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Automobile Insurance Coverage

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					Automobile Insurance Coverage
Introduction
Automobile insurance protects consumers, their loved ones and their property. It is an absolute ―must‖ to
safeguard investments, pay for medical expenses in case of an accident, provide financial protection against
lawsuits, and cover losses caused by uninsured or underinsured drivers. More importantly, it is required by the
law in most states.

The responsibilities of owning and driving an automobile include purchasing automobile liability insurance. It is
important that licensees educate consumers about automobile insurance in order for the consumer to
understand what coverage the insurance company offers for his/her protection and what coverage best meets
the consumer‘s needs and fulfills any requirements under the law. A consumer needs to be able to make an
informed decision about the type of policy to invest in.

A consumer must have auto insurance that is sufficient to meet the motor vehicle financial responsibility laws
of their state. In most cases, this means coverage for bodily injury, property damage, liability and possibly
uninsured motorist coverage. Each auto policy is unique to the state in which the licensee is located.

This course will explore various types of personal and commercial vehicular insurance. It will also discuss
fraud, safety issues and highlight specific issues and demonstrate how individual states address the issue.



Chapter One: Introduction to Automobile Insurance and Its History

Insurance Defined
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of
contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to
another, in exchange for a premium. (Wikipedia 2007)

In return for payment of the premium and subject to all the terms of an automobile policy, the insurance
company provides the coverages and limits of liability for which a premium is shown on the policy in the
Declarations section.

The insurer is the company that sells the insurance. The insurance rate is a factor used to determine the
amount, called the premium, to be charged for a certain amount of insurance coverage.

Risk management is the practice of appraising and controlling risk, and has evolved as a discrete field of
practice. Risk management is the process of measuring, or assessing risk and developing strategies to
manage it. Strategies include:
     transferring the risk to another party
     avoiding the risk
     reducing the negative effect of the risk
     accepting some or all of the consequences of a particular risk.
Traditional risk management focuses on risks stemming from physical or legal causes (e.g. natural disasters or
fires, accidents, death, and lawsuits). Financial risk management, on the other hand, focuses on risks that can
be managed using traded financial instruments.
Risk is an Unavoidable Fact of Life
In every area of our lives we are continuously surrounded by risk. While the various policies we own cannot
prevent a loss, they can, and do, provide financial recovery from those losses. Insurance is meant to protect
the insured, their loved ones, and possessions, from the monetary risks we face every day.

History of Insurance
The origins of automobile insurance evolved from marine insurance in ancient China.

3000 B.C.
Marine insurance is as old as marine trade dating back to 3000 B.C. Early merchants that traded on the rivers
in China utilized a form of loss control involving deliberately spreading a certain cargo throughout several ships
to reduce the chances of a potential total loss of cargo.

Ancient Babylon
It was in ancient Babylon where the earliest record of insurance can be found. It was called bottomry, which
was a practice of advancing the money on the security of the ship to protect against potential perils of the sea.
Traders whose cargoes were advanced by merchants were thus protected from debt in the event that the
cargo was lost. 20% was the customary figure of money advanced in bottomry. This practice continued
throughout the Mediterranean Region and followed by the Romans who used a percentage of 12% advance
money.

Ancient Greek and Phoenicians
Another marine insurance term was used by Greek and Phoenician traders in ancient times. It was called
―General Average‖. Any cargo that was salvaged or able to be saved by the property owners was kept by the
owner of the property.

600 A.D.
Next came the guilds. The Greeks and Romans introduced the origins of health and life insurance c. 600 AD
when they organized the guilds known as benevolent societies that cared for families and paid funeral
expenses of members upon death. Danish navigators began forming guilds whose role was to indemnify its
members against losses at sea. The same era also found the first premiums in marine insurance. The
merchant cities like Venice and Florence in the Mediterranean began a widespread act of utilizing extensive
written documents and utilized the principles of mutual insurance against the loss of pillage through
contribution.
  th
13 Century
The basic concepts of marine insurance were brought by the Lombards to northern Europe and England in the
13th Century.

