Unit 2: Property and Casualty Insurance

Two branches of P&C Insurance

Personal lines — coverage sold to individuals

Commercial lines — coverage sold to businesses

Automobile Insurance: Section A

Third-party liability insurance

Basic insurance

Provides liability coverage to the policyholder if the policyholder injures a third-party or damages a third-party’s property. Minimum $200,000.

Automobile Insurance: Section B

Medical benefits

Basic insurance

Provides coverage to the policyholder and family members in the case of injury in a motor vehicle accident such as medical care and income replacement

Automobile Insurance: Section C

Collision

Optional insurance

Covers the cost and repair or replacement if the policyholder’s vehicle is damaged in an accident

Automobile Insurance: Section C

Other than collision

Covers perils such as hail, fire, vandalism, stone chip, and theft

OTC: Comprehensive coverage

Covers all perils except those specifically excluded

OTC: Specific perils

Covers only perils specifically listed

Tort system

The injured third-party needs to prove that the insured was at fault in the accident and is therefore liable for a claim payment

No-fault system

The injured party does not have to sue for compensation, or even prove that the other driver was at fault in the accident

Subrogation

The insurer, after paying out a claim to the policyholder, assumes the legal rights of the policyholder to sue the at-fault driver in a tort juristiction

Salvage

A legal right of the insurer under auto insurance policies where if a collision claim requires paying the full value of the vehicle, then the insurer gains ownership rights of the vehicle; if the remaining salvage value exceeds the claim paid, the difference is returned to the policyholder

Variables for calculating premium rate for automotive insurance

The driver’s risk

The vehicle’s risk

Coverage level

Homeowner’s Insurance: Section I

Property portion of the policy

Coverage A — Dwelling

Coverage B — Other buildings on the property

Coverage C — Personal possessions

Coverage D — Loss of use of dwelling

Homeowner’s Insurance: Section II

Liability portion of the policy

Covers liabilities arising from
- a third party who was injured
- a property of a third party that is damaged while on the insured property

Variables for calculating premium rate for homeowner’s insurance

Geographical location

Home value

Construction material

Doctrine of proximate cause

A principle stating that a loss is covered only if a covered peril is a proximate cause of a covered consequence (An unbroken sequence of events)

Coinsurance clause (homeowner’s policy)

A clause specifying that the reimbursed amount is reduced on a pro-rata basis, if the coinsurance requirement is not met

This is to encourage insuring the full value by penalizing under insurance