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Overview of Automobile Coverages

Overview of Automobile Coverages

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Overview of Automobile Coverages

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  1. Overview of Automobile Coverages • 1. Automobile liability coverage • 2. Medical payments coverage • 3. Physical damage coverage, comprehensive and collision • 4. Uninsured motorists coverage

  2. General Nature of Personal Auto Policy • 1. Designed to cover three types of loss: • legal liability • injury to insured or family members • damage to the auto itself • 2. Subject to limitations, the policy covers: • others while driving the insured auto • the named insured and family while driving other autos

  3. Personal Auto Policy Eligibility • 1. Auto owned by individual or husband & wife • 2. Private passenger automobile • 3. Pickup, van, or panel truck that • has a GVW of less than 10,000 lbs. • is not used for delivery or transportation of goods unless • incidental to business of installing or repairing furnishings or equipment • for farming or ranching

  4. PAP Policy Format • Part A Liability • Part B Medical payments • Part C Uninsured motorist coverage • Part D Coverage for damage to your auto • Part E Duties after an accident or loss • Part F General provisions

  5. PAP Liability Insuring Agreement • 1. Insurer promises to pay damages for “bodily injury” or “property damage” for which any “insured” becomes legally responsible because of an auto accident. • 2000 edition of the PAP is written with split liability limits (e.g., 20/40/15). • 2. Key elements in determining coverage, then, are whether the individual is an “insured,” and whether the auto being operated is a covered auto.

  6. “Insured” as used in this part means: • 1. You or any “family member” for the ownership, maintenance or use of any auto or “trailer.” • 2. Any person using “your covered auto.” • 3. For “your covered auto,” any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.

  7. “Insured” as used in this part means: • 4. For any auto or “trailer,” other than “your covered auto,” any person or organization but only with respect to legal responsibility for acts or omissions of you or any family member for whom coverage is afforded under this part. This provision (B.4.) applies only if the person or organization does not own or hire the auto or “trailer.”

  8. J. “Your covered auto” means: • 1. Any vehicle shown in the Declarations. • 2. A “newly acquired auto”. • 3. Any “trailer” you own. • 4. Any auto or “trailer” you do not own while uses as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its: a. Breakdown; b. Repair c. Servicing; d. Loss; or e. Destruction. • This provision (J.4.) does not apply to Coverage for Damage to Your Auto.

  9. Newly Acquired Auto • Inclusion of a “newly acquired auto” in “Your Covered Auto” provides coverage for new autos, but on a qualified basis. • 1. auto must meet PAP eligibility requirements • private passenger auto or • a pickup or van that does not exceed the gross vehicle weight limitation and • not used for delivery or transportation of goods except as allowed by the eligibility requirements). • 2. Separate provisions apply for coverages other than physical damage and for the physical damage coverages.

  10. Newly Acquired Auto • 3. For liability, medical payments, and uninsured motorists coverages, replacement autos are automatically covered for the remainder of the policy period, without notice to the insurer. • 4. For additional vehicles, the insurer must be notified and coverage must be requested within 14 days of the date of acquisition for these coverages.

  11. Newly Acquired Autos - Physical Damage • Replacement and additional vehicles are automatically covered for 14 days, for whatever physical damage coverage is already provided for at least one insured auto. • 1. New auto has the broadest physical damage coverage provided by the policy. • 2. If policy does not include physical damage coverage on any autos, newly acquired autos are automatically covered for 4 days. • $500 deductible. • If coverage is not requested within grace period, coverage begins when requested.

  12. PAP Liability Exclusions • A.1. intentional injury or damage • A.2. to property owned or being transported • A.3. care, custody and control • A.4. injury to employees • A.5. while used as a public or livery conveyance • A.6. non-family members employed in auto business • A.7. business use of trucks • A.8. being used without reasonable belief of permission • A.9. nuclear exclusion

  13. Supplementary Payments • 1. Cost of bail bonds required because of an accident covered under the policy, up to $250 • 2. Premiums on appeal bonds to release attachments in suits covered under the policy • 3. Interest on judgments after judgment is entered • 4. Loss of earnings up to $200 a day while attending trials at company’s request • 5. Other reasonable expenses incurred at the request of the insurer

  14. PAP Medical Payments Coverage • Medical payments insuring agreement agrees to pay medical expenses for • 1. Insured and family if injured while “occupying or struck by” • 2. Others: while “occupying”

  15. Limitations on Medical Payment Recoveries • 1. Medical payments reduced by liability and UM payments. • 2. Recipient agrees to apply payment against judgment. • 3. Excess over nonowned auto. • 4. Subject to subrogation.