14th Century
The oldest marine policy known to have been issued was on a ship named the Santa Clara. The oldest policy
document in existence was dated April 24, 1384 and covered four bales of textiles on a journey from Pisa to
Savona. Separate insurance contracts (insurance policies not bundled with loans or other types of contracts)
                                            th
were invented in Genoa, Italy in the 14 Century, as were insurance pools backed by pledges of landed
estates. These new insurance contracts allowed insurance to be separated from investment, a separation of
roles that first proved useful in the marine insurance discussed here.

15th Century
It was in China where cargo ship owners would meet with investors before setting sail to the ―new world‖ in the
colonies across the Atlantic Ocean. The owners of these ships would occasionally lose a ship either by piracy
or the ship sinking. The group of investors took the gamble of insuring the ship and cargo would make it safely
in exchange for a premium consideration.
17th Century
Insurance became much more sophisticated in post-Renaissance Europe and specialized varieties began to
be developed. Near the end of the 17th century, London‘s growing importance as a center for trade increased
demand for marine insurance. By the 17th Century, London, with the emergence of Lloyd‘s of London
Association, had developed into a leading center for marine insurance. In England, friendly societies existed in
the late 17th Century that functioned with people donating certain amounts of money to a general sum that
could be used for emergencies.

The well-known Lloyd‘s of London traces its roots to a coffee shop founded by Samuel Lloyd in 1688 and
became a popular meeting place for the transaction of insurance business among ship owners, ship captains,
underwriters and merchants. It became a reliable source for current news for the shipping industry. People
went there seeking to insure cargo as well as underwrite cargo.

Insurance as we know it today can be traced back to the Great Fire of London in 1666. It burned 13,200
houses (wikipedia.org 2007). After this disaster, Nicholas Barbon opened an office to insure buildings. In 1680,
he established England‘s first fire insurance company called The Fire Office to insure frame as well as brick
homes.

18th Century
By 1734, the official list of ships and values known as the ―Lloyd‘s List‖ was first published. More than 250
years later, it continues to serve as the leading shipping list in the marine insurance industry. In 1769,
underwriters took their informal arrangements and founded the organization known today as Lloyd‘s of
London. Ten years later, the first standard policy wording was developed for use at Lloyd‘s. (Progressive
Insurance Online 1999).

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town
(Charleston, SC) in 1732. Ben Franklin made the use of insurance a standard practice, especially for fire
hazards in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the
Insurance of Houses from Loss of Fire. Franklin‘s company was the first to make contributions toward fire
prevention. It refused to insure buildings if the risk of fire was too great. For example, wooden houses were
thought to be too much of a risk.

19th Century
   The 19th century saw a rise in the government regulation of insurance in the United States.
   In 1895 a group of Norwegian immigrants formed the Sons of Norway, a fraternal insurance organization,
     which continues to this day.
   There were active efforts in the 19th Century to establish insurance operations — for protection as well as
     for generating capital.

20th Century
   The 20th century saw further specialization and, in the United States, a bit of deregulation that allowed
     other financial institutions, such as banks, to offer insurance. The ever-increasing ability of science to
     predict catastrophes of any measure or variety continues to affect the way insurance is conducted.
   McCarran-Ferguson Act. Federal law signed in 1945 in which Congress declared that states would
     continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust
     legislation.
   Until the mid-1960s, most drivers who did not meet an insurance company‘s ―standard‖ or ―preferred risk‖
     underwriting criteria could only find coverage in the shared market, where prices are generally much
     higher and insurers pool or share the profits and losses. With advancements in computer technology that
     made it easier to set appropriate prices for smaller and smaller risk categories, some insurers began to
     specialize in insuring drivers with marginally bad driving records.
   GAP coverage or GAP insurance, was established in the early 1980s to provide protection to consumers
     based upon buying and market trends. The escalating price of cars, longer-term auto loans, and the
     increasing popularity of leasing gave birth to GAP protection.
   In the early 1990s, the concept of pure no-fault, which prohibits most lawsuits for bodily injury, began to
     garner support. Pure no-fault addresses several societal concerns: the waste of resources and the
     inequities in the liability system and the need to have affordable coverage for medical care and
     rehabilitation costs.
   By the late 1990s the nonstandard market accounted for about one-fifth of the total private passenger
     auto insurance market. (iii.org 2007)

  st
21 Century
Between 1996 and 2005:
   claim frequency fell 17.8 percent for bodily injury claims and 11.5 percent for property damage claims.
   Claim severity increased steadily, rising 16.9 percent for bodily injury claims and 27.4 percent for property
     damage claims.

