Bảo hiểm - Chapter 23: Auto insurance and society

Chapter 23Auto Insurance and SocietyAgendaApproaches for Compensating Auto Accident VictimsAuto Insurance for High-Risk DriversCost of Auto InsuranceShopping for Auto InsuranceApproaches for Compensating Auto Accident VictimsMany accident victims are unable to recover damagesThe negligent driver may be uninsured or underinsuredStates use a number of approaches to protect accident victims from irresponsible or reckless driversA financial responsibility law requires motorists to furnish proof of financial responsibility up to certain minimum dollar limitsProof is required:After an accident involving bodily injury or property damage over a certain amountUpon failure to pay a final judgment resulting from an auto accidentFollowing a conviction for certain offenses, such as DUI Approaches for Compensating Auto Accident VictimsEvidence of financial responsibility can be provided in several ways:Producing evidence of an auto liability insurance policy with at least certain minimum limitsPosting a bondDepositing the amount required by lawShowing that the person is a qualified self-insurerFinancial responsibility laws provide only limited protection against irresponsible motoristsThere is no guarantee that all accident victim will be paidThe victim may not be paid if injured by an uninsured driver, hit-and-run driver, or driver of a stolen carState laws require only minimum liability limits, which are relatively lowApproaches for Compensating Auto Accident VictimsA compulsory insurance law requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registeredSome argue that the law provides greater protection against uninsured drivers because motorists must provide evidence of financial responsibility before an accident occursCritics cite: mandatory insurance does not reduce the number of uninsured drivers There is no correlation between compulsory insurance laws and the number of uninsured vehicles on the highwayComputer reporting systems to track uninsured motorists have not been effectiveExhibit 23.1 Automobile Financial Responsibility Limits by State (cont.)Exhibit 23.1 Automobile Financial Responsibility Limits by StateApproaches for Compensating Auto Accident VictimsFive states (MD, MI, NJ, NY, ND) have established unsatisfied judgment funds for compensating auto accident victims who have exhausted all other means of recoveryThe accident must obtain a judgment against the negligent motorist and show that the judgment cannot be collectedThe amount paid by the fund is limited by state law and may be reduced by collateral sourcesThe negligent driver must repay the fundStates use different methods for financing the benefits, e.g., through insurer assessmentsApproaches for Compensating Auto Accident VictimsMany states require uninsured motorists coverageThe injured person’s insurer agrees to compensate for bodily injury caused by an uninsured motorist, a hit-and-run driver, or a negligent driver whose insurer is insolventSome states include property damage losses One advantage is that claim settlement is faster than a tort liability lawsuitThe injured person must establish that the uninsured motorist is legally liable for the accidentThe minimum limits are low, so an accident victim may not be fully compensatedApproaches for Compensating Auto Accident VictimsLow-cost auto insurance provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insuranceGoal is to reduce the number of uninsured driversA pilot program in California does not appear to be effectiveMany drivers still find auto insurance to be too expensiveSeveral states have enacted “no pay, no play” laws which prohibit uninsured motorists from suing negligent drivers for noneconomic damages No-fault Auto InsuranceNo-fault auto insurance is another method for compensating injured accident victimsAbout half of the states have no-fault auto insurance laws in effect After an auto accident involving bodily injury, each party collects from his or her own insurer regardless of faultEnacted because of dissatisfaction and defects in the traditional tort liability systemNo-fault Auto InsuranceNo-fault plans vary among the states:Under a pure no-fault plan, accident victims cannot sue at all, regardless of the amount of the claimNo states have enacted a pure no-fault planUnder a modified no-fault plan, victims have a limited right to sue: In some states, an injured driver may sue if the bodily injury claim exceeds a certain monetary thresholdIn some states, an injured driver may sue if the bodily injury claim exceeds a verbal threshold, e.g., if the injury involves death, dismemberment, disfigurement, or permanent loss of a bodily member or functionNo-fault Auto InsuranceAn 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 accidentNot a true no-fault planUnder a choice no-fault plan, motorists can elect to be covered under the state’s no-fault law and pay lower premiumsOr, they can retain the right to sue under the tort liability system and pay higher premiumsNo-fault Auto