Chp 6: Applications for Automobile Insurance: Underwriting Flashcards

1
Q

What is an application?

A

Request by an insured for insurance. Applications may be done verbally in writing or online.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Purpose of Automobile Insurance Applications

A

Applications contains the info needed to underwrite, rate, and issue the policy. The actual form must be approved by the provincial or territorial insurance regulator and is standard within the given jurisdiction.

In BC, autoplan brokers register, license, and insure vehicles and it is a computerized process so written applications for basic auto coverage are rare.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What roles do brokers and agents play in the insurance application process?

A

They play an important role in the insurance application process. They must impress upon applicants the necessity of full disclosure and must be careful themselves to pass on all pertinent information to the insurer.

The broker and agent have a professional responsibility to ensure that utmost good faith is upheld.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Does a automobile application need to be signed before a policy is issued?

A

No, but ideally it is desirable and insurers should insist it. (does not include the mandatory coverage from a government insurer)
If a signed application is not received, the insurer must send a form of the application to the insured so that it can be signed and returned

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Misrepresentation on a automobile insurance application

A

A written application is preferable for preventing fraud or proving misrepresentations, rather than taking an oral application over the phone and having a copy signed later.

Proving an alleged misrepresentation is more difficult when there is no signed or written application. It is the insurers word against the insured’s. If there are any doubts, the court favours the insured.

Electronic signatures are being used more often in the insurance industry. They provide a quicker alternative to process of printing, signing and scanning documents to submit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Regarding misrepresentation, What do section 63 and 75 of the Insurance Vehicle Act state about the automobile insurance application?

A

Section 63 requires that a warning be stamped or printed on every application and policy to inform applicants of the seriousness of misrepresentation.

Section 75 states that any false statement in the application for insurance can result in forfeiture of a claim. This includes the following actions:

  • Applicant falsely describes the vehicle for which the application is being made, or knowingly misrepresents or fails to disclose a material fact
  • Insured violates terms or condition or commits a fraud in relation to autoplan or the optional insurance contract
  • Insured makes a wilfully false statement concerning a claim

When there is no written application, applicant does not see warning until after policy is delivered. This is another reason written applications are preferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

issuing a policy that differs from the application

A

When the policy is issued and it differs from the written application in any way, the following provisions apply:

  • The insurer must point out to the insured in writing, in what ways the policy differs from the application
  • If the insured does not object to the changes by advising the insurer in writing within 7 days, the policy is deemed to cover as it is written.

If insured is not notified of difference, they may insist on coverage in accordance with the written application rather than the policy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What information is requested on an application for automobile insurance? (12)

A
Applicants identification and contact information
Policy Period
Described Automobile(s)
Driver information
Previous accidents and insurance claims
Convictions
Vehicle rating information
Insurance coverages applied for
Remarks
Premium
Declaration of applicant
Report or broker/agent

APDDPCVIRPDR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Applicants identification and contact information

A

Identifies the applicant and provides some of the info needed for rating. It is necessary to obtain a drivers abstract (3 year driving record) of the applicants driving record.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Policy Period

A

Time during which the insurance applies. Coverage begins at the time of day started and ends at 12:01 am

All times are mostly local times at the applicants address shown

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Described automobile(s)

A

Necessary to obtain particulars of the described automobile: The year, make,model. body type, number of cylinders, and serial number of vehicle.

Info is necessary for rating purposes and identification in the event of a claim.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are some other things you must list when describing your automobile? (6)

A

If there is a mortgage, or lien, or lease on automobile, the party to whom the debt is owed must be named and their address given.

If vehicle has been modified or customized, details are required

Estimated annual driving distance should be stated if the client wants to obtain low kilometre usage discount. Different rating categories apply depending on what vehicle is used for (pleasure, business) and depending on commuting distance

Application also asks if applicant is both registered owner (Person who’s name appears on ownership registration) and the actual owner(the person who paid for vehicle) of the described vehicle

Application asks if the described automobile will be rented or leased to others or used to carry passengers for compensation or hire. If this is the case, a specific endorsement may be required

The date the car was purchased and purchase price must be shown

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Driver information

A

Asks for the names of all drivers in the household or business and the drivers license number of each and their date of birth.
Required to list any other known drivers that may drive the vehicle.
Insured can purchase unlisted driver premium which will cover any unlisted drivers who may drive the vehicle up to 12 days a year.
Out of all those listed, the registered owner will confirm the primary driver.
BC and Ontario allow an X gender option for fair treatment of some groups of people

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Previous Accidents and Insurance claims

A

Details are required about all accidents or claims arising from ownership, use or operation of any automobile by the applicant.
The vehicle, driver, date, type, and description of the claim, as well as amount paid must be indicated.
ICBC can view past claim history by reviewing data on file and for at fault claims histories, ICBC will only look back to March 1, 2017.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Convictions

A

In most provinces, this section requires disclosure, for all drivers listed of all convictions arising out of use or operation of automobile during the past three years.

