Chapter 6

Question 1

What type of insurance is the most heavily regulated line of property and casualty insurance in Canada ?

Answer 1

Automobile insurance

Question 2

What are some common features regarding auto insurance regulations

Answer 2

• the policy forms for automobile insurance are government approved
• compulsory insurance laws make it mandatory that every automobile owner have access to insurance

Question 3

Define facility association

Answer 3

An entity established by the Canadian automobile insurance industry to ensure that automobile insurance is available to all owners and licensed drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the voluntary insurance market

Question 4

Define risk sharing plan

Answer 4

A self-insurance method of managing or reducing exposure to risk by spreading the burden of loss among several units of the Enterprise or business syndicate. Risk retention pools formed with the contributions of participants are often utilized as a way to self-inter risks among multiple entities

Question 5

What government entity administered the risk sharing plan?

Answer 5

In Quebec, the law requires licensed automobile insurers to be members of the GAA which administered a residual market called the risk sharing plan

Question 6

What 3 things does an insurers underwriting manual consist of?

Answer 6

1. The type of car that an applicant wants to insure
2. The location of the applicant’s home
   3 Whether or not the applicant plans to communicate to work by car and the distance if he or she does

It is not enough for an underwriter to mechanically apply the rate manual he or she must understand what goes into the rate manual and how the software program arrives at its results.

Question 7

Why should an underwriter question the registered owner, the actual owner, in the drivers?

Answer 7

The underwriter should watch for the possibility that the registered owner of the vehicle may not be the actual owner of the vehicle. A description see here would raise the question of insurable interest in the vehicle. As well as presenting a moral hazard if the arrangement reflects any financial instability on the part of the actual owner and in the absence of any information about the actual driver

Question 8

Why is it critical to the underwriter about who will be driving the vehicle?

Answer 8

Information about who will be driving the vehicle to be insured is critical to the underwriter, since the greatest exposure to loss will occur when the vehicle is being driven.

Such information is especially important when underwriting commercial risk, since there can be a great variation in hiring practices for drivers.

Question 9

With several questions that will help determine how commercial applicant hires its drivers

Answer 9

1. Does the applicant require prospective drivers to complete application forms?
2. Does the applicant interview its perspective drivers before hiring them?
3. Are references checked?
4. Does the applicant administer written and road test to prospective drivers?
5. Are copies of operators licenses kept on file?
6. Our credit reference checks undertaken where the applicants drivers own the vehicles they operate?
7. Is there a driver training program?

Question 9

List several questions that will help determine how commercial applicant hires its drivers

Answer 9

1. Does the applicant require prospective drivers to complete application forms?
2. Does the applicant interview its perspective drivers before hiring them?
3. Are references checked?
4. Does the applicant administer written and road test to prospective drivers?
5. Are copies of operators licenses kept on file?
6. Our credit reference checks undertaken where the applicants drivers own the vehicles they operate?
7. Is there a driver training program?

Question 10

List three questions and underwriter should ask if the driver’s lack of experience can be attributed to age

Answer 10

1. Is this a brand new driver who just obtained his or her license? Younger and less experienced drivers are generally more likely to have accidents
2. What class of license did the new driver receive, and was it issued as part of a graduated licensing program? A graduated license can tell an underwriter a great deal about how much or how little experience the driver has
3. Did this new driver take a formal driver training program? If so, does he or she have a certificate to prove it? Many companies offer discounts when drivers have a driver’s training certificate

Question 11

The underwriting process for automobile risks: what information should an automobile insurance underwriter look for in all applicants for automobile insurance to decide whether to accept the risk on and on what terms? What process should the underwriter follow to arrive at a sound decision?

Answer 11

1. Review the automobile insurance application
2. Learn about the applicant
3. Identify the lessor and lessors of any leased vehicles
4. Examine the applicant’s relationship with the broker
5. Ask about the use of the vehicle
6. Identify the type or class of vehicle
7. Ask about any aftermarket modifications that might have been made to the vehicle or vehicles
8. Find out about any repairs that might have been made to the vehicle vehicles
9. Identify and distinguish between the registered owner and the actual owner of each vehicle
   10 establish the driver’s age and investigate his or her Canadian driving experience
10. Look for some consistency between the age and other characteristics of a driver and the type of vehicle that he or she will be driving and for which insurance is sought
11. Investigate the maintenance planned for the vehicle
12. Make the underwriting decision

Question 12

Who must an underwriter identify on an automobile application review?

Answer 12

When more than one person will be insured, the underwriter should a certain the relationship between them

Are they a family or unrelated individuals? If an applicant is a corporation, the name of the corporation must be specified, and if the applicant is a person doing business as a corporation, both the personal and corporate names must be specified. The underwriter must identify any persons or corporations that are to be shown on the policy as additional insureds

Question 13

Automobile application details - why is it important for an underwriter to find out whether the applicant is already a client of the insurer for a different risk?

Answer 13

Knowing about other insurance the applicant has with the insurer can be useful because it may give the underwriter access to financial information about the applicant gather during the underwriting of the other risk, the other risk may include other information that could be useful to the underwater considering the automobile insurance.

Question 14

If the applicant is a corporation then what should the underwriter obtain from them?

Answer 14

If the applicant is a corporation, then the underreters should obtain a financial information about it. Audited financial statements are best but may not be available some corporations are privately held and do not make financial information public, what other corporations regard financially information as propriety and will not release it to non-share holders

Question 15

Why would an underwriter want to check credit history?

Answer 15

Credit history and other financial information can be especially helpful when they offer a comprehensive view of an applicant’s financial health. The underwriter must try to draw conclusions about the general financial health of the applicant, but such conclusions must be drawn with care.