In 2004:
    Automobile insurance covered 175 million automobiles in 2004 in the U.S.
    Based on 2004 data from the National Association of Insurance Commissioners (NAIC), 77 percent of
      insured drivers purchase comprehensive coverage in addition to liability insurance, and 72 percent buy
      collision coverage.

In 2005:
    claims accounted for $68 of every $100 earned in private passenger auto insurance premiums in the
      United States.
    Lawyers‘ fees accounted for $11 out of every $100 in premiums. Half of the fees went to plaintiffs‘
      attorneys and the remainder to defendants‘ attorneys.
    Theft accounted for about 25 percent of the dollars that go to pay comprehensive claims, or 2 percent of
      premiums earned for private passenger auto insurance.

In 2007:
According to Insurance Information Institute, the average expenditure for automobile insurance is expected to
drop by 0.5 percent in 2007 to $847, the first decrease since 1999.

Many states are looking at use of cell phones while driving, especially in teen drivers

Today:
Lloyd‘s of London remains the leading market for marine and other specialist types of insurance, even though
it works differently from other familiar types of insurance. In the United States, regulation of the insurance
industry is the primary responsibility of individual state insurance departments. Insurance markets have
become centralized nationally and internationally, but state insurance commissioners operate independently
most often. The state insurance commissions at times do work in conjunction with national insurance
commissioners and their organizations though. Recently, some have called for a dual state and federal
regulatory system for insurance similar to that which oversees state and national banks.

The Basics of Automobile Insurance
Losses from property damage, medical and legal costs, and lost income add up to billions of dollars annually
for automobile mishaps. Automobile insurance plays an important role in protecting consumers from serious
financial losses that can result from such accidents.

The 6 basic types of auto insurance coverage include:
    1. Bodily Injury Liability. Pays your legal defense costs and claims against you if your car injures or kills
       someone. Covers family members living with you and others driving with your permission.
    2. Property Damage Liability. Pays your legal defense costs and claims against you if your car damages
       another‘s property. Does not cover your property, including your auto.
    3. Medical Payments or Personal Injury Protection. Pays medical expenses resulting from an accident for
       you and others riding in your car. Also pays for you or your family members injured while riding in
       another‘s car or while walking.
    4. Collision. Pays for repairs of damage to your car caused by a collision with another vehicle or any
       other object, regardless of who was responsible.
    5. Comprehensive Physical Damage. Pays for damages to your car resulting from theft, fire, hail,
       vandalism, or a variety of other causes.
    6. Uninsured or Underinsured Motorist. Pays for costs related to injuries or property damage to you or
       your family members and guests in your car caused by an uninsured, underinsured, or hit-and-run
       driver.


Bodily Injury Liability
Covers other people‘s bodily injuries or death for which you are responsible. It also provides for a legal
defense if another party in the accident files a lawsuit against you. Claims for bodily injury may be for such
things as medical bills, loss of income or pain and suffering. In the event of a serious accident, you want
enough insurance to cover a judgment against you in a lawsuit, without jeopardizing your personal assets.
Bodily injury liability covers injury to people, not your vehicle. Therefore, it‘s a good idea (and usually a
company requirement) to have the same level of coverage for all of your cars. Bodily Injury Liability does NOT
cover you or other people on your policy. Coverage is limited to the terms and conditions contained in the
policy. It is mandatory in most states. You also receive liability protection for most types of trailers used with
your automobile.

It further covers other people‘s expenses for accidents caused by drivers covered under your policy, up to your
policy‘s dollar limits. These may include the other person‘s medical and funeral costs, lost wages, and
compensation for pain and suffering car repair or replacement costs auto rental while their car is being
repaired punitive damages awarded by a court.

Bodily Injury Costs
Recent increases in bodily injury severity reflect higher hospitalization, pharmaceutical and legal costs. There
are additional payments that are available under this coverage. Certain claims expenses, attorney expenses
and fees, some court costs and interest on a judgment may be covered, subject to policy provisions. Liability
coverage can make up more than half your auto premium.