The more convictions you have, the higher the premium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Vehicle rating Information

A

Rating information includes the class, driving experience, listed drivers, claims history, list price of new vehicle, vehicle code, rate group, location, territory, and other discounts or add ons.
Main reason for these requirements is to help determine the rate for which the premium is based upon considering the vehicles regular use and the vehicles territory.

The premium (price of insurance) is arrived at by multiplying the rate by the amount of insurance purchased.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Insurance coverages applied for

A

Some coverages are mandatory while others are optional. They include the following:
-Third Party liability- covers insured that is found legally liable for causing property damage or injury or death of another arising out of use or operation of a vehicle. (min limits are $200,000)

-Accident benefits- Benefits to help insureds who are injured in a motor vehicle crash for medical treatment, rehabilitation, etc. (provides up to $200,000 no fault accident benefits)

Uninsured automobile- provides cover for property damage or injury/death of insured if they are hit by an uninsured motorist or by hit and run ( basic provides up to $200,000)

Underinsured motorist protection- when an at-fault driver does not carry enough liability coverage and injures or kills you. Only covers for injury and not property ( up to $1 million per insured)

Own damage coverage- payments cover direct and accident loss of or damage to described automobile and its equipment

18
Q

Remarks

A

This section states additional details relating to the risk for consideration by the underwriter.

19
Q

Premium

A

This section makes it clear that if insurer issues a policy and the applicant cancels it, there may be a minimum retained premium shown on the certificate of automobile insurance that will not be refunded.

This retained premium will cover the costs of issuing the policy and processing the cancellation if a policy does not run its full term.

If earned premium < minimum retained premium, insured is still obligated to pay minimum retained premium

20
Q

Declaration of Applicant

A

This section contains space for the signature of the applicant, where by signing it, the applicant warrants the truth of the statements made in the application

This is an important section of the application and should be read carefully before an applicant signs. It should be drawn to an applicants attention and the seriousness of its provisions should be emphasized.

The applicants must not knowingly misrepresent or fail to disclose any fact required to be stated in the application.

Applicants must know the exclusions that may apply such as using the automobile for illicit or prohibited trade of for racing.

In the Final part of this section, applicant warrants the truth of the statements by signing and dating it. The applicant also authorizes the insurer to collect, use, and disclose the applicants driver record, auto insurance, and claims history, and those of the drivers listed.

21
Q

What must the broker be careful of when filling out an application?

A

Must be careful in errors or omissions claims arising out of them not filling out an application properly. Errors and omissions claims arise when clients or insurers file lawsuits against agent or brokers with allegations that they committed either an error (did something wrong) or an omission (they did not do something they should have done)

22
Q

Report of broker/agent

A

In provinces without government schemes, the final section must be completed, signed,and dated by broker or agent. It asks the following questions:

  • has the broker or agent bound the risk?
  • Is the business new to the agent or broker?
  • What type of motor vehicle liability card was issued? (temp, permanent, or none)
  • How long has the broker or agent known the applicant?
  • How long has broker or agent know the principal driver?

Can provide useful info to underwriters reviewing the application

23
Q

Define underwrite

A

To insure, More commonly to scrutinize a risk and then deciding on its eligibility for insurance.

24
Q

What two levels does underwriting take place at?

A

Head office and branch level

25
Q

Head office underwriting

A

At head office, management establishes a philosophy that will produce a profit.Some insurers write broadly while others are more selective and are niche writers (seeking selected classes in which they have expertise)
Other insurers mass market to selected groups such as certain employees, occupations, and associations.

Some risks are unprofitable to all insurers so they must be written in a residual risks market such as facility association (Ensures that automobile insurance is available to all owners and drivers of vehicles)

26
Q

Related to head office underwriting, what is a underwriting manual?

A

The insurers automobile manager creates an underwriting manual for all branch underwriters, which might include the following:
-An acceptance or rejection list- outlines the kind of risks that are acceptable to the insurer

  • A senior underwriter only acceptance list
  • A limit table (the maximum limits that can be accepted)- Includes limit table for liability coverage limits, based on the insurers reinsurance treaties and the extent to which the insurer is willing to expose its own net account. Limit table also shows the maximum physical damage limits per vehicle or rate group
  • A classification guide
  • Other instructional material
27
Q

Individual underwriting

A

Takes place at the branch level and the following functions are typical:

  • Risk selection
  • Rating
  • Using endorsements correctly
28
Q

Risk selection

A

Risk is the subject of an insurance contract (Example: If people want to insure their home, home is referred to as the risk to be insured)

Once application is submitted, underwriter will look at both the risk and the applicant to decide one of the following actions to take:

  • Accept the risk
  • Accept the risk subject to certain conditions
  • Decline the risk

They make there decision based on personal info about about the applicant (Used to determine moral hazard), Details of physical hazards and exposures of the risk under consideration, and special factors pertaining to the class of risk or type of insurance

29
Q

What is exposure?

