Chapter 11 Industry Programs for Insurance Availability Narrative Model Questions

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Chapter 11 Industry Programs for Insurance Availability Narrative Model Questions
2014-03-12 15:46:38
Chapter 11 Industry Programs Insurance Availability Narrative Model Questions

Chapter 11 Industry Programs for Insurance Availability Narrative Model Questions
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  1. Explain how the Facility Association operates.
    Facility Association

    - The operations of the Association are conducted according to the Plan of Operation(the Plan)

         - approved by the members

         - and by regulatory authorities.

    - Every insurer licensed to write automobile liability insurance in any jurisdiction the Facility Association serves is required by law to become a member

          - and remain a member of the Association.

    - Insurers share in the operations of the Association based on their market share of automobile business in the jurisdictions where the Association operates.

    - The underwriting

         - and claims functions are provided by a limited number of designated members, called servicing carriers,

         - who are compensated by operating

         - and service fees.

  2. Describe the use of risk sharing pools in the insurance industry.
    - The Facility also manages risk sharing pools in

         - Alberta,

         - New Brunswick,

         - Nova Scotia,

         - and Ontario, 

         - which are established under the Plan of Operation.

    - These 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.

    - Because these risks meet underwriting guidelines, insurers can't decline them,

          - and they must still be written in the voluntary market at the insurers' normal rates.

    - Risk sharing pools give the writing companies the option of keeping such business for their own account 

          - or transferring it to the pool.

    - Only risks that do not meet underwriting guidelines can be considered residual market risks 

         - and have policies issued through the Facility Association.
  3. You are an underwriter in Quebec, and you have received an application for insurance from a broker seeking automobile insurance for a potential client. You process the application and find the risk does not meet your underwriting guidelines. This is because the applicant has  4 Highway Code infractions and has been in several at-fault accidents.

    a) Will this applicant qualify for the Plan de repartition des risques(PRR)? Explain.  

    b) If the applicant is accepted by the PRR:

          1) How will the rate be determined?

          2) What would you advise the broker to tell the applicant?

          3) When would the applicant be eligible for insurance in the regular market?
    a) PRR

    - Yes the applicant would qualify for the Plan de repartition des risques(PRR)

    - In Quebec, the Groupement des assureurs automobiles administers a risk sharing plan called the Plan de repartition des risques(PRR)

    - The PRR supports insurers providing access to automobile insurance for all Quebec automobile owners.

    - All automobile insurers licensed in Quebec participate in the PRR, except those who do not write any automobile 3rd party liability insurance.

    - The PRR is a mechanism that allows an insurer to transfer any risk that does not meet its underwriting criteria into a shared pool

    - The underwriting profit or loss of the pooled risks,

         - as well as administration costs,

         - are shared between participants in the ratio of their percentage of the total automobile written volume in Quebec.

    b) 1) Rate Calculation

    - No standard rates are prescribed by the PRR

          - and a risk is transferred for the standard premium set by the insurer.

    - If the risk has a record which shows Highway Code infractions, the PRR requires that the standard premium in the insurer's rate manual be surcharged by a specified percentage.

    2) Informing the Broker

    • - You would not advise the broker in this scenerio.
    • - Insureds are very seldom aware that the PRR has been instrumental in the process of obtaining and supporting the coverage that they have obtained;

          - the PRR is, therefore, almost unknown to the public.

    - As a matter of fact, the procedure followed for the transfer of a risk to the PRR is such that many brokers do not even know which of their risks have been transferred by the insurer.

    3)Term of Policy

    - Eligibility would be determined by the insurer.

    - The insurer may transfer a risk to the PRR where coverage is granted

          - or withdraw it from the PRR at any time within a policy period.

    - The insurer only needs to submit the appropriate information electronically

          - or on a paper form according to the stipulated procedures,

          - with the premium calculated on a pro rata percentage basis for the term transferred.