Automobile Insurance (Part 1) C14

Chapter 1 - Introduction and Development of Automobile Insurance

History

·         Auto insurance has become the largest premium producer in the casualty field

·         The first coverages provided by the auto policy were those indemnifying the insured for injury or death and damage to the property of others

·         Due to companies selling policies w/ so much fine print, all provinces established standard policy wordings by the early 1930’s

·         All provinces passed legislation requiring auto owners to carry insurance against injury or death and damage to property of other caused by the insured auto

·         AB is mandatory in all provinces except Newfoundland

·         AB help to soften the financial impact while a settlement takes place

Underwriting and distribution of automobile insurance

·         Auto insurance is distributed in 2 ways in Canada:

o    Private insurance companies which sell their products either:

§  Directly to the public – direct writers

§  Through brokers/agents selling on behalf of a number of private companies – agency companies

o    Crown corporations set up by provincial governments (ICBC) which sell their products through brokers/agents as well as their direct sales department.  These brokers/agents also sell the products of private companies.  Crown corporations may sell through other government agencies (Motor Licensing Offices)

·         Auto policy wordings vary by province

·         It is the responsibility of the owner of an auto to purchase insurance

·         Saskatchewan, Manitoba, B.C., have crown corporations which provide the basic compulsory auto coverages – Government operated

o    No policy is issued for the basic compulsory coverages

o    The motor vehicle certificate of registration serves as a certificate of insurance

o    Additional coverages may be purchased through the crown corporation or through private insurers

·         In Quebec, BI claims are covered by a government compensation plan and PD claims are covered by standard auto policies issued by private insurance companies

o    The BI plan is funded by fees from the sale of license plates and driver’s license

Legislation and forms

·         The wording of policy forms and endorsements are controlled by government regulation in each province

·         In Canada there are 6 policy forms approved for use:

S.P.F. 1	Standard Automobile Policy (Owner’s Form) provides coverage for owners of vehicles
O.A.P. 1	Ontario Automobile Policy (Owner’s Policy)
S.P.F. 2	Standard Automobile Policy (Driver’s Form) provides coverage for drivers who are driving vehicles they do not own
O.A.P. 2	Ontario Automobile Policy (Driver’s Policy)
S.P.F. 4	Standard Garage Automobile Policy provides coverage for garages in respect of owned, non-owned, and customer’s vehicles
O.A.P. 4	Ontario Automobile Policy (Garage Policy)
S.P.F. 6	Standard Non-Owned Automobile Policy Coverage applies to a business entity when the business and its owners could be held legally liable for damages caused by a vehicle that they do not own
S.P.F. 7	Excess Automobile Policy provides excess liability coverage for use along with an S.P.F. 1, 2, 4, and/or 6
S.P.F. 8	Lessor’s Contingent Automobile Policy provides a contingent coverage for businesses that lease vehicles on a long-term basis

·         S.P.F. – standard policy form

O.A.P. – Ontario automobile policy

Q.P.F. – Quebec policy form

Automobile legislation and insurance needs

·         Insurance protects society by providing adequate financial protection against the negligent operation of a vehicle

·         Insured = first party

        Insurer = second party

Others = third party

·         3 major consequences of the negligent operation of a vehicle:

o    Breaking the law

o    Causing damage or injury to an innocent third party

o    Causing damage to your own vehicle or injury to yourself

The law

·         The 3 levels of government have laws pertaining to the operation of auto

o    Federally – the criminal code of Canada applies to all provinces

o    Provincially – various highway traffic acts or codes set out the rules of the road

o    Municipalities – enact crosswalk and parking by-laws as well as speed limits w/in their boarders

·         The penalty for breaking the law can be a fine, demerit points, temporary loss of driving privileges, or imprisonment

·         The penalty for causing damage or injury to a third party is potential financial ruin

·         Damaging one’s own vehicle can cause potential inconvenience and financial hardship in getting it repaired

·         Damage to a third party can be of 2 types:

o    Bodily injury or death (BI)

o    Property damage (PD)

