Chapter 9 Applications for Automobile Insurance Underwriting Key Point

  1. What is the purpose of an automobile insurance application?
    An application contains the information required to underwrite, rate, and issue a policy.
  2. Why do written applications have more significance in provinces where private insurers provide mandatory coverages than they do in provinces where the government is the sole provider of the mandatory coverages?
  3. How are insuring a vehicle and registering a vehicle Manitoba related?
    Insurance and registration are coterminous; they have identical inception and expiry dates and cannot be issued separately.
  4. How is the expiry date determined for an individual insured under Autopac?
    4 months from the individual's birthdate less 1 day
  5. How is the expiry date determined for a business insured under Autopac?
    Businesses are allowed to select the expiry date.
  6. What documents are required before a person may register and insure an automobile for the first time in Manitoba?
    a) Bill of Sale

    b) Signed copy of the transfer of ownership document(TOD) from the previous owner

    c) Valid certificate of inspection(COI) issued by a Manitoba vehicle inspection station or by a government inspection program in another province or state
  7. What is the difference between a registered owner and a legal owner of a vehicle?
    Legal Owner: actually owns the vehicle and can sell it.

    Registered Owner: is the owner who keeps the vehicle, looks after it, has right of possession, and has the right to determine who drives it.
  8. Who is considered to be the registered owner of a leased vehicle?
    the lessee is considered to be registered owner of the vehicle.
  9. Why is full disclosure on an insurance application important?
    It is important that all questions on the application be answered truthfully. In some cases, misrepresentation can lead to forfeiture of claims.
  10. What is the greatest danger of not requiring a signed written application BEFORE an extension policy is issued?
    Companies not requiring a fully completed and signed application may find it very difficult to use a misstatement on the application as a defense against paying a claim.

    Without a signed application, it is the insured's word against the insurer's. Precendent tells us that if there is any doubt, courts usually rule in favor of the insured.

    If a policy is issued with no signed application having been received, the insurer is obliged to provide the insured an application for signature afterward. This is usually a copy of the declarations section of the policy.
  11. What is required of an insurer, if it issues a policy that differs from a written application? What could happen if it fails to meet these requirements?
    When an MSPF 1 policy is issued and if it differs from the application, the following legal requirements apply:

    a) The insurer must point out to the insured, in writing, in what ways the policy differs from the application.

    b) If the insured does not object to the changes by advising the insurer in writing within 7 days, the policy is deemed to cover as it is written.

    If an MSPF 1 policy is issued that is not identical to the written application and the insured is not notified, the insured may well insist on coverage in accordance with the written application.
  12. What is the policy period on an extension policy?
    The policy includes the time, day, month and year of the policy inception. It expires at 12:01 .a.m, local time, at the postal address stated. Not that coverage may become effective at any stated time of day but expires at 12:01 a.m. of a given date. Thus, there is essentially no coverage on the expiry date except for that 1 minute.
  13. Why is it important that the insured's address be correct on the application?
    This information is essential to the proper formation of the contract. The location of the insured is used as part of the rating criteria, as the application states

    Each described automobile is and will be chiefly used in the vicinity of the applicant's address above unless otherwise stated in the remarks section.

    Also, the name and address shown is the one to which any notices are sent.
  14. Why does the application request the particulars of the described automobile?
    Each Vehicle to be insured must be described by it's:

    - year,

    - make or trade name,

    - model,

    - body type,

    - number of cylinders,

    - seating capacity,

    - manufacturer's gross vehicle weight rating,

    - and vehicle identification or serial number(VIN).

    This information is necessary for rating purposes as well as for identification in the event of a claim.

    If there is a lienholder or a lessor, it must be named and the address given. This is needed to

    - establish the insurable interest of the applicant in the automobile; and

    - record the interest of lienholders or lessors so that their interest may be protected in the event of a claim.
  15. When might a driver's health affect whether an application for insurance is accepted or rejected?
    This section asks the applicant to answer "yes" or "no" to the following 2 questions:

    a) Is any driver subject to fainting spells, dizziness, or loss of consciousness?

    b) Has any driver ever suffered from a heart disorder, epilepsy, diabetes, defective vision or hearing, or any other physical disability which might affect the safe operation of a vehicle?

    If the answer to either question is "yes", full details are requested. It does not mean that the applicant will necessarily be rejected. That would only occur if his or her health were such that it would affect the safe operation of a vehicle.
  16. What details are required on an application with respect to past accidents or claims?
    a) The vehicle involved

    b) The driver

    c) Date

    d) Type of Claim

    e) Amount paid or estimate, if not yet paid
  17. What driver information is required on an application?
    Full particulars are required for a period of 3 years, but only that information that is within the knowledge of the applicant. The applicant ought to know whether or not he or she has had his or her own driver's license suspended, lapsed, or canceled during the last 3 years. Therefore, the answers given by the applicant on his or her own behalf should be complete.

    If an applicant appears evasive about information on other drivers in the household that should be an indication that further checking might be in order.
  18. What past insurance experience is required on an application and how might it be used?
    Full information is required. Only information within the knowledge of the applicant is required.
  19. What 2 excluded uses does the application ask about? Are these uses insurable?
    a) Will the automobile be rented or leased or used for carrying passengers for compensation or hire or for carrying explosives or radioactive material? If so provide details.

    b) Will the automobile be used for the transportation of goods for compensation? If so, state class of license or certificate and radius of operations.

