PACICC -Compensation - 2015 spring 13
Hello, Graham;
the past exam question for this paper, 2015 spring 13, CAS accepted two answers for this questions, I am wondering which way should be the right one according to the paper?
From this paper, bullet point 7, have one numeric example, it seems the right way is PACICC compensated the insured first with all capping condition, then distribution from liquidation will go to PACICC first, the extra amount ( if applies) will go to the insured.
Does this mean , for above past exam question, sample 2 make more sense?
Thank you!
Comments
Hey cgc2018,
The correct answer seems to depend on what is meant by "distribution from insurer". The question is not clear on this. There is a big difference in the total reimbursement to the insured between the two sample answers. I agree that sample answer 2 actually makes more sense.
In sample answer 1, If PACICC knew that the insured had already received $350,000 from the insurer, they likely wouldn't want to give them another $49,350!! But assuming PACICC didn't know the history of the claim and were only presented with the remaining unpaid claim of $50,000 (out of the original $400,000) then I guess sample answer 1 would be how it's done.
In the wiki, I presented sample answer 1 because they were both accepted and sample answer 1 seemed simpler. You can check the old exam problems on this paper, but I don't think any of them dealt with "distribution from the insurer". They were all more straightforward.
Thank you for the summary!
There is one detail I'm not sure about the Sample Answer 1. If a payment of $350,000 is made to the insured by the insurer, couldn't we assume it is net of deductible? Meaning the insured has already assume the $1,000 even before the implication of the PACICC.
This way, we wouldn't have to apply it when calculating the amount owed by the PACICC to the insured and the answer would be $1,000 higher.
Is it a valid way to reason this?
Edit:
Ah, nevermind that, I just realized that if we do this, we will actually be completely ignoring the deductible since the insured will received the whole amount in the end. Just writting it made me realize it didn't make sense. I'll leave the comment here in case someone comes up with the same bad reasoning one day.
Thank you on behalf of all future Exam 6C candidates.
It's a true crowd-sourcing effort! And I have also linked to this discussion from this location in the wiki:
Let's say we use Option #2, but with today's limits. Would it be something like that?
Well not really because from option 2 as described by Graham, PACICC would pay the full claim. So technically, with a 500K limit, there would be nothing form the insurer's disbursement
SO if dist goes straight to insurer first:
min(limit , claim amount - dist $ - deductible) + min(UEP,2500)*.7 ?
IF dist goes straight to PACICC first:
dist - (min(claim - deductible, limit) + min(UEP,2500)*.7) ?
Obviously, the 2nd answer is a SHORTFALL, because you get hit with the limit FIRST. In this case, won't the PH sue PACICC for that extra 50K????
as of 10/01/2025
Type of Policy Limit
Automobile 425,000
Homeowner 530,000
Business 400,000
Other 400,000
revised
Sample1 is more if payment is directly made from insurer to insured first.
Sample2 is more if payment is made directly to PACICC (who pays the insured).
I think for this question, don't think of it from a real life perspective as you mentioned, the PH could sue PACICC (the math/numbers behind the question is probably not best reflective of what would be the transaction amounts in real life ) and also as Graham mentioned up top, the question isn't real clear as to what has happened/should happen (thus 2 sample answers). Lastly as Graham mentioned, "In sample answer 1, If PACICC knew that the insured had already received $350,000 from the insurer, they likely wouldn't want to give them another $49,350!! But assuming PACICC didn't know the history of the claim and were only presented with the remaining unpaid claim of $50,000 (out of the original $400,000) then I guess sample answer 1 would be how it's done." These details wouldn't be "missed" in real life and there shouldn't be the scenario of the PH losing out on the money they should receive (think of your confusion as a minor CAS wording issue).
Those are the not limits anymore - They should be updated in the lates Excel file, please let me know if you see otherwise. Also, limits can be found here as well
https://www.pacicc.ca/what-we-do/coverage/
Are my formulas right though?
Don't understand your Sample 1 vs Sample 2. Are you referring to full amount or PACICC amount?
IF full amount, since the 'cap' is applied to 400K first, isn't the full amount going to be LOWER if PACICC receives first?
Yup, those are the correct formulas - same as what the examiner report shows.
The sameple1 and sample2 I wrote above, are just referring to same thing what you mentioned "IF dist goes straight to insurer first" or "IF dist goes straight to PACICC first" - The dist meaning just how and who the insured first gets money from.
I am referring to same thing as what Graham mentioned above, does the insurer go insolvent before or after and therefore paying or having paid the insured. The sample1 (so your first formula) is "insurer went insolvent after already paying $350,000 directly to the insured". The sample 2 (your 2nd formula) is "the insurer went insolvent before making any payments to the insured".
Not sure, I understand your comment on "IF full amount".. I highly suggest taking the time to read through Graham's 2 bullet points above to understand the different scenarios and why the formulas are different depending on how the insured gets paid! As mentioned the question is a bit "flawed" leading to the there being 2 different solutions so I wouldn't get too caught up in the details or concerns of one payment being less than the other - hope this helps clear things up. Thanks!