  16. Uninsured Motorists Coverage • 1. Pays what an uninsured driver’s insurance company would have paid if he or she had insurance. • 2. Uninsured motorist defined • no insurance • hit-and run • insurer becomes insolvent

  17. Underinsured Motorists Coverage • 1. Mutually exclusive with uninsured motorist • 2. Pays when other driver insured, but inadequately

  18. Physical Damage Insurance • 1. Loss other than by collision-basically open-peril excluding collision • 2. Loss by collision • 3. Physical damage: nonowned autos • private passenger, pickup or vans • not owned by or furnished for regular use of named insured or family member • includes temporary substitute auto

  19. Physical Damage Exclusions • 3 exclusions apply to nonowned autos. • nonowned auto used without reasonable belief of permission (7) • nonowned auto used in auto business (11) • loss to a rental vehicle if rental company is precluded from recovery by state law or rental agreement

  20. Physical Damage Exclusions • 6 exclusions apply to specific property • sound systems unless permanent (4) • electronic equipment (5) • tapes, records, disks for (4) and (5) above • camper bodies, trailers, motor homes not listed in the policy (6) • fuzz-busters (10) • custom furnishings or equipment in pickup or van (11)

  21. Part E: Duties After an Accident or Loss • 1. Give notice to insurer • 2. Cooperate with insurer • 3. Send notices of legal papers • 4. Submit to physical examination • 5. Authorize insurer to obtain records • 6. Submit proof of loss when required • 7. Notify police if a hit-and-run driver is involved • 8. Notify police if the car is stolen

  22. Named Non-Owner Policy • 1. Designed for persons who do not own an auto, but want “drive other car coverage”. • 2. Covers named insured only (even spouse not included). • 3. Coverage is excess over any insurance on the non-owned auto.

  23. Miscellaneous Type Vehicle Endorsement • Used with PAP to provide coverage on certain recreational motor vehicles: • motor homes • motorcycles, • mopeds, motorscooters, motorbikes • go-carts • all-terrain vehicles • dune buggies • golf carts • antique autos • classic autos

  24. Automobile Insurance Rating Plans • Most automobile insurance rating systems begin with three basic factors • 1. Age and sex of the driver • 2. Use of the auto • 3. Driver’s record

  25. Automobile Rating SystemOperator Classification • Adult Classifications • 1. Principal operator age 75 or over • 2. Principal operator age 65 to 74 • 3. Principal operator age 50 to 64 • 4. Only operator female, age 30 to 49 • 5. All other adult operators

  26. Automobile Rating SystemOperator Classification • Youthful Operator Classifications • 6. Female under 25, not married, owner or principal operator • 7. Male under 25, married • 8. Female under 25, not married, not owner or principal operator • 9. Male under 25, not married, not owner or principal operator • 10. Male under 30, not married, but is owner or principal operator

  27. Automobile Rating SystemUse classification • 1. Pleasure use • 2. To and from work less than 15 miles • 3. To and from work over 15 miles • 4. Business use • 5. Farm use

  28. Driver and Use Rating Factors • Pleasure Under Over BusinessFarmPrincipal Operator Use 15 mi. 15 mi. Use Use • Age 75 & Over 1.00 1.05 1.15 1.20 .85 • Age 65 to 74 .85 .90 1.00 1.05 .70 • Age 50 to 64 .80 .85 .95 1.00 .65 • Female, age 30 to 49 1.00 1.05 1.15 1.20 .85 • Other Adult Operator 1.00 1.05 1.15 1.20 .85

