1. Topic 12 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________ repealed no-fault insurance and returned to tort system as of July 1, 2003.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)
Declaration
Definitions
Coverage
Part A – Liability Coverage
Part B – Medical Payments Coverage
Part C – Uninsured Motorists Coverage
Part D – Coverage for Damage to Your Auto
Conditions
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” versus “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

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

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.

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)