Baer.Intro Flashcards
types of insurance carriers
- individual underwriting
- joint stock company
- mutual insurance company
- reciprocal / inter insurance exchange
define individual underwriting
like a stock exchange but only open to members
define joint stock company
- for profit and owned by stockholders but managed by BoD
- profits go to stakeholders and investors
define mutual insurance compnay
- owned by phs
- profits paid to phs as dividends
define reciprocal/inter - insurance exchange
unincorporated association of subscribers who exchange contracts of indemnity (don’t issue policies, members are individually liable)
why are insurers partly exempt from anti trust laws
anti trust laws: regulations that encourage competition by limiting the market power of any particular firm
because short term price competition leads to underpricing and insolvency which hurts customers
what do rating bureaus do?
- promulgate rates and terms of contracts
- it is an approved way for insurers to cooperate in setting adequate rates
legal status of rating bureaus
they are authorized and regulated by provincial insurance acts
how do rating bureaus collect and analyze data?
provincial superintendents appoint a statistics gathering agency
what does Insurance Forms Manual Services publish?
standard versions of basic policies, options so there is no competition on basis of policies in Canada
IBC’s 5 objectives
SEP-DC (DC in September)
- Study legislation
- Engage in research
- Promote public understanding
- Discuss general insurance
- Collect and analyze data
what has been the focus of Canadian Insurance regulation since Confederation?
MOTHS
- Marketing: marketing integrity and improvement of insurance contract
- Ownership: encourage Canadian ownership
- Taxes: collection of taxes
- Honesty: honestly and competence of intermediaries
- Solvency: keep insurer’s solvent to protect policyholders
identify examples of Canadian regulation/legislation (federal or provincial) that promote insurer solvency
CC-FAIR
- Creation of domestic and licensing foreign of insurers
- Compliance: give govt authority to enforce compliance with legislation
- Files FS: require regular filing of FS
- Adequacy: create boards to oversee and ensure adequacy of rates
- Investments: restrictions on types of investments that are permitted to reduce risk
- Rating bureaus: authorization of rating bureaus for info sharing
what conditions eventually led to public control over solvency?
- insurer bankruptcies in the 1860/70s
- the recognition short term price competition is bad
- insurance involves a significant savings component (prepaid premiums) and phs must be protected
how does federal legislation protect Canadian insureds of foreign insurance companies?
- foreign insurers must maintain sufficient assets in Canada for recovery from insolvency
- if foreign insurer goes insolvent then a Canadian insurer can assume control over assets
what are the superintendent’s power over marketing practices?
investigate and order persons to stop offensive practices
what are the different levels of insurance regulation?
- legislation
- regulations by lieutenant governor in council
- guidelines by superintendents
cite a case Pricy Council used against Fed efforts at insurance regulation
Citizens InsCo v Parsons
who oversees Canadian solvency regulation? (federal or provincial)
both
cooperative federalism 合作联邦制 has been achieved in practice
who oversees Canadian rate regulation?
provincial
why is provincial insurance legislation so uniform across provinces?
- primarily due to CCIR (Canadian Council of Insurance Regulators)
- although legislation is done provincially, there are not great differences from province to province
identify differences between private and social insurance
SSEF
- Selectivity: private insurers are more selective
- Solvency: private monitored by superintendent, social underwritten by government
- Employees: private have private employees, social has civil servants
- Fraud protection: yes for private, not so much for social
identify similarities between private and social insurance
- protect insurance fund
- prevent over compensation
- need to define covered event
- need to determine covered losses
- need claims and reserving functions
what is the principle of indemnity?
after covered loss, return insured to former financial position before loss, and neither penalize nor reward
what is a contract of indemnity?
contract where amount recoverable is measured by insured’s pecuniary loss
is paying a fixed amount on event occurrence considered indemnity?
