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Key Words and Phrases

Unfair Discrimination - involves applying different underwriting standards to risks that have the same basic characteristics and loss potential

Primary rating factors - to differentiate the premium by the major classifications of driver and use characteristics. Secondary rating factors refine the premium for selected driver and vehicle use characteristics.

Graying (population) - refers to the overall aging of the population. The "baby boomers" who were born between 1946 and 1964, form a large percentage of the population. As this group ages, the average age of the population increases.

Tort state - provides for compensation to a victim of an auto accident through legal remedies.

No-fault state - offers policyholders the right to recover financial losses from his or her own insurance, regardless of whose fault cause the accident. This recovery is offered in the form of PIP coverage (personal injury protection)

Named nonowner coverage endorsement - provides auto liability coverage for a person who does not own an auto. Liability coverage is extended to a vehicle that the insured might rent or borrow, or for a company car. Liability coverage applies in excess over any collectible insurance applying to the vehicle.

Automobile insurance plans - (also called involuntary, shared, or residual markets) are mechanisms for: Ensuring that all drivers have access to insurance, Equitably distributing the risks that are not written voluntarily.

Market tier - is a term that is used interchangeably with market plan or market level. It describes the grouping of insureds into preferred, standard, and nonstandard categories for marking purposes.

Review Questions

1. What factors might an underwriter consider in determining whether a family member is a resident of a household? A family member is considered a resident if one of the following apply: if they are financially supported by the family, if they have the majority of their possessions in the house, or if they retain the home as a legal residence.

2. What additional underwriting concerns might be present if an auto applicant states that he frequently runs errand for his employer? Liability coverage is extended to others who might be held responsible for the insured's actions, like a employer if the insured runs an errand on the job.

3. Why might an underwriter be concerned about an applicant who resides in Arlington, VA, but commutes daily into Washington, D.C.? An insured who is driving in another state automatically has limits of liability equal to that state's minimum requirements (if the limits on the insured's policy are lower than the minimum).An insured who is driving in another state that requires compulsory insurance coverage automatically has this coverage provided under the PAP even if such coverage was not purchased.

4. Why is age used as a primary rating factor in personal auto insurance? Youthful operators have a greater proportion of accidents than do older drivers; therefore, are is included as a primary rating factor.

5. How does gender affect the auto accident rate? Men drive more total miles each your (65 percent). The accident involvement in all accidents is slightly higher for women, but the rate of involvement in fatal accidents is greater for men.

6. Why would an underwriter consider a twenty-year-old married male to be a better risk than a twenty-year-old unmarried male? Marital status relates directly to stability. Marriage tends to improve maturity. Young married couples normally spend more time at home than their unmarried contemporaries do.

7. Compare the factors an underwriter reviews with regard to traffic violations to the factors an underwriter reviews with regard to accidents. Violations: An underwriter will review violations to determine whether they are minor or major, the number of violations, and the date of the last occurrence. The type, number, and frequency of the accidents will be weighed. The dated of the last occurrence indicates a change or continuation of driving style. Accidents: An underwriter will review the number of occurrences, type of accidents, and frequency of accidents. Again, the information will be weighed according to the circumstances. The accidents will also be viewed in relationship to the driver involved. The accident might indicate a driver with declining reflexes or vision.

8. What are three examples of occupations that might increase the frequency of auto accidents? Occupations that might increase the frequency of auto accidents include: self-employed artisans who often use their vehicles for business; occupations such as outside sales, which involve a high volume of miles driven; military employees and college students in communal living, which might indicate a vehicle with unknown operators.

9. What are the factors that affect differences in losses among territories? Factors that effect differences in losses among territories include: population and vehicle density, road conditions and congestion, climate, economic conditions, wage rates, competition for repairs, availability and quality of medical care, police enforcement of traffic laws, and crime rates.

10. Should an underwriter be concerned that a new expensive vehicle has a farm use classification? An underwriter should be concerned that a new, expensive vehicle has a farm use classification because the farm class is the lowest rated class. This might be an indication that the vehicle is not really used for farming purposes, but rather classified to take advantage of a premium discount. The vehicle might be inappropriately classified.

11. Why might an underwriter need more information than is provided on a personal auto application? An underwriter might need more information than is provided on a personal auto application because some information must be verified, gaps in information might appear, and some responses on the application might indicate the need for additional information.

12. What are three sources of additional information about a personal auto insurance applicant (other than the written application)? Additional information about a personal auto insurance applicant includes the applicant, the producer, and reports such as MVRs, database reports, and credit reports.

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a. Two drivers have been involved in the same number and type of accidents. Why might their MVRs differ? State highway departments have various standards for reporting accidents on motor vehicle reports. Two drivers