  29. Automobile Rating System • Youthful operator discounts • 1. Drivers training credit • 2. Good student discount

  30. Sample: Youthful Driver Rating Factors • Pleasure or To Work or SchoolYouthful Operator Age Farm Useor Business Use • Unmarried F (Not O/PO) Under 21 2.10 2.25 • Unmarried F (Not O/PO) 21 - 24 1.30 1.45 • Unmarried F (O/PO) Under 21 2.60 2.75 • Unmarried F (O/PO) 21 - 24 1.60 1.75 • Unmarried M (Not O/PO)Under 21 2.50 2.65 • Unmarried M (Not O/PO) 21 - 24 1.35 1.50 • Unmarried M (O/PO)Under 213.30 3.45 • Unmarried M (O/PO) 21 - 241.75 1.90 • Married Male Under 211.55 1.70 • Married Male 21 - 24 1.25 1.40

  31. Safe Driver Rating System • Safe driver rating plan charges points for violations and accidents • 1. 40 point surcharge for 1 point • 2. 50 additional point surcharge for second point (+ 90 total) • 3. 60 additional point surcharge for third point (+150 total) • 70 additional point surcharge for fourth point (+220 total)

  32. BI Limits Factor $20,000/40,000 1.00 25,000/50,000 1.07 50,000/100,000 1.27 100,000/300,000 1.41 250,000/500,000 1.53 500,000/1,000,000 1.57 PD Limits Factor $15,000 1.00 25,000 1.02 50,000 1.05 100,000 1.10 250,000 1.17 500,000 1.19 Cost of Increased Liability Limits

  33. Cost of Increased Limits • Medical Payments • $1,000 limit = $11 • 2,000 limit = 17 • 5,000 limit = 30

  34. PAP Deductible Credits • Comprehensive Collision Percent of Percent ofDeductible $100 Deductible $200 Deductible • None 118% --- • $50 109% --- • 100 100% 105% • 200 88% 100% • 250 83% 98% • 500 66% 89% • 1,000 49% 74%

  35. Auto Liability Insurance Requirements • 1. As late as 1971, only three states had compulsory auto liability insurance laws. • 2. Currently, 40 states and the District of Columbia have compulsory auto liability insurance laws. • 3. The remainder of the states have Financial Responsibility Laws.

  36. Financial Responsibility Laws • 1. Despite widespread enactment of compulsory auto insurance laws, most states retained financial responsibility laws. • 2. The laws require all parties involved in an accident causing bodily injury or property damage above a specified amount to show proof of financial responsibility. • 3. Sometimes called “free-bite” laws, because proof of financial responsibility is required only after an accident.

  37. Financial Responsibility Laws • 4. Financial responsibility is proved by a certificate of insurance (SR-21) or by depositing cash or securities with the state. • 5. If proof cannot be provided, the individual’s license will be revoked until proof of future financial responsibility (SR-22) is provided.

  38. Insurance for High Risk Drivers • Drivers who cannot obtain auto liability insurance through normal market channels may obtain coverage from an assigned risk plan or alternate “shared market” mechanism: • automobile insurance (assigned risk) plan • reinsurance pool • joint underwriting association • Maryland State Auto Insurance Fund

  39. Exhibit 11.1 Financial Responsibility and Compulsory Auto Insurance Limits by State

  40. Exhibit 11.2 Distribution of Bodily Injury Premiums

  41. Exhibit 11.3 Vehicle Insurance as a Share of Household Income

  42. Exhibit 11.4 Net Payment to Bodily Injury Claimants by Attorney Representation

  43. Criticisms of the Tort System as It Relates to Automobiles • 1. Many persons who are injured remain uncompensated. • 2. Amount of compensation depends on attorney’s skill. • 3. Traditional system is inequitable, overpaying and underpaying. • 4. Traditional system is too expensive.

  44. No-Fault Concept • 1. Under the no-fault concept, no attempt is made to fix blame. • 2. Each party collects for injuries sustained from his or her own insurance company. • 3. Under a pure no-fault system, the right to sue would be abolished.

  45. Types of Auto Reform Laws • 1. Pure no-fault • 2. Modified no-fault • 3. Expanded first party

  46. Typical No-Fault Benefits • 1. Medical Expenses up to specified maximum. • 2. Loss wages up to specified dollar maximum. • 3. Loss of services (e.g., by homemaker) up to specified dollar maximum.