The underwriter may find that the applicant’s credit rating suggest something of the applicant’s ability to pay the insurance premium. The credit rating may also allow the underrated to make inferences about the commercial applicants ability to hire and retain sustainable, responsible drivers and to properly maintain its automobiles. The report may also show the number of years applicant has been in operation and the experience of the current management.

Question 16

Define lessor

Answer 16

One that conveys property by lease

As an owner of automobiles under long-term leases, a lessor has a legal responsibility under compulsory insurance laws to ensure them.

Question 17

Define lessee

Answer 17

One that holds real or personal property under a lease

Primary coverage for long-term least automobiles is generally arranged by the lessee

Generally, a lease agreement makes a lessee responsible for ensuring the leased vehicle under an owner’s policy with the lessor shown on the policy as the owner of the vehicle and the lessee added as an additional insured under the endorsement that grants the least permission to rent or lease

Question 18

Define lienholder

Answer 18

One who holds a registered clean against a given property as security or collateral against a loan or workmanship performed in relation to that property. The financial commitment associated with a registered lien must be fully discharged with satisfied before the property in question may be liquidated, sold, or transferred to another party

Question 19

Why is an underwriter concerned with vehicle maintenance ?

Answer 19

A well-maintained vehicle is less likely to fail its driver and thereby be involved in an accident than a poorly maintained vehicle. The most important concern is whether maintenance is done regularly.

Question 20

When are maintenance questions primarily asked ?

Answer 20

Maintenance questions are asked primarily for commercial risk, especially for fleet policies. The underwriter will establish whether the insurance maintenance is done by a third party, or if the applicant is a commercial risk, by one of the applicants employees. Depending on the nature of the applicant’s operations, the difference may not be critical - or the difference May indeed be critical if a maintenance contract with a third party makes it more likely that the maintenance schedule will be followed.

Question 21

What are the 6 major automobile classes

Answer 21

• private passenger vehicles
• commercial vehicles
• public automobiles
• recreational vehicles
• garage risks
• non owned automobiles

There are variations in these classes between companies. Some companies also classify as private passenger vehicles all commercial vehicles used only for pleasure and having gross vehicle weight of 4500 kg or 10,000 pounds

Question 22

List 7 Vehicle exposures

Answer 22

1. Kilometers per year - the more kilometers driven per year the greater the exposure
2. Business or personal use - sales professionals often find themselves in unfamiliar areas when they go to visit a new client or prospect. When a driver is not familiar with the area, the possibility for loss is greater than if the territory is familiar
3. Passengers - a real estate professional might carry prospective buyers in a car insured for business use, but they might also carry passengers in a car insured for personal use
4. Highway or city driving - all vehicles are more at risk in the city because of higher traffic volume
5. Vehicle for hire - automobile policies generally allow Insurance to receive compensation for gasoline or mileage from passengers they carry, as in a carpool arrangement
   but compensation for hire is typically excluded
6. Personal or commercial -
7. Other vehicle use - it is one thing for an employee to deliver a package for an employer on his or her way home it is another thing entirely for an employer to demand as a condition of employment that employees will be willing to use their own cars in the course of the employer’s business the underwriter will want to know whether the applicant has or needs a non-owned automobile insurance policy for this exposure

Question 23

Define non-owned automobile insurance

Answer 23

A policy that protects the insured against third party claims arising out of some other person using his own vehicle in the business of the insured

Question 24

Define other automobile

Answer 24

A non-owned automobile that is not owned by anyone in the household and does not have insurance coverage. For example, if the vehicle is legally owned by another in the household but has no insurance coverage on it, and the intuitive injured in an accident while driving that vehicle, her insurance policy will cover only the mandatory medical under the statutory accident benefits schedule

Question 25

What is CLEAR?

Answer 25

A method for classifying different models of cars for insurance purposes by using historical claims data, including collision, comprehensive, direct compensation - property damage, and accident benefits coverages

Question 26

Define MSRP manufacturers suggested retail price

Answer 26

The price for a product as recommended by the manufacturer of that product

Question 27

List 6 facts MSRP ignores and makes it unfair

Answer 27

1. Most collision claims result in repair rather than replacement of the vehicle

2 vehicle price is not the only predictor of repair costs

3 new technology makes car smarter and safer. Automatic braking systems, Lane departure warning features, and self-parking vehicles make collisions less likely. Cars that have tracking technologies will be found easily if stolen.

4 vehicle price is not always the best predictor of claim frequency or severity

5 model vehicles depreciate at the same rate

6 vehicles May exhibit different track records for different types of claims

Question 28

List 4 ways an owner can customize a vehicle Street driving it of the dealers lot

Answer 28

1. An owner of Jeep May install a heavy duty off-road suspension package and big knobby mud tires
2. A van owner May commissioned an artist to airbrushes seen on the side of the van
3. An owner of a Kia May install a powerful stereo system that may be worth more than the car itself
4. An owner of a vehicle may have a physical disability or may have a passenger who has a physical disability. Modifications May range from the simple addition of a steering wheel spinner knob to Major modifications to the vehicle body structure, such as extending the body length and altering the roof of the vehicle to accommodate a wheelchair lift.

Question 29

Three scenarios to making an underwriting decision

Answer 29

1. A change in the applicants policies are procedures
   The underwriter might accept the risk on the condition that the applicant undertake certain risk management or loss prevention measures
2. A higher deductible
   The underwriter might address concerns about the applicant’s frequency of loss by imposing a deductible for a specified amount
3. A higher premium
   The underwriter might offer coverage at a higher premium rate than the applicant had been paying for its coverage to date