C130 Chapter 8 Essential Skills for the Insurance Broker and Agent

STUDY 8 - Automobile Insurance / Page 1

Why Buy Automobile Insurance?
PRIMARY REASONS:

1. Compulsory > statute (Insurance Acts - all owners must carry minimum coverage.
2. $ Asset > lenders require insurance on automobiles used as collateral for a loan.

1. $ Responsibility > owner’s ability to pay for damage incurred due to driver’s negligence.
2. Selling Point > expand request for minimum limits into discussion of other BI/PD exposures.
3. Provincial Minimums > Section A $200,000 + Section B / Section C is optional.
4. Illustrate Importance > use media - recent court awards / legal expenses / extra expenses.

OTHER REASONS:

3. Protect $ Investment > reimbursement of $ loss – damage / destruction / loss of use.
4. Other Motorists > uninsured / unidentified / unable to reimburse victim(s).

BROKER SERVICES:    Common product = challenge to prove better service than competition:

1. Product Knowledge > risk assessment = recommendations (higher limits / S.E.F.’s).
2. Market Knowledge > insurer’s U/W criteria – private passenger v. motorcycles / RV’s.
3. Customer Service > spend time / explain / suggest / help with claims / answer questions.
4. Peace of Mind > build trust by providing knowledgeable, professional advice.

Proof of Insurance

1. Insurance Act > liability certificate (pink card / registration) must be carried in vehicle.

Information:             i.     Insurer – name and address

1. Insured – name and address
2. Agency / Brokerage – name and number
3. Vehicle – description (year, make, model, VIN)
4. Policy Number
5. Term > effective and expiry dates
6. License Plat Number – government insurers
1. Fraudulent Use > criminal offence punishable with fines.
2. Driver’s Policy (S.P.F. 2) > drivers don’t own a vehicle but drive non-owned vehicles.

DRIVING WITHOUT INSURANCE

1. Legal Penalties > demerit points / fines / imprisonment / loss of driving privileges.
2. Loss of Benefits > income replacement / no-fault jurisdictions / legal defence.

Automobile Insurance Providers    Regulated by provincial and territorial authorities.
GOVERNMENT PLANS

BC > Insurance Corporation of British Columbia (ICBC).

SK >  Saskatchewan Government Insurance (SGI)

MB > Manitoba Public Insurance Corporation (MPIC)

Private Insurers > compete with government to write extension coverages.

QUEBEC

1. Combination > Government (accident benefits) + private (liability, own damage).
2. Risk Sharing Plan (PRR) > insurers surcharge non-standard risks based on MVA.

PRIVATE INSURERS (All other provinces)

1. Competition > all coverages, rates and underwriting guidelines.
2. Rating and U/W > regulatory authorities (ratings board) approve rates and rules.
3. Non-Standard Risks    Drivers must have access to insurance regardless of record:

Facility Association        i) Jurisdictions > private insurance provinces.

            ii) Submissions > regular market insurers refuse to cover.

            iii) Insurers > may have to explain to insured in writing.

            iv) Refusal > means tougher to place with any market.

            v) Record Improves = re-marketing on renewal.

Applying for Automobile Insurance

1. Standard Application > approved for use by Superintendent of Insurance – S.A.F.
2. Insurance Act > requires signed application after quoting and binding.

SIGNATURE(S)

a) Verifies > accuracy and completeness of information.

b) Eliminates > follow-up with client.

c) PIPEDA > approve insurance / insurer can access IBC-ISD / MVR / credit checks.

d) Telephone / Internet > insurer must send completed application for signature(s).

Assessing Personal Automobile Risks
1) Insured

1. Parties Named > owner / principal operator / lessee, lessor / lienholder.
2. Misrepresentation > parents may insure but undeclared children own/drive.
3. Insurable Interest > children (owners) v. parents (insureds) = invalid policy.
4. Financial Status > indicates insured’s ability to pay premium / potential for fraud.

2) Lienholder   

1. Insurable Interest > financial claim against the legal title of vehicle used as collateral.
2. Identify > name / mailing address on policy.
3. Designate > loss payee.
4. Claim payment > joint – insured and lienholder.
5. Coverage Canceled / Reduced > lienholder must receive 15 days written notice.

3) Lessor   

1. Insurable Interest > registered owner of the vehicle.
2. Identify > name, mailing address on policy and/or pink card.
3. Assess > reputable – dealer / manufacturer = well maintained vehicle.
4. Claim payment > joint – insured and lessor.
5. Coverage Canceled / Reduced > lessor must receive 15 days written notice.

