Study 6 - Underwriting the Risk: Automobile

Question 1

Which provinces have compulsory coverages provided by crown corporations?

Answer 1

British Columbia
Saskatchewan
Manitoba

Question 2

What coverage down the Quebec government provide?

Answer 2

Bodily injury

Question 3

What are the two common features of all automobile insurance?

Answer 3

• Policy forms for automobile insurance are government approved
• Compulsory insurance laws make it mandatory every owner has access to automobile insurance

Question 4

Define facility association

Answer 4

an entity established by the Canadian automobile insurance industry to ensure that automobile insurance in 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 5

Define risk sharing plan

Answer 5

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

Question 6

What underwriting rules may be in place for automobile insurance?

Answer 6

• Type of car to be insured
• Location of the applicant’s home
• Whether or not the applicant plans to commute to work and the distance

Question 7

What questions can help confirm how commercial applicants hire their drivers?

Answer 7

• Do they require an application form?
• Is there an interview?
• Are references checked?
• Written and road tests?
• Copies of licenses on file?
• Any credit references checked?
• Driver training program?

Question 8

What process is followed when reviewing the application?

Answer 8

• Review auto application
• Learn about applicant
• Identify any lessor(s)
• Examine relationship w/ broker
• Use of the vehicle
• Type or class of vehicle
• Any aftermarket modifications
• Any repairs that may have been made
• Registered owner vs actual owner
• Age and Canadian experience
• Look for consistency between age & vehicle
• Investigate planned maintenance
• Make the underwriting decision

Question 9

Define lessor

Answer 9

One that conveys property by lease

Question 10

Define lessee

Answer 10

One that holds real or personal property under a lease

Question 11

Define lienholder

Answer 11

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

Question 12

What are the six main rating classes of automobiles?

Answer 12

• Private passenger vehicles
• Commercial vehicles
• Public automobiles
• Recreational vehicles
• Garage risks
• Non owned automobiles

Question 13

What are some other considerations of a commercial vehicle risk?

Answer 13

• Stable industry
• Seasonal or consistent use
• Use of vehicle
• Equipment attachments
• Vehice storage
• Transport of material

Question 14

Define non-owned automobile insurance

Answer 14

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 15

Define other automobile

Answer 15

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 insured is injured in an accident while driving that vehicle, her insurance policy will cover only the mandatory medical under the Statutory Accident Benefits Schedule

Question 16

What does CLEAR stand for? What is it?

Answer 16

Canadian Loss Experience Automobile Rating

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 17

Define MSRP

Answer 17

Manufacturer’s suggested retail price

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

Question 18

Why is the MSRP rating system unfair?

Answer 18

• Most collisions are repair and not total replacement
• Vehicle price is not the only predictor of repair costs
• New technology makes cars smarter and safer
• Vehicle price is not good indicator of claims frequency or severity
• Not all vehicles depreciate at the same rate
• Vehicles may have different track records for different types of claims

Question 19

What are three alternatives possible to accepting the risk?

Answer 19

• A change in the applicant’s policies or procedures
• A higher deductible
• A higher premium

Question 20

What is CLEAR based on?

Answer 20

Cost of repairs and passenger injury

Question 21

What useful information might an underwriter determine from a credit report or survey for a
commercial automobile insurance application?

Answer 21

• May indicate applicant’s ability to pay the insurance premium
• Inferences about the applicant’s ability to hire and retain suitable, responsible drivers
• Ability to properly maintain its automobiles
• Number of years the applicant has been in operation
• Experience of the current management

Question 22

Why is information required about modifications?

Answer 22

• A modified vehicle may be more valuable than a factory vehicle, so the rating and classification
may be not be appropriate
• Some modifications may make the vehicles more attractive to thieves
• Modifications to the physical appearance of a vehicle increase the risk of a comprehensive claim
or cost of repair
• Some modification, such as changes to the suspension, may increase the risk of the vehicle
being involved in an accident
• Each modification changes the worth of the vehicle and its exposure to loss, which is reflected in
the coverage and premium