no because insured doesnot have to have a loss
- eg: pay a fixed sum if temperature at winter carnival stays above 0 because carnival would be cancelled due to warm weather
is a life insurance an indemnity policy? explain
no, because loss of life cannot be indemnified
- life contract is a contract that pays a certain sum upon death irrespective of pecuniary loss
identify conditions for recovering under an indemnity policy
- event must be covered
- requires proof of amount of loss
identify the differences between a valued policy and a typical insurance policy
proof of amount of loss is not required because compensation is pre determined by the contract
identify necessary conditions of reimbursement under ‘valued’ insurance policy
- event must be covered
- requires proof of loss, but not amount of loss
Facts and issues of Glynn v. Scottish Union&National Ins Co
Facts:
- Glynn injured in auto accident
- was reimbursed by other insurer
- Glynn sued to double recover medical from own insurer
Issue:
- does Glynn’s insurer have right to subrogation
Rulings of Glynn v. Scottish Union&National Ins Co
1) for insured: Glynn gets double recovery
2) for insurer:
- subrogation concept applies because auto policy is a contract of indemnity
- so Glynn’s insurer does not have to pay
identify 4 differences between group and individual insurance
- insures class of people vs individuals
- contract is between insurer and sponsor vs insurer and insured
- contract is open ended (ex: new employees are covered automatically) vs has to go through uw process
- treated differently by provincial legislation vs individual insurance
contrast group insurance with subscription policies
- Group: one insurer covers many insureds
- Subscription: multiple insurers underwrite different aspects of complex risk (ex: large commercial risk)
important intend of doctrine of subrogation
prevent over compensation of insured
tort recovery vs collateral sources: identify the 4 loss options
ECRR
- Election: pick either tort recovery or collateral source
- Cumulation: recover from both tort system and collateral may violate principle of indemnity
- Reimbursement: amount not covered by tort recovery is covered by collateral source
- Relief: tortfeasor’s liability reduced by collateral source
Facts and issues of Fletcher vs MPIC
Facts:
- customer relied on MPIC
- there was no mention of UIM (Underinsured Motorist) coverage on application or insurance certificate
Issues:
- is a government insurer responsible for informing customers of available coverages?
- what is the extent of the government’s liability should it fail to do so
Fletcher vs MPIC, criteria - for duty of care
MPIC owes a duty of care to its customers if
- customers rely on the information
- their reliance is reasonable
- MPIC knew or should have known the customer would rely on this information
Rulings123 of Fletcher vs MPIC
1) insured wins
2) MPIC wins
3) SCC (Supreme Court of Canada) reinstates original ruling (insured wins)
Final interpretation:
- both private agents and government institutions owe a duty of care
- but private agents owe a higher duty of care because of their promised expertise
Facts of Dillion vs Guardian Ins Co
- Guardian rejected a settlement that was less than the policy limit
- subsequent jury award greater than policy limit
- insured sued insurer for excess amount of award above policy limit
define the standard of absolute liability
if settlement possible but rejected by insurer, then insurer is liable for all costs even in excess of liability
- the insurer is liable for the exceedance of the limit if it refuses to settle the case below the limit
what are the different possible standards for liability?
- absolute liability
- liability for not acting reasonable
- liability for bad faith
arguments for absolute liability
- avoids: determining whether first offer was reasonable
- lower probability of insurer gambling with insured’s money
- insured and insurer have different monetary interests
Ruling1 and BC case of Dilon vs Guardian Ins Co
Ruling1:
- insurer liable under all standards
- find in favor of insured
BC case:
- reject absolute liability because relationship between insurer and insured not fiduciary (monetary interest differ)
what is the outcome of the case for Dilllon vs Guardian Ins Co
- insurer liable for amount exceeding policy limit
- they could have settled but didnt
- therefore insurer is absolutely liable
common examples of financial derivaties
options/forwards/futures/swaps
identify advantages of foreign participation in the Canadian insurance industry
- competition: produces lower prices and higher availability for Canadians
- innovation: good for consumers
- foreign capital: flows into Canada