4) Vehicle(s)   

1. Data > year, make, model, body type, VIN unique to vehicle.
2. Purpose > ID subject matter of insurance / premium determination.
3. VIN Database > checked to confirm vehicle not – stolen / using stolen VIN / phantom.
4. Other Vehicles > require coverage – ATV’s / motorcycles / RV’s.
5. Trailers:        BC/SK > licensed as vehicle, attached, require compulsory coverages.

ON/QC > attached or detached –compulsory coverages.

Direct Damage > must be added as described automobile.

6. Inspection:        i) Visual, written report, photographs.

ii) Documents > condition / existence / prior damage.

iii) Conditions > insurer inspects vehicle/equipment at reasonable times.

iv) ON > voluntary since 2002.

v) Deny Coverage > failure to inspect / conditions affect risk assumed.

vi) Salvage > banned from public roads but repaired and sold.

vii) ICBC > receive salvage data from Customs / Ministry of Transport.

viii) Imported Salvage > code = broker inspects vehicle  before insuring.

5) Use of Vehicle(s)

1. Probability of Loss > directly related to conditions and frequency of use.
2. Uses > pleasure / commuting (distance one way) / business (home) / commercial.
3. Permitted > carpooling / sharing expenses for trip / volunteer driving for field trip.

6) Territory

1. Where the vehicle is driven has an impact on the number and types of accidents or losses
2. Country is divided into rating territories (U.S. Exposures)

7) Driver(s)

1. Per Vehicle > primary and others – names / driver’s license numbers / % of use.
2. ICBC > signed declaration acknowledging principal operator - application / renewals.
3. Statistical Class > discriminatory – age / gender / marital / experience = loss potential.
4. Past Experience > skills, experience and attitude are indicators of future loss.
5. Drivers to Vehicles > one owner drives more than two private passenger vehicles?
6. Licensing > years in Canada – rules / conditions (ice, snow) differ from other countries.
7. Graduated Licensing > new drivers drive under certain restrictions, earn advancement.
8. Driver-training > premium discounts for graduates.
9. MVR > moving violations (traffic signals / seat belts), suspensions reflect attitudes.

8) Driver experience and Loss (Claim) History    Underwriters use past losses to predict future trends:

1. Driver violations/ suspensions
2. Consider > claims made + losses paid by insured but not claimed.
3. Claims Free Discounts > 6, 7 or 10-year periods are standard.
4. Autoplus > get signed authorization / check report before binding coverage.
5. Declined > broker gives insured written notice before submitting to Facility Association.
6. Lapsed Coverage > why – sold car, didn’t replace / out of country / company car?
7. Experience Letter > summary of claims paid by prior insurer – policy # / insurer / details.

9) Broker’s Knowledge of Client(s)

1. Background > match exposures and needs to available insurance.
2. Relationship > know applicant, owner, principal driver – present client?
3. New Applicants > detailed risk profile / reasons for transferring business to brokerage.
4. Cross Files > advise U/W – commercial + financial services + life + personal = discounts.

ASSESSING COMMERCIAL AUTOMOBILE RISKS

1. Named Insured > individual / operating as / limited company / nature of business.
2. Vehicles > schedule – description / GVW / match style to use – sales, delivery, service.
3. Attached Equipment / Machinery > description / use / added risk?
4. Delivery > goods / specialized training / geographical territory / familiar route / hours on road.
5. Maintenance > service company / regularly scheduled / records kept.
6. Storage Facilities > locked / guarded / alarmed (fire/theft) / fenced / gated = risk management.
7. Drivers > details / copies of license / current MVR / training / qualification.
8. Loss History > check database, insurer prior five years – claims and deductibles.
9. Broker Knowledge > business operations / new applicant – reasons for switching (frequency)?

Automobile Insurance Policies        Approved for use by provincial regulator – Sup’t of Insurance.
CONDITIONS          Outline rights and responsibilities of insured and insurer:

1. Statutory > common law – notice / requirements after loss / termination.
2. General > Quebec (CCQ) – not required to be in but still govern the policy.

LEGAL LIABILITY    Individual responsibility for loss or damage caused by own actions.

Negligence (Common Law)    Failure to do what a reasonable and prudent person would do, or doing what such a person would not do, resulting in property damage or bodily injury.

