Topic 10 Personal Automobile Insurance

1. Topic 10 Personal Automobile Insurance BUS 200 Introduction to Risk Management Insurance Jin Park

2. Overview • Some facts about Automobile Accidents • The No-Fault and Tort System • Financial Responsibility Laws • Availability of Auto Insurance • The Personal Auto Policy (PAP)

3. Facts • 221 million registered motor vehicles • An auto accident death in every 12.3 minutes • An auto accident injury in every 11 seconds • An auto theft in every 26 seconds

4. Some More Facts

5. Some More Facts

6. Some More Facts

7. Some More Facts • Related factors drivers involved in fatal accidents in 2002 • Failure to keep in proper lane or running off road 32.8% • Driving too fast for conditions or in excess of posted speed limit or racing 21.3% • Failure to yield right of way 8.2% • Inattentive (talking, eating, etc.) 6.5% • Operating vehicle in erratic, reckless, careless, or negligent manner 6.5% • Failure to obey traffic signs, signals, or officer 5.2%

8. The No-Fault vs. Tort • More than half the states have mandatory first party benefits • Personal Injury Protection (PIP) • cf: Medical Payments (Med-Pay) • The majority of no fault laws currently in place were adopted during the mid-1970‘s. • So, what is “No-Fault Insurance”? • Pure No Fault • No right to litigate over auto accidents • In theory only • Modified No-Fault • Rights to litigate are limited, but not eliminated • Verbal or Monetary Threshold • Add-on plans

9. The No-Fault vs. Tort • For No-Fault • Promptness of claims payment • A higher proportion of premiums under no fault represents loss payments • Reduction in insurance fraud by removing relatively small bodily injury liability claims • Tort system was thought to encourage injured drivers to sue for damages

10. The No-Fault vs. Tort • Against No-Fault • No-Fault reduced drivers' incentives to drive carefully • Higher costs due to more claims and increased fraud • No-Fault is just compulsory health insurance with restrictions on tort action • PIP and Med-Pay are already available for those wishing to protect themselves • ________ repealed no-fault insurance and returned to tort system as of July 1, 2003.

11. Financial Responsibility Laws • If You Don't Have Vehicle Insurance, You Can't Drive in Ohio! • The law requires you to prove your financial ability to pay for damages at the time you are involved in an accident or are convicted of a traffic violation. • State of Illinois requires the certificate of insurance (SR-22) to be filed for some drivers • Compulsory Auto Liability Insurance Law • Requires evidence of insurance prior to licensing a driver or the vehicle

12. Assuring Auto Insurance Availability • Substandard Market • Coverage to high-risk drivers at high premium rates • Residual or Shared Market • Market for people who cannot buy insurance through usual channels • Created by state law • Highest in North Carolina with 21.8% market share • ILAIP

13. Assuring Auto Insurance Availability • Residual Markets • Automobile Insurance Plans (AIPs) • Assigned risk plans • Random distribution of insureds to insurers, subject to insurer’s quota • Joint Underwriting Associations (JUAs) • Servicing carriers • Operating results are shared among insurers • Reinsurance Facilities (RFs) • Each insurer is required to insure any applicant, but is permitted to cede a portion of risks to the RF. • State Fund (SF) • Maryland only • State operated residual market • No direct participation of private insurers

14. Personal Auto Policy (PAP) • Definitions • Part A – Liability Coverage • Part B – Medical Payments Coverage • Part C – Uninsured Motorists Coverage • Part D – Coverage for Damage to Your Auto • Part E – Duties After an Accident or Loss • Part F – General Provisions • Endorsements • PIP Coverage, Underinsured Motorists Coverage

15. Personal Auto Policy (PAP) • “You” and “Your” • “We”, “Us”, or “Our” • “Bodily Injury” • bodily harm, sickness, or disease, including resulting death • “Family Member” • resident of your household related to you by blood, marriage, or adoption, Including a ward or foster child • “Occupying” • In, upon, getting in, on , out or off • “Property Damage” • physical injury to, destruction of, or loss of use of tangible property • “Trailer” • a vehicle designed to be pulled by a private passenger auto or pickup or van

16. PAP - Definitions • “Your Covered Auto” • Any vehicle shown in the declarations • A “newly acquired auto” • Any “trailer” you own • Any auto or trailer you do not own while used as a temporary substitute for any other vehicle described in this definition that is out of normal use because of its breakdown, repair, servicing, loss , or destruction

17. Part A – Liability Coverage • Insuring Agreement • We will pay damages for “bodily injury” or “property damage” for which any “insured” becomes legally responsible because of an auto accident. Damage includes prejudgment interest and defense costs. • Legal defense costs are in addition to the limit of liability • When the limit of liability is exhausted, the insurer’s duty ends

18. Part A – Liability Coverage • Definition of Insured • You and any family member, for the ownership, maintenance, or use of any auto or trailer. • Any person using your covered auto. • For your covered auto, any person or organization, but only with respect to legal responsibility for acts and omissions of a person for whom coverage is afforded under this part. • For any auto or trailer other than your covered auto, same as 3 except for acts or omissions of you or any family member.

