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Webinar on Insurance Coverages
Property and Casualty Insurance
Presenter – David M. Pooser, Ph.D. Assistant Professor of Risk Management & Insurance St. John’s University Moderator – Frank Tomasello Program Director The Griffith Insurance Education Foundation
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Property and Casualty (P&C) Insurance In the U.S. • In 2014…
• More than 2,500 insurance companies • $502 billion of net premiums written (2014)
• Auto insurance makes up more than one-third of industry premiums
• Roughly 600,000 individuals directly employed by the P&C industry
• Insurance coverages include property, liability, business interruption, workers’ compensation, and more
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Property Risk
• Property is typically categorized as real or personal • Real property includes land, structures, and permanent
attachments • Personal property includes contents and other mobile
equipment or property
• Property risks can be direct or indirect
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Liability Risk
• Liability insurance covers losses stemming from negligent acts
• Liability insurance covers the value of a judgment or settlement plus legal defense costs (often as an additional benefit)
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Types of Insurance We Will Discuss
• Auto Insurance • Special Section on Driverless Cars
• Homeowners Insurance • Workers’ Compensation Insurance
• Reinsurance • Excess & Surplus Lines Insurance
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Emerging Risks
• What is an emerging risk?
• What are examples of emerging risks?
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Emerging Risk – Driverless Cars
• Autonomous Vehicles (Driverless Cars) are developing:
• Now: autonomous parking, adaptive cruise control, collision warning
• Soon: hands-free vehicles for freeway or low-speed driving
• Later: fully autonomous vehicles capable of navigating from destination to destination without driver input
• How will these vehicles impact the P&C insurance industry?
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Driverless Cars
• Benefits: • Reduction in accident frequency • Improved traffic patterns
• Costs • Economic impact on insurers, garages, car
manufacturers • Decreased control for the driver • Shifting the responsibility of accidents and injuries
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The Personal Auto Policy The most common tool for individuals and families to protect
against the risk of property damage and physical injury stemming from car accidents
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Understanding The Personal Auto Policy (PAP) • What does auto insurance cover?
• Part A – Liability • Part B – Medical Payments • Part C – Uninsured/Underinsured Motorists • Part D – Physical Damage • Personal Injury Protection / No Fault
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Part A – Liability Coverage • Insurer pays defense costs plus judgments or
settlements stemming from: • Bodily injury to another person(s) • Property damage to others’ property
• Insured must be found legally responsible • Applies to
• Insured when driving covered vehicles or others’ vehicles
• Other occasional drivers of the covered vehicle
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Driverless Cars & Liability Insurance • Driverless cars will likely still be involved in
accidents. • Failure in physical technology • Failure in software technology
• Major policy question: Who is liable when injury or
property damages is caused by a self-driving vehicle?
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Part B – Medical Payments Coverage • Insurer pays reasonable and necessary medical
expenses for injuries from an auto accident. • Covered individuals are:
• Insured in any auto • Insured pedestrian injured by auto • Occupants of insured auto
• Medical Payments… • Are paid regardless of fault • Carry per-person limit • Typically do not cover lost wages or extra expenses after
an accident
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Driverless Cars & Medical Payments • Driverless cars are expected to reduce accident and
injury frequency and severity • Healthcare and health insurance participation is
increasing • Future is uncertain
• Major policy question: What will happen to Medical Payments Coverage?
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Part C – Uninsured Motorists Coverage • Insurer (typically) pays for bodily injury to:
• The insured in a covered vehicle, other vehicle, or as a pedestrian
• Passengers in a covered vehicle
• Covers injury from • Uninsured motorists • Hit-and-run drivers • Insolvent drivers
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Driverless Cars & Uninsured Motorists Coverage • Question: What is the purpose of Uninsured
Motorists Coverage? • Answer: To replace the liability protection of another
driver (who does not have it)
• Major policy questions:
• Will Uninsured Motorists Coverage be necessary if liability is shifted from the driver to the manufacturer?
• What about a widely-adopted no-fault system?
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Part D – Physical Damage Coverage • Insurer pays for physical damage to the insured’s
covered autos
• In some cases, the insurer pays for damage to: • Non-owned auto not for the insured’s regular use • Auto or trailer used as temporary substitute vehicle
(loaner)
• The insured must pay a deductible if a loss occurs
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Physical Damage Coverage – Collision • Insurer pays for physical damage stemming from
the covered auto: • Colliding with another vehicle • Striking an object • Overturning
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Physical Damage Coverage – Other Than Collision • Insurer pays for physical damage to the covered
auto which did not result from collision • E.g., damage from fire, theft, vandalism, hail, animal
contact, flood, and glass breakage
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Driverless Cars & Physical Damage Coverage • Accident frequency is expected to be reduced
substantially • Reduction in physical damage losses overall
• Question: Will loss costs per accident increase or decrease?
