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INS- 22 Training
Chapter 2
Automobile insurance and society

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Compensating Auto accident victims :

Automobile insurers and state governments have designed these approaches to compensating auto accident victims :  Tort Liability System  Financial responsibility system  Compulsory insurance laws  Uninsured motorists coverage  Underinsured motorists coverage  No-fault insurance

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Tort Liability System

 Based on fault  Arise out of negligence  Burden of proof : injured auto victims  Amount of damages can be determined through negotiations between the two parties or through a lawsuit and court settlement

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Tort Liability System(Contd)

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Financial Responsibility laws

A financial responsibility law requires motorists to furnish proof of financial responsibility up to certain minimum dollar limits Proof is required:    After an accident involving bodily injury or property damage over a certain amount Upon failure to pay a final judgment resulting from an auto accident Following a conviction for certain offenses, such as DUI

Proof of financial responsibility includes : Insurance policy, surety bond , certificate of deposit or a certificate of self insurance.

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Financial Responsibility laws (Contd)

ADVANTAGES
Financial responsibility laws provide some protection against irresponsible motorists These laws work in conjunction with tort liability system to ensure that at fault drivers will not only be held liable for accidents they cause but also have a mechanism in place to pay for the financial consequences of those accidents

DISADVANTAGES
Become effective only after an accident, a conviction or a judgment There is no guarantee that all accident victim will be paid. The victim may not be paid if injured by an uninsured driver, hit-andrun driver, or driver of a stolen car State laws require only minimum liability limits, which are relatively low

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Compulsory Auto Insurance Laws

A compulsory insurance law requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered

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Table of Limits, Financial Responsibility and Compulsory Insurance Laws

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Compulsory Auto Insurance Laws(Contd)

ADVANTAGES DISADVANTAGES

Motorists must provide proof of financial responsibility before an accident occurs These laws work in conjunction with the tort liability system to ensure compensation for victims of auto accidents that are the fault of other drivers

Do not Guarantee compensation to all accident victims The required minimum amount of insurance may not meet the full needs of accident victims May not reduce the number of uninsured motorists . Insurers argue that compulsory laws restrict their freedom to select profitable insureds Consumer Advocate argue that if insurers are allowed to increase rates to compensate for accepting all applicants for insurance, rates might become unfairly high for good drivers These laws do not reduce or prevent number of auto accidents

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Measures intended to respond to the disadvantages of compulsory insurance

 Low Cost Insurance :

It provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance
Goal is to reduce the number of uninsured drivers  No Pay,no play laws : These laws prohibit uninsured motorists from suing negligent drivers for noneconomic damages such as pain and suffering  Unsatisfied judgment laws : Provide injured persons compensation for judgments that cannot be collected against negligent drivers

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Uninsured Motorists Coverage

 UM coverage compensates an insured for bodily injury caused by an uninsured motorists, a hit and run driver, or a driver whose insurer is insolvent.  Most states require that all automobile liability policies contain UM coverage unless the insured voluntarily waives the coverage in writing

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Uninsured Motorists Coverage(Contd..)

Advantages Provides some financial protection against uninsured drivers Disadvantages Injured persons may not be fully compensated for economic losses(maximum paid for the bodily injury claim is limited o the states financial responsibility) To collect , an injured person must establish the uninsured motorists legal responsibility for the accident., which can be difficult and may involve legal proceedings Property damage is excluded in many states and optional in others The victim is paying for insurance to protect against the failure of others to act responsibly

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Underinsured Motorists coverage

Provides additional limits of protection to the victim of an auto accident when the negligent drivers insurance limits are insufficient to pay for the damages.

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Underinsured Motorists coverage (Contd..)

Advantages

UIM assist in compensating auto accident victims who would not be fully compensated otherwise

Disadvantage Even the underinsured coverage may be insufficient to cover all costs. Also, the victim is paying for insurance to protect against the failure of others to act responsibly and to carry sufficient liability limits.

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No fault automobile insurance

About half of the states have no-fault auto insurance laws in effect These laws restrict the filing of lawsuits against at- fault drivers
After an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault

Because no fault laws limit the number of lawsuits that result from auto accidents, the burden on the states court system is reduced, as are overall costs

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No fault automobile insurance(Contd..)