19. Part A – Liability Coverage • Supplementary Payments • In addition to the limit of insurance • Exclusions • Refer to pages 577 – 578 • Limit of Liability • Staking the limits of liability is prevented • Either “Split” or “Single” limit • Amounts payable under Part A are reduced by any amounts payable for the same expenses under Parts B or C

20. Part A – Liability Coverage • Out-of-State Coverage • Policy provides at least the minimum amounts and types of coverage required by the state in which you are driving • Financial Responsibility • Other Insurance • Proration • Excess with regard to non-owned vehicles

21. Part B - Medical Payments Coverage • Insuring Agreement • The insurer agrees to pay reasonable expenses incurred within three years from the date of an accident for necessary medical and funeral services because of bodily injury caused by an accident and sustained by an insured. • Insured • You or any family member, while occupying, or as a pedestrian when struck by, a motor vehicle designed for use mainly on public roads • Any other person occupying your covered auto

22. Part B - Medical Payments Coverage • Exclusions • While occupying • a motor vehicle with less than four wheels • your covered auto when it is being used as a public livery or conveyance • any vehicle located for use as a residence or premises • a vehicle without a reasonable belief that the insured is entitled to do so • any vehicle located inside a facility designed for racing, if competing or practicing • During the course of employment if workers’ compensation is available • And much more … refer to pages 579 - 580

23. Part B - Medical Payments Coverage • Limit of Liability • Per person basis • e.g., $5,000 per person • Stacking the limits of coverage is prevented. • Amounts payable under Part B are reduced by any amounts payable for the same expenses under Parts A or C • Other Insurance • Proration • Excess with regard to non-owned vehicles

24. Part C - Uninsured Motorists Coverage • Insuring Agreement • Uninsured motorists (UM) coverage pays for bodily injuries (and property damage in some states) caused by an accident with another vehicle whose driver is negligent and either; (1) has no liability insurance or less than that required by law, (2) was a hit-and-run driver, or (3) was a driver whose insurance company is insolvent. • Insured • You or any family member • Any other person occupying your covered auto • Any person for damages that person is entitled to recover because of bodily injury to which this coverage applies sustained by a person in 1 and 2 above

25. Part C - Uninsured Motorists Coverage • An uninsured motor vehicle does not include any vehicle or equipment: • Owned by, furnished, or available for the regular use of you or any family member • Owned or operated by a self-insurer • Owned by any governmental unit or agency • Operated on rails or crawler treads • Designed mainly for use off public road while not on public road • While located for use as a residence or premises

26. Part C - Uninsured Motorists Coverage • Exclusions, Limit of Liability, and Other Insurance • If Workers’ compensation law or disability benefit law are applicable for the same losses that Part C is applicable, then no coverage is provided under Part C. • Refer to page 581 • Arbitration • Disagreement between insurer and insured • Each appoints an arbitrator and two arbitrators select a third. • A decision agreed to by two of the arbitrators will be binding.

27. Part D - Coverage for Damage to Your Auto • Insuring Agreement • The insurer agrees to pay for direct and accidental loss to your covered auto and to any other nonowned auto used by you or a family member, subject to policy limitations and exclusions. • Collision • The upset of the covered auto or “non-owned auto,” or impact with another vehicle or object. • Other than Collision • All loss causing events except collision • Also called Comprehensive Coverage • See page 582 for other than collision stipulated in the policy

28. Part D - Coverage for Damage to Your Auto • Limit of Liability • Lesser of actual cash value or amount necessary to repair or replace • $500 limit for non-owned trailer • $1,000 limit for sound reproduction equipment • Payment of Loss • May pay for loss in money or repair or replace the damaged or stolen property. • In case of cash settlement, applicable sales tax is also included in the settlement. • Appraisal

29. Part E – Duties After an Accident or Loss • Cooperate with the insurer in the investigation, settlement, or defense of any claim or suit • Promptly send the company copies of any notices or legal papers • Submit to physical exams and examinations under oath • Authorize the company to obtain medical reports and other records

30. Part E – Duties After an Accident or Loss • Submit a proof of loss when required by the insurer • Take reasonable steps after loss to protect the auto from further loss • Notify the police promptly if the car is stolen • Permit the company to inspect and appraise the damaged property before its repair or disposal

31. Part F - General Provisions • Bankruptcy or insolvency of a covered person shall not relieve the insurer’s obligations under the policy • Changes to policy must be in writing • If the form is revised to provide more coverage at the same premium, the revision automatically applies • No coverage for any insured who made fraudulent statements or engaged in fraudulent conduct • Insured cannot start legal proceedings against the insurer unless full compliance with policy • Insurer has subrogation rights • Territorial limits are the United States, Its territories and possessions, Puerto Rico, and Canada

32. Part F - General Provisions • Insured may cancel the policy by returning it to the insurer or providing advance written notice of cancellation date • Insurer may cancel for nonpayment of premium • Insurer may cancel in the first 60 days of the policy by giving advance notice • Insurer may cancel after 60 days only for nonpayment of premium or if your driver’s license or that of any driver who lives with you or customarily used your covered auto is suspended or revoked • Transfer of the interest in the policy may not be assigned without the insurer’s written consent • No stacking

33. Insuring Other Vehicles • A miscellaneous type vehicle endorsement can be added to the PAP to insure: • Motorcycles • Mopeds • Motorscooters • Golf carts • Motor homes • Other vehicles (but not snowmobiles)