• Driverless cars rely on computer components throughout a vehicle – costly to repair & replace
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No Fault / Personal Injury Protection • Insurer pays:
• Medical expenses • Lost wages • Extra expenses (e.g., daycare, cooking & cleaning
services, other daily living activities)
• Pays benefits regardless of fault • May restrict victims’ right to sue (“true” no-fault
laws) • Added by endorsement
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Impact Summary: Driverless Cars
• Potential major reduction in auto insurance premiums
• Shift in liability from drivers to manufacturers of vehicles and software
• Increase in No-Fault coverage? • A shift to usage based insurance
• Telematics will be more widespread because the driverless cars will come automatically equipped with a “black box”
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Questions
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The Homeowners Insurance Policy
An individual or family insurance policy which protects against losses to real property, personal property, extra expenses after a
loss, and liability claims
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Understanding The Homeowners Policy • Section I – Property Coverages
• Coverage A: Dwelling • Coverage B: Other Structures • Coverage C: Personal Property • Coverage D: Loss of Use
• Section II – Liability Coverages • Coverage E: Personal Liability Insurance • Coverage F: Medical Payments to Others
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Section I—Property Coverages, Dwellings and Other Structures Protects: • House and structures attached to house • Detached structures on premises Perils insured against depend on policy.
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Section I—Property Coverages, Personal Property and Loss of Use
• Personal Property—property other than dwelling and other structures
• Loss of Use—financial losses when an insured residence is uninhabitable • Reimbursement for living or meal expenses • Fair rental value
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Section II—Liability Coverages, Personal Liability
• Bodily injury or property damage for which the insured is legally liable.
• Insurer is obligated to defend the insured.
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Section II—Liability Coverages, Medical Payments to Others • For persons injured at insured’s premises. • Applies whether or not insured is liable. • Claim must be made within three years.
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Policy Choices—Perils • Perils are causes of loss. • Named perils—Perils listed in the policy. • Open perils—All perils not excluded by the policy.
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Questions
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Workers’ Compensation Insurance
Workers compensation (WC) laws provide an exclusive remedy for work-related injuries. Employers are required to cover such injuries without regard to fault and employees’ right to sue in
such cases is limited.
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Understanding Workers’ Compensation (WC) Insurance
• Employers are obligated to pay for workers’ on-the-job illnesses and injuries
• Employees’ have a limited right to sue their employers for injury and illness
• This helps reduce litigation costs for both parties as well as court burdens
• WC guarantees prompt payment of claims which protects individuals and families
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Details of WC Coverage
• Insurer pays: • Medical expenses • Disability income benefits • Rehabilitation benefits • Death benefits
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Who is Covered by WC Insurance?
• Covered – Industrial workers and most workers of private employers
• Exempt from coverage (varies by state): • Small businesses with few employees • Farm labor • Domestic employees • Casual employees • Independent contractors
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Financial Stability for WC Claims
• State laws require employers to demonstrate ability to pay WC claims.
• Employers can meet this requirement through market insurance or self-insurance.
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WC Insurance Markets
• Private Insurance Market (Voluntary Coverage)
• Assigned risk plan (Involuntary and/or Residual Coverage)
• State fund • May be competitive or monopolistic
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Self-Insurance for WC
• Self-insurance plans
• Self-insured groups
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Questions
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Excess and Surplus Lines (E&S) Insurance
The surplus market includes unique or unusual exposures as well as those exposures that the standard market is unwilling or
unable to insure.
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Understanding E&S Coverage • E&S Insurers typically provide coverage for:
• Unusual or unique loss exposures • Nonstandard business • Insureds needing higher coverage limits • Insureds needing unusually broad coverage • Loss exposures that require new forms of coverage
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Unusual or Unique Exposures • Standard insurance depends on a large number of
similar ‘exposure units’ • Loss prediction accuracy improves with more exposure
units
• Some risks are unique or uncommon
• Event cancellation for a major band or singer • Cruise ships • Commercial jets
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Nonstandard Business
• Standard insurers may not cover high-risk or uncontrollable loss exposures.
• The premium becomes “economically unfeasible”
• Examples:
• A condominium in the Florida Keys for the risk of hurricane damage
• A restaurant owner with a history of kitchen fires
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High Limits, Broad Coverage, New Exposures • In comparison to what the standard market
provides, the E&S market provides: • Higher-limit coverages • Broader coverage • Coverage for new exposures
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E&S Lines Regulation
• Some states maintain lists of approved E&S insurers.
• Other states maintain lists of unapproved E&S insurers.
• Most states require all E&S business to be placed through an E&S broker.
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Questions
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Reinsurance Reinsurance is a financial tool used by insurers to protect against
catastrophic risk exposure, write greater limits of insurance (insure larger risks), grow their book of business, and more. Reinsurance helped the U.S. insurance industry withstand
events such as the 9/11 Terror Attacks and Hurricane Katrina.
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Understanding Reinsurance • Insurer transfers liability for certain losses to
reinsurer. • Insurer pays the reinsurer a premium for this transfer • Reinsurer pays the insurer a ‘ceding commission’ to
help offset administrative costs of selling
• Insurer retains some of the loss; Coverage is subject to limits
• Reinsurers also use reinsurance (retrocession)
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Benefits of Reinsurance • Reinsurers share part of the burden of primary
insurers’ financial loss • Reinsurance improves insurers’ financial stability
(good for policyholders) • Reinsurance may help an insurer grow its book of
business
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Costs of Reinsurance
• Reinsurance increases premiums to policyholders (additional risk transfer is costly)
• Policyholders cannot collect directly from reinsurers (Two exceptions): • Cut-through endorsement • Purchase of reinsurance for captive insurer or pool
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