KPMG.BC

Fault versus no-fault AutoIns systems. Or in modern parlance, liability versus injury systems. The discussion was motivated by issues in BC, but is applicable to AutoIns everywhere.

Pop Quiz

• Since KPMG.BC is a reading about auto insurance, I thought I'd make today's pop quiz about an auto insurance topic from FSCO.PPA.
• If you're doing a rate filing in Ontario, what are the requirements for being able to submit a simplified filing? Here's a hint:
  • There are 3 numerical guidelines and 2 descriptive guidelines. The numerical guidelines are:
    • changes to AllCovs combined <= 0%
    • changes to territorial base rate & relativities between (-15%, 5%)
    • all individual changes < 15%
• Do you remember the 2 descriptive guidelines?

Keywords

liability, injury, threshold, BRAWS

In Plain English!

Intro & Types of Insurance (AB)

• These sections go into the details of fault (or full-tort) versus no-fault insurance. These terms seem to have fallen out of favor, however, and have been replaced by liability versus injury insurance.
  • In plain English, the liability system means that you recover damages from the person who caused the accident (or their insurer) by taking them to court if necessary. The injury system means that your own insurer compensates you for damages (so you don't need to bother with the time & expense of going to court.)
  • Well, who the heck cares which system we use??? Theoretically, in both systems, the responsible party is protected, and the injured party is compensated, right? Well, yes, but it isn't quite that simple. Different systems may provide different incentives - that's a question that should be considered when designing a compensation system.
• It turns out that both systems have their advantages and disadvantages. The best system is likely a combination of the the two - a threshold system.
  • A threshold system considers the severity of your injury:
    • if your severity is below the threshold: use the injury system (for quick recovery from your own insurer)
    • if your severity is above the threshold: use the liability system (sue the pants off the responsible party!)
  • But hold on!! What does it mean for a severity to be above / below a threshold? It turns out that there are 3 types of threshold systems. (See, I told you it wasn't so simple!)

Type 1:	descriptive (verbal)
Type 2:	monetary (applies when damages > specified $-amount)
Type 3:	combination of descriptive & monetary

• Now, which of these threshold systems works best, and why? Do the mini BattleQuiz to find out.

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mini BattleQuiz 1 You must be logged in or this will not work.

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Product Variables & Evaluation (CDEF)

• This is an example of a mid-ranked reading with lots of details. It hasn't appeared on the last 4 exams, but in 2015.Spring, there were 2.75 points. This means that you can't ignore the reading, but you CAN ignore most of the details.
• If you can describe the liability system, the injury system, the threshold system, and the advantages & disadvantages of each, you're in good shape.
• The only item I think is worth adding is a list of characteristics that a motor vehicle system should satisfy: BRAWS
  • B: BENEFITS should be fair & adequate
  • R: RESPONSIBILITY (should encourage personal responsibility)
  • A: AFFORDABILITY
  • W: WELLNESS (should promote)
  • S: SERVICE (should emphasize good customer service)
• This has not been asked on any at least as far back as 2012, but it seems like a pretty good question. And it's easy to remember the answer because there is a very simple memory trick: BRAWS

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mini BattleQuiz 2 You must be logged in or this will not work.

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BattleCodes

• Memorize:
  • description of liability system, injury system, threshold system
  • advantages & disadvantages of each system
  • characteristics that a motor vehicle system should satisfy (BRAWS)

• Conceptual:
  • You should try thinking about these different systems from the points of view of different participants: at-fault driver, injured party, insurer, regulator. Some of this is covered in the BattleCards, and some is for you to think about later when you have more time - especially if you work at an auto insurance company.

• Calculational:
  • none

Full BattleQuiz You must be logged in or this will not work.

POP QUIZ ANSWERS

• Descriptive guidelines for being able to submit a simplified rate filing in Ontario:
  • new discounts ok (except UBI) IF identical to another insurer
  • can't change rating algorithm EXCEPT for new discounts