Study 9 Automobile Insurance - LO

Question 1

Explain the need for automobile insurance and the advantages of buying
coverage from an intermediary.

Answer 1

• Automobile owners incur costs if their vehicle
o Suffers a physical damage loss
o If they are sued for causing an accident that injures another person or damages another’s property

• Automobile insurance can mitigate these financial losses

• Drivers in Canada are required by law to be financially responsible for any accident they cause
o Financial responsibility is the ability to pay for any damage incurred as a result of the driver’s actions or inaction

• A vehicle registration or motor vehicle liability insurance card (pink slip) is sufficient proof of financial
responsibility in some provinces or territories

Question 2

Briefly outline how automobile insurance is provided in each province and territory and how it is regulated.

Answer 2

• Automobile insurance falls under the jurisdiction of provincial and territorial governments in Canada
o The details of mandatory and optional coverages and how insurance is distributed varies between jurisdictions
o Government insurers provide basic coverage in Saskatchewan, Manitoba, and British Columbia
o Basic coverage is provided by private insurers and the government in Quebec
o Private companies provide basic coverage in Alberta, New Brunswick, Newfoundland and
Labrador, Nova Scotia, Ontario, Prince Edward Island, Yukon, Nunavut, and the Northwest Territories

• Agents and brokers can use the Facility Association when they have difficulty arranging insurance for
a client in the open market in these jurisdictions

• Residual market programs are not needed in provinces with government insurance regimes

Question 3

Outline the information requested in an automobile insurance application for an owner’s policy.

Answer 3

• The application form, which provides the information needed to rate and issue an automobile insurance
policy, is approved by the various regulators

• Accuracy is very important in filling out this application—the insurer uses this information to assess risk acceptability, coverage terms, premiums charged

• The information required on the application includes
o Applicant’s name and primary address
o Policy period
o Described automobile(s)
o Driver information
o Previous accidents and insurance claims
o Convictions
o Rating information
o Insurance coverages requested
o Remarks
o Signature of applicant
o Penalty clause
o Report of broker or agent

Question 4

Outline criteria used in automobile rating and strategies to redirect clients from focusing solely on premium costs.

Answer 4

• Factors that influence the process of ratemaking for automobile insurance:
o Age
o Gender
o Marital status of driver (in some jurisdictions)
o Driving experience and record of driver
o Other drivers who regularly use the vehicle
o Territory where the vehicle is generally used and the distance driven annually
o What the vehicle is used for
o Vehicle’s description

• Due to the many different factors considered, premiums can vary widely among insureds

• Intermediaries can
o Help clients make more informed decisions by educating them about each available coverage
o Suggest ways to reduce premiums for price-conscious clients

Question 5

Describe the insurance afforded by the automobile insurance policy, including each section of the policy coverages.

Answer 5

• Wording of automobile policy forms and endorsements is regulated by provincial and territorial
governments

• In common law jurisdictions, policies contain statutory or mandatory conditions governing the policy
o Quebec has similar conditions known as general conditions

• Statutory, mandatory, and general conditions outline the responsibilities of both parties to the insurance agreement, including procedures for notice, termination, and claims, as well as what information the insured must provide to the insurer

• An automobile insurance policy provides the following coverage:
o Third-party liability
o Accident benefits
o Direct compensation–property damage
o Own vehicle damage
o Uninsured or underinsured motorist coverage

• Non-owned automobile insurance can be added to a commercial automobile policy to insure the
employer’s exposure to liability arising out of an employee using a vehicle not owned by the business

Question 6

Describe the purpose of certain commonly used automobile insurance policy endorsements.

Answer 6

• Terms and conditions of an insurance policy can be changed using endorsements

• Endorsements can be used
o At new business
o At renewal
o Mid-term to change a client’s coverage either at the client’s or the insurer’s request

• Common situations requiring amendment of the standard owner’s policy:
o Automobile storage
o Automobile value changes
o Underinsured motorist protection
o Loss of use endorsement
o Covering non-owned automobiles
o Ridesharing
o Carsharing