·         Protect yourself from civil penalties of potential financial ruin arising from a lawsuit by purchasing auto insurance

Third party liability coverage

·         All auto policies provide third party liability coverage, it is required by law for all auto operated on public roads

·         Financial responsibility – the ability to pay if you are responsible for injury or damage to another.  This is proven by a valid pink card which is evidence of an in-force policy

·         Proof of financial responsibility may be required b/c of a conviction under the criminal code or highway traffic act or b/c of involvement in an accident while uninsured.  It is also at the discretion of the registrar of motor vehicles in cases involving underage or elderly drivers

·         The pink card contains:

o    Name and address of insurer

o    Name and address of insured

o    Agency/brokerage name or number

o    Description of insured vehicle

o    Policy number (license plate # in provinces w/ government insurance)

o    Effective date and expiry date

·         Pink cards also contains a warning of penalties for its misuse – heavy fine, imprisonment, license suspension

Accident benefits coverage (no-fault)

·         First introduced in the 1960’s in response to the ever lengthening time it took to settle auto claims

·         It pays defined amounts to certain injured parties on a no-fault basis

·         Innocent and at-fault parties receive benefits while their case makes its way to court

Physical damage coverage (own damage coverage)

·         Also called loss of or damage to the insured auto, physical damage, own damage, first party vehicle damage

·         Useful where damage is caused by:

o    One’s own negligence (hitting a tree)

o    Unknown persons (theft, vandalism)

o    Natural occurrences (hail, lightning)

o    Someone else’s negligence (third party going through a stop sign)

*** Refer to page 12-13 for compulsory minimum insurance coverage for each province

Sample Review Questions -  Automobile Insurance (Part 1)

1.     Automobile insurance is marketed 2 ways in Canada:

a.     Private insurance companies which sell their products either:

                                  i.    Directly to the public – direct writers

                                 ii.    Through brokers/agents selling on behalf of a number of private companies – agency companies

b.     Crown corporations set up by provincial governments which sell their products through brokers/agents as well as their direct sales

2.     Saskatchewan, Manitoba, B.C., have auto insurance operated by a crown corporation.

3.     Each province governs the wording of an auto policy.

4.     S.P.F. – Standard Policy Form

O.A.P. – Ontario Automobile Policy

Q.P.F. – Quebec Policy Form

5.     Auto policies in Canada are subject to standard policy forms and standard endorsement forms.  No other variations are permitted.

6.     Where crown corporations provide auto insurance, no policy is issued.  The motor vehicle certificate of registration serves as a certificate of insurance

7.     The 6 main auto policies are:

a.     S.P.F. 1 – Standard Automobile Policy (Owner’s Form)

b.     S.P.F. 2 – Standard Automobile Policy (Driver’s Form)

c.     S.P.F. 4 – Standard Garage Automobile Policy

d.     S.P.F. 6 – Standard Non-Owned Automobile Policy

e.     S.P.F. 7 – Excess Automobile Policy

f.      S.P.F. 8 – Lessor’s Contingent Automobile Policy

8.     The 3 levels of government decide the rules for the operation of automobiles – Federal, Provincial, Municipal

9.     The various highway traffic acts or codes embody the majority of rules relating to the operation of automobiles.

10.   The 3 types of auto coverage available are:

a.     Third party liability

b.     AB

c.     Physical Damage Coverage

11.   Financial responsibility – the ability to pay if you are responsible for injury or damages to another.

12.   Filing proof of financial responsibility is accomplished by an insurer filing a certificate w/ the Registrar of Motor Vehicles showing that a motor vehicle liability policy has been issued in the name of the person involved, giving a description of the vehicle owned

13.   In most cases, a valid pink card constitutes proof of financial responsibility.  The pink card is evidence of an in-force auto insurance liability policy w/ at least the minimum limits as set by law in each jurisdiction.

14.   Another term for ‘own damage’ coverage is: loss of or damage to the insured auto, physical damage, or first party vehicle damage