if it does not meet any insurer's underwriting rules. But some risks placed in the residual market may be eligible for insurance through the regular market.
List the provinces where the Facility Association operates.
The Association has operated in the following jurisdictions since the dates shown, and under the legislative authority shown.
Alberta/The Alberta Insurance Act/ Oct. 1, 1979
New Brunswick/ The Insurance Act of New Brunswick/ July 1,1983
Newfoundland/ The Insurance Act of Newfoundland/ Nov. 1, 1985
Northwest Territories and Nunavut/ Northwest Territories Insurance Act / Dec. 1 1986
Nova Scotia/ The Insurance act of Nova Scotia/ July 1,1981
Ontario/ The Compulsory Automobile Insurance Act/ Dec. 1,1979
Prince Edward Island/ The Insurance Act of Prince Edward Island/ Sept. 1, 1982
Yukon Territory/ Yukon Insurance Act April 30, 1986
Define "car year".
Car Year: is a measurement of an insurer's exposure. It means an automobile insured for a period of 12 months.
Ex: a single policy providing coverage on 3 automobiles for a 6 month term would be 1.5 car years.
What are servicing carriers?
Servicing Carriers: are limited number of members designated who provide underwriting and claims functions.
Servicing carriers must issue policies and provide agents and brokers with policyholder service for business submitted to them. Insurers who not designated as such are referred to as non-servicing carriers. Although they are full members of the Association, they have no direct involvement in the day-to-day operation of the program. In jurisdictions where a risk sharing pool exists, members have direct involvement with the Association because of the pool.
How are servicing carriers compensated?
Servicing Carriers receive expense allowances agreed to by the membership to compensate them for the cost of acting on behalf of the Association.
The results of the total industry pool are statistically recorded by the central office of the Association and then shared by members on a monthly basis.
What are risk sharing pools?
The Risk Sharing pools allow automobile insurance underwriters to transfer certain private passenger automobile exposures that may meet the companies' underwriting guidelines, but still present higher-than-average risk. They are sometimes referred to as "grey" private passenger risks.
Which provinces have risk sharing pools?
Alberta, New Brunswick, Nova Scotia, and Ontario.
When a risk is transferred to the Risk Sharing Pool in Ontario, who is responsible for servicing the policy, including settling any claims that may arise from the policy?
Insurers share the experience of the transferred risk with the pool in accordance with their share of market and their usage of the pool. The company which issues the initial policy(the primary writer) remains responsible for servicing the policy, including settling any claims which may arise from the policy.
How does the Plan de repartition des risques (PRR) in Quebec differ from the Facility Association in the other provinces?
Who makes the decision to transfer a risk to the PRR?
The decision to transfer a risk to the PRR is made solely by the insurer.
Who subsidizes the Facility Association or the PRR when premiums are not enough to cover claim costs?
The operation of the Facility Association and the PRR need to be subsidized by the industry.
In the case of the Facility Association, the premium levels allowed by government regulators are rarely adequate to cover the lossses and expenses.
- In the case of the PRR, the insurer has transferred a risk specifically because it believed that the risk did not meet its underwriting criteria and that losses and expenses would likely exceed the premium charged.
- Sharing the overall operations of the Facility Association and the PRR, therefore, require a contribution by insurers.
Why are there no such industry or government programs for insurance availability in British Columbia?
There are no such industry or government programs for insurance availability in B.C. They are not necessary because ICBC is a Crown corporation with the mandate to provide basic insurance to all drivers in a non-discriminatory manner. This mandate is explicitly stated in the Insurance(Vehicle) Act so that all people who own and register a vehicle in B.C. will have the compulsory basic coverage.
Private insurers compete for extension coverages only. If a risk undesirable they can decline to offer extension insurance, but no one will be denied basic coverages.
Why are there no such industry or government programs for insurance availability in Manitoba or Saskatchewan?
There are no industry or government programs for insurance availability in Saskatchewan or Manitoba. They are not necessary because the government insurers in both provinces must provide basic coverage to all residents who drive registered vehicles that fall within the jurisdiction of the Acts governing automobile insurance. Although this requirement is not explicitly stated in either province's respective Insurance Act - like it is in B.C.'s - it is inferred in various pieces of legislation, so the end result is the same.
Private Insurers compete for extension coverages only. If a risk is undesirable they can decline to offer extension insurance, but no one will be denied basic coverages.
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