Class 8 Outline
Business Finance 640 - Insurance and Risk
Winter Quarter, 2008
This class will focus on the Personal Auto Policy (PAP).
However, at the outset, we will return to
adverse selection, a topic that we touched on at the start of the course.
Adverse selection is the
tendency of persons with higher-than-average chance of loss to seek insurance at standard rates.
We will see how adverse selection impacts auto rate classification system, underwriting selection,
limits and deductibles.
We will then return to the PAP and review two topics introduced in the previous class, eligible
vehicles and the definition of “your covered auto”.
We will likewise revisit Part A – Liability
Coverage and look again at the Insuring Agreement, the definition of Insured, Supplementary
Payments and Exclusions.
We will move forward into “out of state coverage” and the “other
insurance provisions”, which were not covered in the previous class.
Next, we will discuss Part B of the PAP, Medical Payments Coverage.
We will examine the
Insuring Agreement of Part B, as well as the Definition of Insured and Exclusions.
Then, we will
turn to Uninsured Motorists Coverage, which is Part C of the PAP.
We will pay particular
attention to the definition of “Uninsured motor vehicle” in Uninsured Motorists and see how this
definition impacts the Insuring Agreement.
We will then turn to Part D, Coverage for Damage to Your Auto.
We will see how physical
damage coverage has two parts: Collision and Other than Collision, and we will clarify the
meaning of each.
We will conclude by reviewing Part E, “Your Duties after an Accident or Loss”, and Part F,
In the General Provisions review, we will look at Policy Period and Territory
and the Termination provision.
Adverse Selection and Insurance
Adverse selection: Tendency of persons with a higher-than-average chance of loss to
seek insurance at standard (average) rates.
Consequences of adverse selection: If not controlled by underwriting, results in
higher-than-expected loss levels.
Can be controlled by careful underwriting, by charging higher premiums to
substandard applicants for insurance, and by certain policy provisions (deductibles,
limits, sub-limits etc.).