high risk market Flashcards
3 programs that serve high risk market
- automobile insurance for high risk drivers
- FAIR plans
- beachfront & windstorm plans
High risk drivers
- high risk drivers: Constantly violate traffic laws and/or have been in a high number of traffic accidents and/or have been convicted of serious offences
- Insurers have historically been reluctant to insure this group due to their potentially high losses
- Drivers that cannot obtain insurance would have to seek coverage from the residual market (also known as the shared market)
Voluntary Market Programs
- Some insurers in the voluntary market insure these drivers in specialized high risk programs (nonstandard insurance programs).
- Due to the higher level of risk of the drivers, insurers will usually impose certain restrictions to reduce the level of risk
- there are several common characteristics of high risk programs in the voluntary market: Insurers will often limit the coverage so it is just enough to comply state’s compulsory insurance requirement, Coverage for medical payments (for the insured) may be limited, Collision insurance may have a high deductible, Premium would be significantly higher than it is for average drivers
- Many insurers with these programs have safe driver insurance plans which encourage insureds to drive safely, by offering discounts to insureds who have no accidents or traffic convictions during a period
Residual Market Programs for auto
- Automobile insurance plans
- Joint underwriting associations (JUAs)
- Other programs
Automobile Insurance Plans
- Most states have an Automobile Insurance Plan, also known as an Assigned Risk Plan, most insurers no longer use the name due to the negative connotations: the insureds may improve in the future, in which case the insurer would want to retain their business.
- All auto insurers in the state are assigned a portion of the high risk drivers based on their WP market share
- These plans often have the characteristics: Applicants need to demonstrate that they have been unable to obtain auto insurance within a certain number of days (usually 60), minimum limits of insurance offered are at least equal to the compulsory insurance requirement, Premiums are usually higher than in the voluntary market, certain people may be ineligible for coverage, including those:
with no valid drivers’ license
convicted of a felony within the preceding 36 months
that habitually violate the laws
- do not use private insurer’s premium rates
- insurer to which the risk is assigned is responsible for issuing policies, collecting premiums, handling claims and providing other service to the assigned risk
Joint Underwriting Associations
- organization that provides insurance to the residual market
- also servicing insurers that perform services such as: Receive applications, Issue policies, Collect premiums, Settle claims, other necessary services
- Agents/ Brokers submit the applications of the high risk drivers to the JUA or to the servicing insurer.
- JUA sets the rate and approves the policy form
- auto insurers in the state will pay a share of the underwriting losses and expenses based on their share of the voluntary auto premium in the state
- Some of this money will go towards compensating the servicing insurers
- do not use private insurer’s premium rates
Other residual market programs
- Some states have a reinsurance facility for high risk drivers
- Insurers accept all applicants who have a valid driver’s license, issue policies, collect premiums, and settle claims
- If the insurer does not wish to retain the policy, it can assign the policy to the reinsurance facility while continuing to service it
- All of the auto insurers in the state share the underwriting losses and expenses in proportion to the auto insurance premium in the state
- benefits: -Removes the stigma of knowing you’re in a residual market. -Policy holder doesn’t have to get rejected to participate, so it’s less trouble for consumers. -Stabilizes UW results compared to the Assigned Risk plan, as insurers in the pool share experience
- Maryland has a state fund that insures the high risk drivers
- Private insurers need to subsidize the losses. They will in turn charge a surcharge to their own insureds
Since it is mandatory for drivers to have auto insurance,
- Since it is mandatory for drivers to have auto insurance, the public perceives purchasing insurance to be a right, as opposed to a privilege
- desire of insurers to make a profit could conflict with this perceived right of the public to purchase insurance
- Government rate regulation helps resolve this conflict
Urban riots in the 60s and windstorms have
generated significant property damage, and as a result have limited insurance availability
-Governments have therefore needed to offer programs for HOs in exposed properties that are not insurable in the voluntary market
Lenders require that property owners obtain
property insurance
FAIR (Fair Access to Insurance Requirements) plans provide
& main candidates
coverage when insurers in the voluntary market cannot offer coverage at a reasonable rate
-main candidates for FAIR plans are those in urban areas that are susceptible to damage caused by riots and civil commotion. -Some FAIR plans also offer coverage for coastal properties that are exposed to windstorm damage & some provide coverage for homes located in hazardous brush areas
Most plans require the insurers
to share the plan losses in proportion to the property insurance premiums in the state
-There are certain FAIR plan inspection criteria that the property must meet
if it does not meet basic safety levels, owners may be required to make improvement
-plan can deny coverage if they do not, assuming that the issues are not related to the neighborhood location, or to environmental conditions that are beyond the owner’s control
Under most FAIR plans, five types of properties are considered to be uninsurable
Vacant or open to trespass, Poorly maintained or has unrepaired fire damage, Subject to unacceptable physical hazards, Violates law of public building, Not built in accordance with the building and safety codes
If a policyholder wants more coverage
a specialty insurer may offer a difference in condition (DIC) policy. Since fire is the main loss exposure for these types of insureds, insurers would often be willing to assume the other exposures
-Most FAIR plans only provide coverage for a limited number of perils (including vandalism, riot and windstorm)