Negligence (Civil Code)    Failure to do what a reasonable and prudent person would do, or doing what such a person would not do, resulting in property damage or bodily injury suffered by a third party.

EFFECTS OF DIFFERING LEGAL SYSTEMS

Canadian Systems   

1) Tort:    a) First Parties > report  to own insurer first.

    b) Third Parties > report loss to own / responsible party’s insurer.

    c) Lengthy Disputes > each insurer argues client’s case.

    d) Settlement > made only when the insurers agree.

    e) Litigation > higher cost to insurer / longer delay in settling claims.

2) No Fault:    a) Claimants > reimbursed by own insurer regardless of fault.

    b) Right to Sue > restricted or eliminated.

    c) Quicker > medical treatment / income replacement / settlements.

    d) Non-Adversarial > customer friendly.

    e) Fault > insurer’s determine % to split deductible / set premiums.

    f) QC / MB > eliminate right to sue.

    g) NB > can sue – settlement limited to certain “minor injuries”

    h) ON > threshold – can sue if injuries exceed set $ amount / degree.

    i) SK > clients select fault or no-fault to suit their needs – broker helps.

Foreign Exposure    a) U.S. Travel > included in policy territory – business or pleasure.

    b) States Differ > tort / no fault /  / threshold = added coverage.

Policy Coverages
Third Party Liability

1. Compulsory > minimum limits required in all provinces and territories.
2. Covers > BI/PD arising from use, ownership or operation of vehicle or it’s parts.
3. Exclusions > drivers not qualified / hazardous goods / war.
4. Insureds > named / named drivers / anyone with insured’s consent to drive or operate.
5. Additional Agreements > investigate, negotiate and settle claims / pay associated costs.

Accident Benefits       

1. Compulsory > Compulsory everywhere except Newfoundland and Labrador.
2. Covers > BI to driver and passengers regardless of fault.
3. Quebec > non-residents based on % not at fault, unless reciprocal agreement.
4. Benefits > lower in tort provinces, higher in government insurance provinces and QC.

Uninsured Automobile   

1. Responsible Party > unidentified (hit-and-run) or uninsured.
2. Bodily Injury > named insured, passengers in vehicles.
3. Physical Damage > ON – damage to vehicle, contents / loss of use.
4. Source > may be part of accident benefits or separate coverage.
5. Recovery > based on legal entitlement to recover damages from responsible party.
6. Government > mandatory provincial minimum + optional increased limits extension.
7. Triggered > no known third party insurer, HVIF / compensation under HVIF exhausted.
8. HVIF (Highway Victims Indemnity Fraud) > low limit coverage available in most provinces and some U. S. states.
9. Extended Stays > check jurisdiction rules on when local insurance must be purchased.

Direct Compensation Property Damage

1. Jurisdictions > Ontario and Quebec. (Certain coverage provided in Sask & Manitoba)
2. Insured > deals with his or her own insurer for direct damage.
3. No Subrogation > cannot claim against responsible third parties or their insurers.
4. Fault Rules > payment based on who is at fault and extent of fault.
5. Deductibles > insurer recovers from other party’s liability insurer for % not at fault.

Own Vehicle Damage

1. Covers > direct and accidental damage to vehicle and its equipment.
2. Optional > in most provinces although required by bank if client finances vehicle.
3. Mandatory > MB (All Perils) and SK (Comprehensive).
4. Deductible > client selects / not applied if loss by fire, lightning or theft of entire vehicle.
5. Common Options > Collision + Comprehensive = broad, cost-effective coverage.
6. Sub-sections:        1) All Perils > all risks subject to exclusions.

2) Collision or Upset > hitting something or being hit by someone.

3) Comprehensive > hitting animal / flying objects / vandalism / glass.

4) Specified Perils > named perils – fire, flood, hail, theft, windstorm.

Commercial Risks

1. Base Coverage > same as policy forms for pleasure vehicles – S.P.F. 1.
2. Added Coverage > attached equipment / territory of operations / use of vehicle.