A

Is the danger of loss arising from what happens to another risk close by. Hazard threatening a risk
It is the total amount the insurer could become liable for under a policy

30
Q

Why might underwriters reject a risk? (4)

A
  • Insurer may not insure that class of business
  • The risk may be so hazardous that the potential for loss is almost certain
  • The risk may be substandard, it can be improved
  • The risk could be very well managed but the claims frequency and severity for the last one or two years have placed it in an unfavourable underwriting rating position
31
Q

Rating

A

Next step is to determine the proper cost to insure it. In other words to rate it.
Computer programs and models are used to carry out the rating function automatically. Underwriters enter the appropriate data and the computer does the calculations and issues the appropriate policy. It is more faster and more accurate than the historical traditional methods of rating a risk

Some classes are rated individually using a manual rating because of their complexity and need for judgement.

Usually starts with basic rate and than adds loadings (additional charges) for features considered to be more hazardous and deductions can be added for features that make a risk less hazardous.

32
Q

What is a manual rating?

A

A pricing method in which an insurer uses rates that are based on its own experience, rather than that of a specific group for which it is calculating a premium

33
Q

Using endorsements correctly

A

Underwriters must understand and correctly use endorsements of which there are two kinds:
1) Extensions- are used for additional coverage the producer has recommended and client has purchased.

2) Agreements or restrictions- required by the insurer based on acceptance and rating manuals

34
Q

Underwriting in Saskatchewan, British Columbia, and Manitoba

A

Auto insurance is underwritten in these provinces by government (SGI, ICBC, MPI) and by private insurers.

They must provide insurance to all persons and declining risks, is illegal for them. They cannot deny anyone basic coverage.

Since they cannot deny coverage, there main underwriting function is determining the correct rate group.

Private companies in these provinces provide coverage for mostly private passenger and recreational vehicles.

Currently no Facility Association in these provinces as there is no pressure for private insurers to insure unprofitable risks because those coverages are purchased from the government insurer who has to insure all applicants (charge higher deductibles and premiums)

35
Q

Underwriting by ICBC

A

ICBC is the sole underwriter of the mandatory coverages in BC (TP liability, UMP, AB)
It is illegal for ICBC to decline to offer the mandatory coverages to a vehicle owner who requests it and ICBC is further prohibited from discriminating against drivers or owners based on age, gender, or marital status.

ICBC will insure, on demand when eligible, all applicants for optional coverages, but can impose increased deductibles on vehicles subject to rating by rate group

36
Q

What makes ICBC’s system different than other provinces regarding past insurance experience?

A

Process of setting up automobile insurance in BC is more automated than provinces without similar government insurance schemes.
The system contains information about the insureds license status, driving experience, and past insurance experience.

37
Q

ICBC premium calculation

A

Premiums for icbc coverage are calculated by taking a base premium of $1,000 and adjusting based on the following:

  • The drivers-length of time driving and accident history
  • The vehicle- The territory where the vehicle is used and how the vehicle is used
  • Discounts and add-ons - Considerations that may qualify for a discount and options for unlisted drivers and learners
38
Q

Driver factors

A

Rating under ICBC was changed in 2019 to encompass the following:

  • Registered owners need to list all drivers of their vehicle
  • At-fault accidents follow the driver, not the vehicle owner
  • Discounts are up to 40 years of accident free driving (previous was 9 years)
  • Maximum credit for new BC residents increased to 15 years of experience (previous was 8 years)
39
Q

Vehicle factors: territory and rate class

A

How vehicle is used affects the likelihood of a loss occurring. ICBC assigns rate classes to vehicles (Pleasure use, commuting, business use, commercial use)

Another factor that affects likelihood of loss is where it is used and where the owners live. (Metro Vancouver is rated differently than in suburbs up north because more vehicles, more people and bigger chance of loss)

40
Q

What are the Discounts offered by ICBC?

A

ICBC may provide discounts for risks that meet certain criteria:

  • Disability discount factor- for qualifying persons with disability
  • Senior driver factor- For anyone aged 65 or over. Exclusions apply, it must be used for pleasure use, and if they have chargeable claims within a time perimeter, they could lose option until they re earn it
  • Advanced safety technology factor- for vehicles that have automatic emergency braking or other tech that has safety features
  • Low-Kilometre discount factor- for vehicles that are driven less than 5000 km in a year
41
Q

What are some add ons offered by ICBC?

A

Unlisted driver premium protection- for registered owners who may need to occasionally lend their vehicles to a driver not listen on a policy. This helps insured avoid financial consequence if the driver suffers a loss.

Learners add on- for vehicles that will be used by learner drivers; crashed caused by learners will no longer count against them, nor would the learner stage count toward their driver experience