2.4 Maryland State Fund This government-operated residual market company provides coverage to drivers who cannot obtain insurance through the regular market. In spite of high premiums, however, it has suffered heavy losses. Originally, it was to bear such losses itself (through taxation), but the law now requires that the private insurance industry subsidize the fund. (b) Key Takeaways In this section you studied the issue of affordability in auto insurance and options in the residual market for individuals unable to obtain insurance through the usual channels: + In auto insurance plans, drivers can apply to be assigned to an insurer who must sell them coverage that meets the requirements of the financial responsibility laws of that state. Reinsurance facilities are designed to accept risk pools from insurers issuing policies to very high-risk drivers. 9
Where there is a joint underwriting association (JUA), all automobile insurers in the state are members and the association is like an insurance industry company. The Maryland State Fund is subsidized by the private insurance industry. Discussion Questions 1. Larry, a twenty-four-year-old graduate student with three speeding tickets on his record, is considered high-risk and cannot get normal automobile insurance coverage. The state where he lives requires automobile insurance before he can register his car. Explain his options for purchasing insurance coverage. Answer: Recommended options: ● Larry can purchase insurance coverage from the substandard market by paying higher premium rates. ● Larry can purchase insurance coverage from the state law created residual market (shared market). o If Larry lives in any one of these states–Massachusetts, North Carolina, New Hampshire, South Carolina–he can opt for the reinsurance facilities available but should be prepared to pay high premium rates. o If Larry lives in any one of these states–Florida, Hawaii, Missouri–he can opt for insurance from a joint underwriting association. 2. Do you think high-risk drivers should be able to obtain auto insurance at all?
3. TYPES OF AUTOMOBILE POLICIES AND THE PERSONAL AUTOMOBILE POLICY – Learning Objectives The basic types of automobile policies The structure of the personal automobile policy (PAP) in detail The types of coverage provided through the PAP 3.1 Types of Automobile Policies There are two general types of auto insurance policies: commercial use and personal use.
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