Cook Flashcards
Coverage restrictions an insurer might place on a high-risk driver before voluntarily providing coverage
- Higher deductibles (comprehensive or collision)
- Lower limits (liability)
- Exclusion of certain coverages (medical, glass coverage)
3 mechanisms for operating a state residual auto insurance market
- ARP (Assigned Risk Plan) also sometimes called AIP (Auto Insurance Plan)
- JUA (Joint Underwriting Association)
- RF (Reinsurance Facility)
Assigned Risk Plan (ARP)
- Driver applies and is rejected by the voluntary market
- Driver applies to ARP
- Driver is assigned to an insurer based on insurer’s WP market share
- Regulator sets uniform rates (same rates across all insurers)
- Insurer fully services policy as if voluntarily written (collects premiums, pay claims)
- Insurer retains profits/losses
- Driver knows they’re in residual market – stigma attached to this
Items that may make a driver ineligible for ARP
- No valid driver’s license
- Felony conviction within the past 36 months
- Habitual violation of the law
Joint Underwriting Association (JUA)
- Driver applies to insurer in voluntary market
- Insurer chooses: keep policy or insurer/agent/broker forwards to JUA servicing carrier (driver doesn’t know if they go to JUA)
- JUA sets uniform rates
- Servicing carrier services claims
- Insurer shares in profits/losses/expenses in proportion to their voluntary business market share
- All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks
Reinsurance Facility (RF)
- Driver applies to insurer in voluntary market
- Insurer chooses: keep policy or forward to RF (driver doesn’t know if they go to RF)
- Intended to be non-profit enterprises to fulfill the social good of universal availability of auto insurance
- Insurer services claims
- Insurer shares in profit/losses/expenses in proportion to their voluntary business market share
- All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks
FAIR Plans
Fair Access to Insurance Requirements
* Motivation: Certain risks are essentially uninsurable, but lenders often require coverage
* Covered risks:
Properties in areas susceptible to crime/riots (urban areas after riots of 1960s)
Individuals with high number of prior claims
How FAIR plan works
Rationale:
* Property owners in urban areas couldn’t find coverage due to crime/riot risk
* Could also cover coastal properties subject to windstorm damage
Operation:
* Policies are serviced by a syndicate or private company (who collect premiums, handle claims, & take a cut for their service)
* Premiums & losses are shared by all property insurers in state
Eligibility:
* Coverage must have been denied by the private market
* Property must not be vacant or trespassed onto, must not be damaged or poorly maintained, and must meet building codes