This coverage is subject to policy exclusions. For policy exclusion details, the consumer should consult the
policy, or contact the issuing Agent. Policy limits are expressed as applying to ―each person‖ or for ―each
accident‖ and are subject to the limits purchased and shown on the Policy Declarations.

Who‘s covered?
  Policyholder
  Other drivers covered by the policy
  Passengers
  Persons given permission to drive your car

How much protection does this coverage provide?
If the other driver involved in an accident is underinsured, this coverage typically pays any difference between
what the other driver‘s insurance covers and what your bodily injury coverage will pay. The coverage limits
refer to the maximum amount that will be paid per person, per incident, respectively. If the limits you purchase
are lower than an accident‘s costs, you‘ll be responsible for paying the amounts over your limits, unless you‘re
covered by health insurance.

The dual coverage limits refer to the maximum amounts that will be paid per person, per incident, respectively.

Essential things to keep in mind when selecting your Bodily Injury limits:
  If you select limits that are too low, you could be putting yourself at risk financially. For example, if either you
  or a driver covered by your policy cause a serious injury where damages exceed your limits, you will be held
  responsible for the amount above your limits. To make that payment, you could be forced to liquidate
  property, savings, and other assets, or your future earnings could be attached. By purchasing liability limits
  to account for both your current assets and future net worth, you can help protect yourself against this risk.

Who might benefit from buying uninsured motorist bodily injury coverage?
Individuals without health insurance may benefit from this coverage, because if the limits chosen are
inadequate, the insured may be responsible for paying the additional amount.

Property Damage Liability
This liability covers the insured if their car damages someone else‘s property. Usually it is their car, but it could
be a fence, a house or any other property damaged in an accident. It also provides you with legal defense if
another party files a lawsuit against you. It is a good idea to purchase enough of this insurance to cover the
amount of damage your car might do to another vehicle or object. Coverage is limited to the terms and
conditions contained in the policy.

How much protection does this coverage provide?
The coverage limits refer to the maximum amounts that will be paid per accident.

Essential things to keep in mind when selecting your Property Damage limits:
  If you select limits that are too low, you could be putting yourself at risk financially. For example, if either you
  or a driver covered by your policy cause a serious accident where damages exceed your limits, you will be
  held responsible for the amount above your limits. To make that payment, you could be forced to liquidate
  property, savings and other assets, or your future earnings could be attached. By purchasing liability limits to
  account for both your current assets and future net worth, you can help protect yourself against this risk.

Liability Coverage
    Liability insurance pays attorney fees if you are sued and bail up to a certain amount if you are arrested.
    Covers:
    family members and other people driving your car with your permission, even if they don‘t have their own
       liability insurance and are not named on your policy. You and your family members also are covered
       when driving someone else‘s automobile - including a rental car - but not a car that you don‘t own but
       have regular access to, such as a company car.
    away from home and a spouse living elsewhere during a marital separation also are covered.

Who qualifies as a family member?
Your auto policy covers your spouse, blood relatives, in-laws, adopted children, wards, and foster children
living in your home, even if not named on the policy. Family members attending school

Case Example: Liability
If Kaitlin drives into a telephone pole and damages the pole, liability coverage pays for the damage to the pole.
In this example, Kaitlin also may become liable for other expenses related to damaging the telephone pole,
such as loss of service claims (by the telephone company).

Limits of Liability Coverage
Liability coverage is available either as a combined single limit policy or as a split limit policy:
   Combined Single Limit. A combined single limit combines property damage liability coverage and bodily
     injury coverage under one single combined limit. For example, Michael has a combined single liability
     limit and strikes another vehicle and injures the driver and the passenger. Payments for the damages to
     the other driver‘s car, as well as payments for injury claims for the driver and passenger, would be paid
     out under this same coverage.
   Split Limits. A split limit liability coverage policy splits the coverages into property damage coverage and
     bodily injury coverage. In the example with Michael given above, payments for the other driver‘s vehicle
     would be paid out under property damage coverage, and payments for the injuries would be paid out
     under bodily injury coverage.

