Baer.Intro Flashcards
List the 4 types of insurance carriers
[JIRM]
- Individual U/W
- Joint stock company
- Mutual Insurance Company
- Reciprocal/inter-insurance exchange
Define an Individual UW Insurer
Like a stock exchange BUT only open to members (U/W members & non U/W members)
Define a Joint Stock Company
For-profit and owned by stockholders BUT managed by board of directors. Profits go to stockholders & investors
Define a mutual insurance company
Owned by policyholders. Profits are paid to policyholders as dividends
Define a reciprocal/inter-insurance exchange
Unincorporated ASSOCIATION of subscribers who EXCHANGE contracts of indemnity (don’t issue policies, members are individually liable)
Why are insurer’s partly exempt from anti-trust laws?
It would be bad for short-term price competition (leads to underpricing & insolvency, which hurts customers)
What do rating bureaus do?
Promulgate rates & terms of contracts. It is an APPROVED way for insurers to cooporate in setting adequate rates
Promulgate = put into effect by official proclamation
What is the legal status of rating bureaus?
They are authorized & regulated by Provincial Insurance Acts
How do rating bureaus collect & analyze data?
Provincial superintendents appoint a statistics gathering agency (usually the statistical division of IBC)
What does Insurance Forms Manual Services Publish?
Standardized versions of basic policies & options, so there is no competition on basis of policies in Canada
Must auto policies be approved by superintendent before use (y/n)?
Yes
Name IBC’s 5 objectives (formed in 1964)
[SPEC-D]
- Study legislation
- Collect / analyze actuarial and statistical data
- Engage in mkt research
- Discuss general insurance
- Promote public understanding & awarness
Name 1 reason for creating IBC - related to anti-trust
Rating bureaus may have encouraged insurance industry to do things that, in other industries would be considered anti-competitive
Name 3 organisations under the IBC umbrella
- Association of Independent Insurers
- Canadian Federation of Insurance Agents & Brokers
- Insurance Institute of Canada
What has been the focus of Canadian Insurance Regulation since Confederation?
[MOTHS]
- Marketing: marketing integrity & improvement of insurance contract
- Ownership: encourage canadian ownership
- Taxes: collection of taxes
- Honesty: honesty & compentence of intermediaries (ex: agents)
- Solvency: keep insurer’s solvent to protect policyholders
Identify examples of Canadian regulation/legislation (federal or provincial) that promote insurer solvency (6)
[CIRCA-F]
- Creation: oversee creation of (domestic) & licensing (foreign) of insurers
- Investments: restrictions on the type of investments that are permitted for insurers (to reduce risk)
- Rating: authorization of rating bureaus for info-sharing
- Compliance: give government departments authority to enforce compliance with legislation
- Adequacy: create boards to oversee and ensure adequacy of rates
- File F/S: require regular filing of Financial Statements
What conditions eventually led to public control regarding solvency in the 1870s?
- Many insurer bankruptcies in the 1860s/70s
- The recognition that short-term price competition is bad
- Insurance involves a significant savings component (prepaid premiums) & policyholders must be protected
How does federal legislation protect Canadian insureds of foreign insurance companies? (2)
- Foreign insurers must maintain sufficient assets in Canada (for recovery from insolvency)
- If a foreign insurer goes insolvent, then a Canadian insurer can assume control over its assets (helps to stop expatriation of capital)
What are the superintendent’s power over marketing practices?
Investigate/order persons to stop offensive practices
What are the different levels of insurance regulation? (3)
- Legislation
- Regulations by lieutenant governor in council
- Guidelines by superintendents
Difference between guidelines & legislation for insurance regulation?
- Guidelines are more flexible than legislation (since subject to interpretation)
- Legislation must go through senate, house of commons and get approved, guidelines don’t need to go through these steps
Why are uniform guidelines easier to establish than uniform legislation?
Guidelines do not need to go through legislative process
Cite a case Privy Council used against Fed efforts at insurance regulation
Citizen’s Insurance Company v Parsons
Who oversees Canadian solvency regulation (federal or provincial) ?
Both federal and provincial. Cooperative federalism has been achieved in practice
Who oversees Canadian rate regulation? (federal or provincial) ?
Provincial
Why is provincial insurance legislation so uniform across provinces?
Primarily due to CCIR (Canadian Council of Insurance Regulation)
Identify differences between private & social insurance (4)
[SSEF]
- Selectivity: private insurers are MORE selective, social insurance is LESS selective
- Solvency: private companies monitored by superintendent, social insurance underwritten by government
- Employees: private insurers have private employees, social insurance has civil servants
- Fraud Protection: yes for private insurers, not as much for social insurance
Identify similarities between private & social insurance (5)
- Both PROTECT insurance fund
- Both PREVENT over-compensation
- Both need to define “covered event”
- Both need to determine “covered losses”
- Both need claims & reserving functions
What is the principle of indemnity?
The principle of indemnity states that an insured suffering a covered loss will be brought back to their original financial position (with no reward nor punishment)
What is a “contract of indemnity”?
Contract where amount recoverable is measured by insured’s pecuniary loss
Is paying a fixed amount on an occurence considered indemnity?