GARAGE AUTOMOBILE POLICY   

1. Operations > maintaining, parking, restoring, selling, servicing, storing.
2. Risks > dealers, garages, parking facilities (valet), service stations, storage lots.
3. Coverages:        i) Legal Liability > BI / Death / PD – non-owned (customers) vehicles.

ii) Accident Benefits > garage personnel.

iii) Property Damage > owned vehicles

4. Blanket Fleet > saves time - policy changes updated by specified date or on renewal.

NON-OWNED AUTOMOBILE   

1. Respondeat Superior > “Let the superior answer.”
2. Law of Master (employer) and Servant (employee).
3. Employer > liable for negligent acts of employee while on employer’s business.
4. Non-Owned Vehicle > employer liable if employee uses own vehicle for business.
5. Uses > bank deposits / errands / sales calls / transporting clients (realtor).
6. S.P.F. 1 Covers > temporary substitute / other (borrowed) similar to insureds.
7. Sources > Commercial General Liability (CGL) extension / stand-alone policy.
8. Assess Exposures > who, why, how often, what vehicles – use examples.

Rating        Insurers use statistics to create rating structures and UW guidelines.

1. Provincial Regulators > must approve rates before insurers can use them.
2. System Rating > data entry for personal and commercial risks = premium calculation.
3. Agent > know how premium determined / system v. manual rating = better response to client ?
4. Manual Rating > larger (fleets) and more specialized (cargo) commercial lines risks.
5. Factors > driver (experience, driving and loss history) + vehicle (year, make, model, use).
6. Comparing drivers and vehicles = risk acceptability and rating per class.

VEHICLE RATING        Factors > construction, materials, severity of damage, ease of repairs.

MSRP        Manufacturer’s Suggested Retail Price:   

a) Classifications > price main factor, little consideration for repair costs.

b) Premium > higher cost = higher premium.

c) Ignores > repair v. replacement / parts access, cost / safety features (ABS).

CLEAR    Canadian Loss Experience Automobile Rating:

a) Basis > loss cost / passenger hazard.

b) Classifications > easily damaged / repair cost / theft risk / potential passenger BI.

INDUSTRY INITIATIVES TO COMBAT CLAIMS       

1. Claims Costs > single most defining element of insurance premiums.
2. Increase Costs > auto repairs / health care / insurance fraud / vehicle theft.

Insurance Bureau of Canada (IBC) / Canadian Coalition Against Insurance Fraud (CCAIF)

1. Goal > reduce cost of insurance fraud.
2. Partners > Canada Customs / law enforcement – Canadian and U.S.
3. Strategies:         1) Increased public awareness.

2) Better business practices.

3) Improved investigative and enforcement techniques.

4) Better understanding of the problem.

4. B.C. > anti-theft device discounts / fraud hot line / civil court recovery of costs.
5. Manitoba > task force – MPIC / government / law enforcement / community groups.
6. Ontario > vehicle branding (MOT) – stolen / irreparable / salvage / rebuilt.

Automobile Premiums        Client perceives cost as most defining feature of automobile insurance.

1. Refocus Client > level of protection and service expectations in event of claim.

i) Are the minimum TPL limits enough for your potential BI / PD costs?

ii) Would you be satisfied if your new car was repaired/replaced based on depreciation?

iii) Is the peace of mind these added features provide worth the extra premium?

2. Reduce Premium > older vehicle with little value = no collision / increased deductibles.

PREMIUM DISCOUNTS    Insurers differ (discounts, surcharges, claims forgiveness) but use standard factors:

1. Driving Record > no convictions or suspensions.
2. Experience >  driver training / loss free / years licensed / mature (over 55, retired).
3. Location > rural (cheaper TPL) v. urban (costlier TPL).
4. Use > pleasure / commuting less than specified kilometres.
5. Multiple Vehicle > two or more in same household.
6. CLEAR Classification > not theft or damage prone.
7. Loss Prevention Devices > alarm / immobilizer (The Club) / GPS system (OnStar).
8. Loss Control Programs > contract – teens contact parents = parents responding.

COMMON CLIENT QUERIES   

Will my rates go up if I am involved in an accident, but I am not at fault?

Usually your insurer will not increase your premiums. Your premiums may still increase based on total claims even if you are claim free. Claim free drivers still pay far less than those drivers that are responsible for accidents.

Will my rates go up if I have a claim for windshield breakage, vandalism or theft?

This depends on your insurer:

    1) Forgiveness > one claim or minimum # of claims = no premium increase.

    2) Deductible / Premium Increased > on appropriate policy section.

    3) Coverage Deleted > cancel appropriate policy section (13d).

Should I report a small loss or just pay for it myself to avoid a premium increase?

Advise the client about the potential for liability claims to arise down the road. Recommend that they report the loss even if they do not make a claim. That way if it is necessary to make a liability claim at a later time. The incident is on record.