Note that bodily injury liability coverage is also usually split as well into a maximum payment per person and a
maximum payment per accident.

Medical Benefits Coverage
Covers the insured‘s medical and hospital bills (within policy limits) if they are injured in a car accident. It will
also cover medical bills (within limits) of any passenger in their car.

Medical Payments Coverage
Pays: Medical and funeral bills arising from accidents, including those in which the victim was a pedestrian or a
bicyclist.

Covers: The insured, their family members, and passengers in their car, regardless of who caused the
accident.

First Party Benefits - Medical
First Party Benefits (FPB) cover several areas of insurance coverage; however, this definition is for First Party
Benefits-Medical. Similar to medical payments coverage and Personal Injury Protection, FPB helps pay for
your medical expenses if you or relatives living in your household are injured in an accident. Specific limits and
coverages vary by state, but typically these services include:
    Related medical and surgical treatment
    Essential rehabilitative services (physical therapy, speech pathology, etc.)
    Necessary dental, psychiatric, psychological, and optometric treatment
    Ambulance and nursing service
    Required medications, medical supplies, and prosthetic devices

Who‘s Covered?
First Party Benefits-Medical provides coverage to the policyholder, drivers listed on the policy and relatives
living in the same household as the policyholder.

How much protection does this coverage provide?
Total payments covered by FPD are the limits indicated. That is the maximum amount that will be paid per
person for any combination of covered expenses.

Medical Payments:
There may also be coverage if, as a pedestrian, a vehicle injures you. Medical payments may also cover
policyholders and their family members when they are injured while riding in someone else‘s car or when they
are hit by a car while on foot or bicycling. Coverage is limited to the terms and conditions contained in the
policy.

This coverage pays reasonable medical expenses that are incurred within a specific time period from the
accident date. Coverage applies up to the limits for you or any persons injured in your automobile, regardless
of who is at fault.
Who might benefit from buying Medical Payments coverage?
If you and your regular passengers already have health insurance that covers similar expenses, medical
payments coverage may be unnecessary. Check your health insurance policy for details.

Accidental Medical Protection Plan:
Covers you (or family under a Family Plan) while driving or riding in any private passenger vehicle. Defined
accident medical expenses are paid directly to you without a deductible.

No-Fault Insurance
Also called Personal Injury Protection (PIP) Coverage
PIP only pays medical bills and lost income up to the limits of the policy. If the no-fault insurance does not
cover all expenses, the driver at fault can be sued in some states.

In Pennsylvania and New Jersey a hybrid form no-fault system known as ―choice no-fault‖ exists. In these
states the insured may choose:
    to be insured under a strict no-fault plan, in which case the insured is unable to sue the driver at fault in
      the accident. Likewise, the insured cannot be sued if he or she is at fault.
    not to take out no-fault insurance and be able to sue other drivers that are at fault. On the other hand, the
      insured can still be sued if they are at fault.
(See Chapter 5 for Specific States with No-fault requirements)

An insurance company must offer a consumer a minimum PIP amount if available, but more can be
purchased. If the consumer does not want PIP, they must reject it in writing.

Personal Injury Protection Coverage (PIP)
Covers within the specified limits:
   the medical expenses
   hospital expenses
   funeral expenses of the insured, others in his vehicles
   pedestrians struck by the insured
   the insured‘s own injuries on a first-party basis, without regard to fault

Who‘s covered?
    Policyholder
    Policyholder‘s relatives in the same household
    Passengers
    Other authorized drivers
Policyholder and family members if they are injured while riding in someone else‘s car or as a pedestrian when
struck by another vehicle. (in some states)

How much protection does this coverage provide?
Total payments covered by PIP are indicated in the policy. The policy states the maximum amount that will be
paid per person for any combination of covered expenses (some states offer limits and others set it to an
amount like $10,000). Specific limits and coverages vary by state.

Who might benefit from buying additional medical coverage along with PIP?
PIP may be needed by people who do not have health insurance that adequately covers potential medical
expenses or people who carpool or frequently drive with passengers.
Collision
Collision insurance pays for damage to the insured‘s car caused in a traffic accident. Collisions that result in
serious and fatal occupant injuries are relatively rare.