No, because insured does not have to have a loss
Is a life insurance policy an indemnity policy? Explain
No, because the insured’s family will receive a fixed amount following the death of the insured. Therefore, not based on pecuniary damages so not indemnity
Identify conditions for recovering under an indemnity policy (2)
- Event must be covered
- Requires proof of loss from the event (and proof of the amount of loss)
Identify the difference between a “valued” policy and a “typical” insurance policy
Proof of amount of loss is not necessary because compensation is pre-determined by contract (therefore compensation is fixed)
Identify the necessary conditions for reimbursement under “valued” insurance policy
- Event must be covered
- Requires proof of loss, but not amount of loss
Glynn v Scottish Union National Ins. Co: Facts
- Glynn injured in auto accident
- Was reimbursed by other driver’s insurer (incl. medical)
- Glynn sued to DOUBLE RECOVER medical from own insurer
Glynn v Scottish Union National Ins. Co: Issue
Does Glynn’s insurer have right to subrogation?
I.e. can Glynn’s insurer claim benefits from guilty party’s payment to PREVENT double-recovery by Glynn
Glynn v Scottish Union National Ins. Co: Ruling 1
Ruling 1: for insured: Glynn gets double-recovery
Glynn v Scottish Union National Ins. Co: Ruling 2 (appeal)
Ruling 2: for insurer
- Subrogation concept applies because auto policy is contract of indemnity
- So Glynn’s insurer does NOT have to pay
Identify the differences between group & individual insurance (4)
Group:
1. Insures class of people vs Individual
2. Contact is between insurer & sponsor vs Insurer and Insured
3. Contract is open-ended (ex: new employees covered automatically) vs going through U/W process
4. Treated differently by provincial legislation vs individual insurance
Contrast group insurance with subscription policies
Group: one insurer covers many insureds
Subscription: multiple insurers U/W different aspects of complex risk
Name the important intent of the doctrine of subrogation
Subrogation is intented to prevent overcompensation of insured
Tort Recovery vs Collateral Sources: identify the 4 loss-sharing options
- ELECTION: pick one of tort recovery or collateral sources
- CUMULATION: pick BOTH tort recovery and collateral sources
- REIMBURSEMENT: amount not covered by tort recovery is covered by collateral sources
- RELIEF: tortfeasor’s liability reduced by collateral source
Fletcher v MPI: Facts (1990)
Customer relied on MPIC (Manitoba Public Insurance Council)
There was no mention of UIM (Under-insured Motorist) coverage on application or insurance certification
Fletcher v MPI: Criteria - for duty of care
MPI owes a duty of care to its customers if:
- Does reliance exist? (in this case yes, since insured relies on MPIC to have maximum coverage)
- Is reliance expected? (in this case yes, since insured is not familiar with type of coverage)
- Is the reliance reasonable? (in this case yes, MPIC ought to know)
Fletcher v MPIC: Issues
Issue 1: is a government insurer responsible for informing customers of available coverages?
Issue 2: what is the extent of the government’s liability should it fail to do so?
Fletcher v MPI: Ruling 1,2,3
Ruling 1: judge finds for plaintiff (insured wins)
Ruling 2: overturned on appeal (MPI wins)
Ruling 3: Supreme Court of Canada reinstates original ruling (insured wins)
Final interpretation:
- Both private agents and government institutions owe a duty of care
- Private agents owe a higher duty of care because of their promised expertise & high degree of personalization promised by the private business model
Dillon v Guardian Insurance Company: Facts
- Guardian rejected a settlement that was less than policy limit
- Subsequent jury award was greater than policy limit
- Insured sued insurer for excess amount of award above policy limit
Dillon v Guardian Insurance Company: Define the standard of absolute liability
If a settlement is possible but rejected by the insurer, then the insurer is liable for all costs (even in excess of policy limit)
Dillon v Guardian Insurance Company: what are the possible standards for liability (3)?
- Absolute liability
- Liability for not acting reasonably
- Liability for bad faith (builds on lack of reasonableness)
Dillon v Guardian Insurance Company: Arguments for absolute liability
Avoids: determining whether the 1st offer was reasonable (since its below policy limits)
Lowers: probability of insurer gambling with insured’s money
Dillon v Guardian Insurance Company: Ruling 1
Insurer liable under all standards (only need 1)
Finds in favour of insured
Dillon v Guardian Insurance Company: what is the outcome of the case
Guardian paid for amount in excess of policy limits due to absolute liability
Give common examples of financial derivatives
Options, forwards, futures, swaps
Identify advantages of foreign participation in the Canadian Insurance Industry (3)
- Increased Competition: produces lower prices, higher availability for Canadians
- Increased Innovation: good for consumers (since new ideas are brought to better serve customers)
- Foreign Capital: flows into Canada (which creates a tax revenue for Canada)
Identify disadvantages of foreign participation in the Canadian Insurance Industry (3)
- Runs counter to goal of federal government to promote Canadian ownership
- Harder to verify financial resources of parent
- Foreign parent failure is the main cause of Canadian insolvency