InsuranceNo-fault benefits are provided by adding an endorsement to an auto insurance policyBenefits are restricted to the injured person’s economic loss, which includes:Medical expensesLoss of earningsEssential services expenses, e.g., houseworkFuneral expensesSurvivors’ loss benefits, i.e., periodic payments to a surviving spouse and dependent childrenIn some states, insurers must also offer optional no-fault benefits above the prescribed minimumsNo-fault Auto InsuranceThe right to sue varies across states with no-fault or add-on plansAll states permit a lawsuit in the event of a serious injuryNo-fault laws cover only bodily injury and not property damageExcept in MichiganMotorists are allowed to sue the negligent driver for property damageCases are usually small and resolved quicklyNo-fault Auto InsuranceArguments in support of no-fault laws include:Difficulty in determining faultInequity in claim paymentsSerious claims may be underpaidHigh transactions costs and attorney feesLess than half of all tort dollars reach injured victimsFraudulent and inflated claimsWhen pain and suffering awards are based on a multiple of medical expenses and wage loss, claimants have a powerful incentive to inflate their claimsDelay in paymentsMany claims are not paid promptly because of the time consumed by investigation, negotiation, and waiting for a court dateNo-fault Auto InsuranceArguments against no-fault laws include: Defects of present system are exaggeratedSavings from no-fault are exaggeratedCourt delays are confined to a few large citiesSafe drivers may be penalized by no-faultThe rating system may inequitably allocate accident costs to the drivers who are not at fault, thus raising their premiumsNo-fault provides no payment for pain and sufferingThe present tort liability system should be improved, not junkedNo-fault Auto InsuranceSome states have repealed their no-fault laws because relatively low monetary thresholds have increased the number of lawsuitsA study by the Institute for Civil Justice found that no-fault plans:reduce attorney fees and claim processing costsmatch the compensation received for an injury more closely with the economic loss sustainedgenerally pay benefits more quicklyThe study concluded that savings from a no-fault plan depend on the provisions in the plan Auto Insurance for High Risk DriversHigh risk drivers who have difficulty obtaining auto insurance in the voluntary market can obtain insurance in the shared (residual) marketThese are typically younger drivers, drivers with poor driving records, and drivers with convictions for drunk drivingMost 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 marketAll auto insurers in the state are assigned a proportionate share of high-risk drivers, depending on their total volume of auto insurance premiums written in the statePremiums charged are substantially higher than those charged in the voluntary marketsExhibit 23.2 Example of an Automobile Insurance Plan (Generalized)Auto Insurance for High Risk DriversA 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 poolEach insurer pays its pro rata share of pool losses and expensesThe JUA designs the policies and sets the ratesUnderwriting losses are proportionately shared by the companies based on premiums written in the stateA limited number of insurers are designated as servicing insurers, but all insurers participate in the poolAuto Insurance for High Risk DriversA few states have established a reinsurance facility (or pool) for placing high-risk driversInsurers must accept all applicantsIf the applicant is considered a high-risk driver, the insurer has the option of placing the driver in the reinsurance poolUnderwriting losses are shared by all auto insurers in the stateThe Maryland Automobile Insurance Fund is a state fund that provides insurance to high-risk drivers who have been canceled or refused insurance by private insurersSpecialty insurers are insurers that specialize in insuring motorists with poor driving records Cost of Auto InsuranceAuto insurance rates have increased in recent years due to:Rising medical and higher motor vehicle repair costsSoaring jury awards in liability casesInsurance fraud and abuseInsurers use a variety of factors to establish auto insurance premiums, including:TerritoryAge, gender, and marital statusUse of the autoDriver education Number and types of carsA multicar discount is available if the insured owns two or more carsGood student discount Individual driving recordMany insurers offer a safe driver plan for drivers with clean records An insurance score, based on an applicant’s credit recordExhibit 23.3 Top Five Most Expensive and Least Expensive Cities for Automobile Insurance, 2007*Exhibit 23.4 Drivers in Motor Vehicle Crashes by Age, 2006Exhibit 23.5 Tips for Buying Auto InsuranceExhibit 23.6 Wide Variation in Auto Insurance Premiums for Omaha, Nebraska (Six-Month Premiums: August 1, 2009 Rates (cont.)Exhibit 23.6 Wide Variation in Auto Insurance Premiums for Omaha, Nebraska (Six-Month Premiums: August 1, 2009 Rates