Vehicles with high death rates often have high frequencies of insurance claims for occupant injuries. For
example, small 2- and 4-door cars typically have high death rates and higher-than-average insurance injury
claims. Some vehicles (e.g., sports cars) can have low injury claim frequencies but a high relative rate of
severe or fatal injuries because of the manner in which they are driven.

Collision covers damage to the car when the insured‘s car hits, or is hit by, another vehicle, or other object. It
pays to fix the vehicle less the deductible chosen by the insured. For older cars, consumers should consider
dropping this coverage, since coverage is normally limited to the cash value of the car. Coverage is limited to
the terms and conditions contained in the policy. This is not required by the state, but if the consumer has a
loan or a lease then the lien holder will require it.

A higher deductible can substantially lower the cost of insurance premiums. The agent can discuss this
savings and help the consumer set the deductible against the ability to absorb a larger out-of-pocket expense.
To keep the premiums low, the licensee should recommend as large a deductible as the consumer feels
comfortable paying out-of-pocket.

Who might benefit from buying Collision coverage?
    If a car is financed or leased, the finance company will probably require that collision coverage.
    If the consumer has a newer vehicle or one in excellent condition, the agent may need to recommend this
       coverage to replace or repair the vehicle in case of loss.
Collision coverage pays for loss or damage to your automobile caused by collision or upset, regardless of who
is at fault. After a loss occurs, the insured must take reasonable steps to protect the vehicle from further loss.
Towing and reasonable storage cost will be paid until the insurance company offers a settlement.

Collision Pays:
The cost of repairing or replacing the vehicle after an accident, regardless of who was driving or who was at
fault. Payment is limited to the car‘s actual cash value, minus the deductible. Actual cash value is the market
value of a car similar to the wrecked vehicle before it was damaged.

Comprehensive Coverage
This coverage pays for accidental loss or damage to an automobile for most other causes except collision or
upset. The most common causes are weather (such as wind, hail, and flood), theft, vandalism, riot, fire,
explosion, falling objects, or glass breakage. Damage to your car resulting from colliding with birds or an
animal is also included.

Coverage is included for a transportation allowance for the amount shown in the policy if the insured car is
stolen.

This coverage is normally subject to a deductible. It pays to fix the vehicle less the deductible chosen.
Coverage is limited to the terms and conditions contained in the policy. Comprehensive is not required by the
state, but if you have a loan or a lease then the lien holder will require it.

Who might benefit from buying Comprehensive coverage?
  If your car is financed or leased, the finance company will probably require that you carry this coverage.
  If you have a newer vehicle or one in excellent condition, you may need this coverage to replace or repair
     the vehicle in case of loss.
Comprehensive Pays:
The cost of replacing or repairing the car if it is stolen or damaged by fire, vandalism, hail, or another cause
other than collision. Comprehensive coverage also pays for a rental car or other temporary transportation if the
car is stolen. As with collision, the policy will not pay for an auto theft unless you report it to the police. Payment
is limited to the car‘s actual cash value, minus any deductible.

Collision/Comprehensive
Both coverages are subject to exclusions and limitations as outlined in the policy. Physical changes caused by
wear and tear, freezing, mechanical breakdown, or parts failure are not covered. Some added equipment,
parts, or special paint may not be covered, or are subject to a dollar limit unless optional coverage is
purchased.

Losses under these coverages are for the current value of the automobile adjusted for depreciation. Keep in
mind that any losses incurred under this coverage is for the current value of the car, adjusted for depreciation.

Uninsured/Underinsured Motorist Coverage
Uninsured Motorists
This coverage pays legally collectable damages if the insured is killed or injured in an accident with an
uninsured automobile. This coverage does not cover property damage. This coverage should be purchased to
protect the insured from those who may not have purchased insurance, as required by law. Coverage limits
apply to ―each person‖ and to ―each accident‖ as shown on the Policy Declarations. Exclusions apply to
Uninsured Motorist coverage. For policy exclusion details, the insured should consult the policy, or contact
their Licensee.