    Certain uses of automobiles are excluded under the policy unless the policy is specifically endorsed to delete the exclusions
  20. Why is the signature section of the application important?
    - There is a penalty if the applicant gives false particulars of a described automobile to be insured and these particulars are to the prejudice of the insurer. 

    - This then also concludes that if false particulars of a described automobile are not to the prejudice of the insurer no penalty will apply.

    - If these false particulars do not prejudice the insurer, the applicant is simply doing him/herself harm if, in fact any harm exists.

    - The applicant must knowingly misrepresent or fail to disclose any fact required to be stated in the application.

    - "Knowingly" does not mean that he or she has knowledge that the statements in the application has been submitted, but it does mean that he or she has knowledge that the statements in the application do not disclose the truth.

    - The false statement will vitiate the policy if the facts misrepresented would influence a reasonable insurer to decline the risk or increase the premium, had the facts been truly disclosed.

    - Most court cases dealing with misrepresentation arise from the applicant not being the registered owner. Other common misrepresentations involve previous accidents, refusals of insurance and the use of the vehicle.

    1) Obtain supplemental rating information, especially for commercial lines where additional information about areas of operation and cargos may be required.

    2) Obtain the broker/agent recommendation and details of prior insurance.
  21. State the 3 main functions of underwriting.
    a) Consideration of the acceptance or rejection of a risk

    b) If the risk is accepted, the terms of the policy

    c) The premium for the policy
  22. Why does underwriting by MPI for basic Autopac differ from underwriting for SRE or underwriting by private insurers?
  23. State the 2 levels of at which underwriting takes place and describe the process at each level.
    Head Office Underwriting

    At the insurer's head office, management establishes a marketing philosophy that will produce a profit.

    - Some insurers write broadly because of the nature of their agency force and production methods: They seek a broad range of automobile insurance business, and rely on underwriting and rating to earn a profit.

    Other insurers are niche writers, seeking selected classes in which they have expertise , because they have profited from these classes in the past or expect to do so in the future.

    Yet other insurers mass market to selected groups: to certain employers, occupations, and associations. Some insurers market using combinations of the above.

    Individual Underwriting
  24. What might be included in an underwriting manual created by the insurer's automobile manager for Canada(or vice president of underwriting)?
    The insurer's automobile manager for Canada (or vice president of underwriting) creates an underwriting manual for all branch underwriters that might include the following:

    a) An acceptance or rejection list

    b) A senior underwriter only acceptance list

    c) A limit table (the maximum liability limits that can be accepted)

    d) A classification guide

    e) Other instructional material
  25. What is retention?
    Retention: is the amount of risk that the insurer keeps for its own account. The rest of the risk is passed on to the reinsurer.
  26. What is an "intelligent underwriting" system?
    With large volume of business now written by insurers, some screening, editing, rejecting, and rating is done by computer. Some "intelligent underwriting" computer programs handle the risk selection process by point allocation or by flagging the underwriter on the computer screen. This methodology allows much more precise underwriting;

    Ex: Risks can be rated by postal code rather than a broad territory. Insurers are responsible for providing underwriters with the systems, manuals, and computer programs they need to carry out the underwriting process.
  27. State the functions typical of individual underwriting and briefly describe each one.
    a) Classifying risks

    - Because of rate differentials, correct classification is essential to a profitable automobile insurance business. The underwriter must be alert to producers that classify many applicants in low rate categories and those that leave questions unanswered on the application.

    b) Rating drivers according to driving records

    - Placing risks in low rate categories when they do not qualify can result in high loss ratios for the insurer. Other driving considerations are important, such as driver training courses.

    c) Placing risks in the correct rate groups

    - It is vitally important that all vehicles be assigned to the correct rate group.

    d) Using endorsements correctly

    - Underwriters must understand and correctly use endorsements, or which there are 2 kinds:

    1) Extensions

    These are used for additional coverages the producer has recommended and the client has purchased,

    Ex: excess underinsured motorist protection, loss of use coverage, or coverage for liability for damage to non-owned vehicles.

    2) Agreements or restrictions

    - These are required by the insurer based on acceptance and rating manuals,

    • Ex: limitation of amount or value endorsements for antique cars, reduction or deletion of coverage, or restriction of coverage for a named driver.
  28. State the 2 kinds of endorsements that underwriters must be familiar with.
    1) Extensions

    2) Agreements or restrictions

  29. How does each kind of endorsement affect coverage?
    1) Extensions

    These are used for additional coverages the producer has recommended and the client has purchased,

    Ex: excess underinsured motorist protection, loss of use coverage, or coverage for liability for damage to non-owned vehicles.

    2) Agreements or restrictions

    - These are required by the insurer based on acceptance and rating manuals,

    Ex: limitation of amount or value endorsements for antique cars, reduction or deletion of coverage, or restriction of coverage for a named driver.
  30. What are 5 particularly sensitive areas for underwriters?
    a) Policy cancellation for underwriting reasons;

    b) An insurer's refusal to renew the policy;

    c) Notice to lienholders and to those with whom a certificate of insurance has been filed;

    d) Premiums appropriate to the risk - no more or no less; and

    e) The use or improper use of credit information.
Card Set
Chapter 9 Applications for Automobile Insurance Underwriting Key Point
Chapter 9 Applications for Automobile Insurance Underwriting Key Point