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FIN 512 (27)
Chapter 3

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Department
Finance
Course
FIN 512
Professor
Giulio Iacobelli
Semester
Summer

Description
Chapter 3:Automobile Insurance May 8 , 2012. Quebec (for bodily injuryonly),B.C.,Manitoba,and Saskatchewanhaveagovernment-run autoinsurance industry forthe basic, mandatory coverage that is the minimum required coverage In these provinces,no policiesare issued for thismandatorycoveragesince everyonehasthesamebasic policy Theinsurance premium ispaid at the same timelicensesarerenewed LegalAspects: - Allthree levelsof government are involved inregulatingtheuseof automobilesinCanada - The federal government,throughthe Insurance Act of Canada,hasgiven provincesand territories legislative power to manage their own automobileinsurance industries - The federal Insurance Act wascreatedtocontroland monitor insurance companies,outline the mandatory automobile insurance coveragethatan individualisrequiredtohold - Government Regulationof Insurance: Federal Level Provincial Level Municipal Level Criminal Code of Highway Traffic Acts set Createsand set lawsfor Canadahasseveral outlawsrelatingto parkingandcrosswalks. sectionscovering various speed limits,age Convictionsfor aspects,such as restrictionsondriving, violationsdonot affect impaired driving, testingrequirements, premiumsand coverage. dangerousoperation ofa different licenseclasses However,municipal vehicle, failure to stop at (M1,G,L,etc.), seatbelt governmentscan the scene of an accident, requirements,and impound vehiclesand criminally negligent defineswhohastheright givefindsthatmust be operation of a vehicle, ofway. paid torenewadriving and theft. Convictionsfor license. Convictionsfor violations violationsaffect affect premiumsand premiumsand coverage. coverage. Responsible for the Set rate guidelinesand Insurance Act. coveragerequirements. Types of Coverage: Covering only auto policy and there are similar personal coverage for motorcycles, motor homes,trailersand camper units,off-road vehicles,motorized snowvehicles,and historic vehicles. - Compulsory Coverage: allprovinces and territoriesrequirealldriverstohaveautoinsurance andto have the following coverage: Third-Party Liability: providescoverageupto$200,000($500,000for NovaScotia,$50,000in Quebec)to pay other people towhomtheinsured can belegallyliableforbodilyinjuryand/or damage to property of others. Accident Benefits: provide compensation,regardlessoffault,for insuredpersons(the driver, the driverspassengers,and pedestrians)injuredorkilled inautoaccidentfor allprovincesand territoriesexcept Newfoundland and Labrador,whereAccident Benefitsareprovided through the provincialhealth care plan. Uninsured Automobile: providesthesame amount ofcoverageasthird-party liabilityifa person isin an accidentwith an uninsured or unidentified(hit-and-run)autotocompensate the victim for the amount heor shewould beentitledtoreceivefromanuninsured or unidentified motorist. If the victim isnot coveredbyan insurance policy,severaljurisdictionshaveaMotor Vehicle Accident Claim FundsorUnsatisfied Judgment Fundtocompensate theinjured party. Direct Compensation-Property Damage: inthefour provinceshaving no-fault insurance coversphysical damage to thevehicleand lossof useofthevehiclecaused byanother driver. In B.C.and Ontario,direct compensationcoversonlytothedegreetowhichtheinsured isnot at fault.Manitoba, Saskatchewan,B.C.and Quebec forbodilyinjuryonlyhavegovernment-run insurance plansfor mandatorycoverage.In Manitobaand SaskatchewanAll-perilsCoverage for damage to the vehicle regardlessoffault ispart ofthebasicautopolicyand is,therefore, mandatory. Occasionally,itis suggestedthatthe mandatoryAccidentBenefitsCoverage shouldbe optionalif the driver already has coverageatwork.Thiswould reducethepremiumsforthose drivers but would likely increase the cost toother drivers. - Optional Coverage:insuredscan get coverageforthefollowing: Loss or damage to ones own vehicle.In B.C.and Ontario,no-faultinsurance coversdamage to the ownersown vehicle to thedegree towhichthedriver isnotat fault.In Saskatchewan, optional insurance isavailabletolower the$700 deductible. Excess Coverage: o Additional Liability coverageover themandatoryminimum (manybrokersand agents recommend $1,000,000 oreven $2,000,000liabilitycoverage) o Additional Accident Benefits o Additional Loss and Theft Coverage Summary of Automobile Insurance Policiesfor Ontario:page72-73 - Private Insurersfor mandatory coverage,direct compensationfor propertydamage,righttosue for pain and suffering with verbal threshold and $30,000deductibleand rightto sue for economicloss in excessof no-fault benefits with conditions - Name of Insurance Policy:OntarioAutomobilePolicy(OAP1) Legal Principles:There are three legalprinciplesfor autoinsurance: 1. Absolute Liability: - A person injured or killed by your vehicle(third parties)havethe righttocollect fromyour insurance company even if coverage isdenied toyoubecauseyouhaveviolated thetermsofthecontract - If you violate the termsof your contract,your property isnotcovered - However,third parties whosuffer lossordamagecaused byyouarestillcovered byyour insurance policy under the absolute liability doctrine - The insurer hasthe right to be reimbursed by youfor any moniespaid tothird parties for property damage, bodily injury,or death - Thisdoctrine holds true in alljurisdictionsfor medicalbenefitscoverage(anyoneinjured orkilledby your vehicle) 2. Negligence: - Third-party liability coversdamage or injurytoaninnocent third partycaused byyour negligent operation of a motor vehicle-negligent inthatyoucaused theaccident - To be negligent isto fail to do what a reasonableand prudent personwould do,ornotdowhatsucha person would do; the negligent act causesproperty damage,bodilyinjury,and/ordeath 3. Subrogation: - New Brunswick,Ontario,Saskatchewan,and Quebec forbodilyinjuryhaveno-faultordirect compensation insurance,which meansthateachpersoncollectsfromhis orher own insurance company and the victimsinsurer cannottrytoget compensationfromtheat-fault driversinsurer - These provinces have removed the rightofsubrogation-the righttocollect the claimpaid fromthe insurer of the at-fault driver TheAutomobile Policy asa Contract - An automobile policy isa contractthat laysoutin greatdetailwhattheinsurer,thesecond partyto the contract, will and willnot pay for under whatcircumstances,terms,and conditions - Determining the Premium: many factorscontributetotheamount ofyour insurance premium: 1. Probability of a loss: (historic dataand information) Age,gender,and martialstatus - Young,single males have,asagroup,higher ratesofautoaccidents,theirpremiums are higher than thoseofsomeone withasimilar driving record whoisolder,married, and female - Insurance companiesdepend on historicaldatabecausetheyhaveno waytopredict exactly whowillexperience aloss - If you cause a accident,either asingle-car accident orone involving another vehicle, the insurernowhasspecificinformationaboutyouand yourrateswilllikely increase Driving record Driver training - Can reduce premiums for newly licensed drivers Number of yearslicensed - More experienced driverstend tohavefewer accidentsthan newlylicensed drivers Number of claims - Insurance isdesigned toprotect against catastrophiclosses,and insurersareoften less concerned with the sizeoftheclaimand more concerned aboutthenumber ofclaims - Filing twoor three claimsinafewyearswillincrease premiumsdramaticallyand may even get you cut off - Calling an insurance companytoask aquestionaboutaminoraccident youhave caused meansyou havereported theaccident and willaffect your autopremium(but not a home insurance premium)even ifyoudonotmake a claim Number of at-fault accidents - If the policy doesnot
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