Uninsured Motorist Bodily Injury
Uninsured Motorist Bodily Injury covers the insured, the insured members of their household and their
passengers for bodily/personal injuries, damages or death caused by an at-fault uninsured or hit-and-run
driver. If the insured is involved in an accident where the other driver is at fault but has no insurance, the policy
will cover medical expenses, up to the limit on the policy.

Uninsured Motorists Property Damage
This coverage pays legally collectible damages for loss or damage to your automobile caused by an uninsured
automobile.

How much protection does this coverage provide?
If a person does not have Collision coverage, Uninsured Motorist Property Damage coverage pays up to a
certain amount for repairs to the insured car (some states have limits at $3500, some are lower and some are
higher). If the insured has Collision coverage, Uninsured Motorist Property Damage coverage only pays the
insured‘s Collision deductible (in some states).

Does this coverage replace Collision coverage?
No. Uninsured Motorist Property Damage alone is not enough to cover all potential car repair/replacement
costs, and only applies if you are involved in an accident caused by a driver without insurance coverage.

Who‘s covered?
  Policyholder
  Other drivers covered by the policy
  Passengers

How much protection does this coverage provide?
If the other driver involved in an accident is uninsured, this coverage pays up to the limit purchased. The
coverage limits refer to the maximum amount that will be paid per person, per incident, respectively.
Who might benefit from buying uninsured motorist bodily injury coverage?
Individuals without health insurance may benefit from this coverage, because if the limits chosen are
inadequate, the insured will be responsible for paying the additional amount.

Uninsured and Underinsured Motorist Coverage
In states where Uninsured Property Damage is not offered, companies usually just define Uninsured
Motorist/Bodily Injury as Uninsured Motorists, without the added extension of Bodily Injury (BI) because there
is no other Uninsured Motorist offered in that state.

Underinsured Motorist
Underinsured Motorist Property Damage:
   Covers when property damage is sustained by an insured and the negligent operator possesses
     insurance, but the limits of liability carried by the negligent driver are not sufficient to cover the damages.

Underinsured Motorist Bodily Injury:
   Underinsured Motorist Bodily Injury (UMBI) covers the insured, the insured members of their household
      and the passengers for injuries, damages or death caused by the negligence of a person with insufficient
      insurance. If the insured has an accident with a person whose coverage cannot meet all damages, the
      insured‘s policy will meet the difference up to the limit of liability listed on the policy.
   If the insured gets into a fender-bender and discovers that the at-fault driver is uninsured, it is not a
      pleasant situation. Uninsured/underinsured motorist coverage is an important self-help tool that generally
      is affordable. It is important for people to protect themselves in case an accident occurs with someone
      who either has no auto insurance or does not have enough coverage. A consumer probably cannot
      afford to drive without it.
   Everyone must have it if he or she lives in a state that mandates that coverage, and about a dozen states
      do. The automobile insurance provider needs to be able to tell the consumer whether that coverage is
      mandated or is optional. Beyond that, if the insured buys it, then a decision must be made to determine
      how much coverage is needed. How much is needed depends on whether the consumer has adequate
      health insurance to cover potential accidental health issues and whether compensation is desired for
      ‗pain and suffering, which is sometimes a part of uninsured/underinsured motorist policies.
   The insured can protect themselves from being hurt financially by buying uninsured/underinsured motorist
      protection. Without uninsured/underinsured motorist coverage, the insured has little likelihood of gaining
      payment for damages to the insured or their vehicle sustained from an accident with a driver who is
      either underinsured or driving without any coverage.
   Uninsured/underinsured motorist protection is characterized as an important coverage for consumers
      because it protects them in situations they cannot plan for. Without the coverage, their only recourse
      may be to sue an individual to cover their losses if the other driver does not have insurance or enough
      insurance.
   Uninsured coverage also covers the insured if a hit-and-run motorist hits the insured‘s vehicle. With this
      coverage, the insured and the passengers receive compensation for medical expenses, lost wages and
      other injury-related losses. The insured can sue that person, but if that driver has nothing, you will get
      nothing even with a favorable judgment.
   Underinsured motorist protection also pays the insured for damages that surpass the amount of coverage
      carried by a driver who is underinsured. That is valuable, because many drivers carry minimum limits,
      and that may be insufficient to cover your injuries and lost wages.
   Uninsured motorist protection can help in another way. If you are a pedestrian and get hit by a car while
      trying to cross the street, the coverage could pay any medical expenses and lost wages.
Does this coverage replace Collision coverage?
No. Underinsured Motorist Property Damage alone is not enough to cover all potential car repair/replacement
costs, and only applies if the insured is involved in an accident caused by a driver without enough liability
insurance coverage.