Advantages
Eliminate the need to determine fault They eliminate inequities in claim payments. Under the tort liability system, small claims may be overpaid, and claims involving serious injuries may be underpaid They expand the limited scope of tort system They decrease the proportion of premium dollars used for claim investigation and legal costs They reduce delays in payments

Disadvantages
No-fault provides no payment for pain and suffering Safe drivers may be penalized by no-fault The rating system may inequitably allocate accident costs to the drivers who are not at fault, thus raising their premiums

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Types of No-Fault Laws

Under a pure no-fault plan, accident victims cannot sue at all, regardless of the amount of the claim No states have enacted a pure no-fault plan Below are the 3 basic types of no-fault laws : Modified no-fault plans : Injured Motorists collect economic losses from their insurers through PIP benefits mandated by the plan Injured persons can sue at fault drivers for any economic losses that exceed the no-fault coverage limits Can sue at fault drivers for non economic losses if their injuries exceed a threshold(monetary or verbal) stated in law. When a monetary threshold applies, an injured motorists can sue for non economic losses if the economic losses exceed a stated dollar amount When a verbal threshold applies, an injured motorists can sue for noneconomic losses if his or her injuries meet a verbal description of serious injuries

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Types of No-Fault Laws(Contd..)

Add on plan : An add-on plan pays benefits to an accident victim without regard to fault, and the injured person has the right to sue the negligent driver who caused the accident

Choice on-fault plans : Under a choice no-fault plan, motorists can elect to be covered under the states no-fault law and pay lower premiums or, they can retain the right to sue under the tort liability system and pay higher premiums

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Benefits required by No-Fault laws :No-fault benefits are provided by adding a PIP endorsement to an auto insurance
policy Benefits are restricted to the injured persons economic loss, which includes: Medical expenses Loss of earnings Essential services expenses, e.g., housework Funeral expenses Survivors loss benefits, i.e., periodic payments to a surviving spouse and dependent children

 No-fault laws typically allow the no-fault insurer to collect payment(through subrogation) from at-fault parties to the extent that no-fault benefits are paid.
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Auto Insurance for High Risk Drivers

 High risk drivers who have difficulty obtaining auto insurance in the voluntary market can obtain insurance in the shared (residual) market  These are typically younger drivers, drivers with poor driving records, and drivers with convictions for drunk driving  Residual Market Programs : Automobile insurance plans Joint underwriting associations Other Programs

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Automobile insurance plans

 Most states have an auto insurance plan (assigned risk plan) that makes auto insurance available to motorists who are unable to obtain insurance in the voluntary market  All auto insurers in the state are assigned a proportionate share of highrisk drivers, depending on their total volume of auto insurance premiums written in the state  Premiums charged are substantially higher than those charged in the voluntary markets

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Joint underwriting associations

 A few states have established a joint underwriting association (JUA), in which auto insurers in the state participate in providing coverage to high-risk drivers through a common pool  Each insurer pays its pro rata share of pool losses and expenses  The JUA designs the policies and sets the rates  Underwriting losses are proportionately shared by the companies based on premiums written in the state  A limited number of insurers are designated as servicing insurers, but all insurers participate in the pool

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Other Programs
 A few states have established a reinsurance facility (or pool) for placing high-risk drivers  Insurers must accept all applicants If the applicant is considered a high-risk driver, the insurer has the option of placing the driver in the reinsurance pool Underwriting losses are shared by all auto insurers in the state  The Maryland Automobile Insurance Fund is a state fund that provides insurance to high-risk drivers who have been canceled or refused insurance by private insurers  Specialty insurers are insurers that specialize in insuring motorists with poor driving records

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Rate regulation
  Insurers use a variety of factors to establish auto insurance premiums, including: Primary Rating Factors : Territory Use of the auto Age Gender Marital status  Other Rating Factors : Driving record Driver Education Good student Multicar policy Years of driving experience Credit based insurance score Type of Auto Deductibles Liability Limits

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Rate regulation
 Matching price to exposure : Insurers often divide auto insurance applicants into homogenous classes, or rating categories ,such as preferred , standard and non standard, that reflect different levels of exposures to loss. Regulators usually approve these rating categories because policyholders receive equitable treatment based on the loss exposures they present  Competition : When insurers are making profit, they often compete with each other by lowering rates. Insurance regulators monitor rates primarily through rate filings, which are the documentation that an insurer files with a state to request a change in existing rates Insurers rates must always meet the state requirements that rates must be adequate, reasonable , and not unfairly discriminatory  Other Regulatory Issues : Below are few more issues that affect auto insurance coverages and rates Rising health costs Environmental issues Vehicle modifications

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Thank You

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