GAP Insurance
At the time of this writing GAP insurance is available in all states except: Connecticut, Louisiana, Nebraska,
New Hampshire, New Mexico, New York, Virginia, and Washington.

Gap insurance protects a consumer in the event of their car being totaled or stolen.

When a consumer drives a new car off the dealer‘s lot the car has most likely lost 20% of its value. If the
consumer puts less than a 20% down payment on a car, they are a good candidate for gap insurance.

How does gap insurance work?
If a car is stolen or declared totaled, the auto insurance company will pay the insured the actual cash value of
the car. The actual cash value can be a lot different from what is still owed on the loan. Without gap insurance
the lender will hold the consumer responsible for paying the difference between the actual cash value and the
amount left on the loan. This might mean having to come up with hundreds even thousands of dollars to pay
that debt. Gap insurance will eliminate having to pay the difference and eliminate the stress of having to come
up with that money.

The following is an example of how gap insurance works:
Consumer purchases a new vehicle for $20,000.00
MRSP: $20,000.00
Vehicle is totaled 12 months later
Loan Balance                        $17,000.00
Auto Insurance Settlement           $14,000.00
Consumer Deductible                   - $500.00
Final Auto Insurance Settlement     $13,500.00
Gap Insurance Payment                $3,500.00

Benefits
   Gap coverage on loans up to 84 months
   Deductible covered up to $500
   A- Rated insurance company provides superior security
   Gap available on new and used vehicles purchased or refinanced within the past 12 months

Disclosure
   Maximum Limit of Loss Exists
   Loan amount financed must be less than or equal to $100,000.
   Gap is not available on an auto lease or a balloon loan with a balloon payment due at end of lease.
   The maximum APR is approximately 12.5%
NOTE: The claim settlement may not cover the entire Gap due, when the loan‘s Original Amount Financed
exceeds 120% of MSRP (new vehicle) or NADA Retail Value (used vehicles), plus 30% of Value allowable for
Additional Financed Items like Credit Life or Service Contracts. The claim settlement does not cover late
charges or other penalties due to the lender.

How Gap Insurance Impacts a Car Loan or Lease
What happens if a leased car gets into an accident? Technically, the car still belongs to the manufacturer or
leasing company. But, the consumer is responsible for replacing it. Even after the auto insurance company
figures out how much the car is worth and pays off the damage, the leasee may still owe the carmaker the
balance. That is where gap insurance comes in.

Though it may sound trivial, gap insurance is a must for leasing. And if the consumer made a small down
payment when buying a car, a gap policy can be a lifesaver as well.

Why Gap Exists
As the name implies, gap insurance covers what traditional car insurance does not. In other words, it closes
the gap between what the auto insurance company pays if a car is stolen or totaled and what is owed to the
finance company.

Case Example: Gap Insurance Leased Vehicle
Ed bought a car two months ago for $25,000. He begins making car payments at about $500 a month based
on a 6-percent interest rate. Then, disaster strikes: a flood washes his car away.

Ed calls the auto insurance company and the adjustor decides at the time of the incident the car was worth
only $20,000. The car may only be a couple of months old, but it has already lost 20 percent of its value.
Unfortunately, the finance company still wants the full amount owed by Ed. With interest, tax and license fees
the total figure due is $27,000.

There is a gap of $7,000 between the $20,000 that the insurance company is willing to pay and the $27,000
the finance company is demanding. If Ed has gap insurance it will cover the difference. If not, Ed must pay the
$7000 out-of-pocket on a totaled car.

Case Example: Gap Insurance Owned Vehicle
Apply the same scenario to Fran who bought her car. If she left the dealer‘s lot without putting several
thousand dollars down, Fran likely owes more than the auto insurance company will pay if the vehicle gets
totaled or stolen in the first few years. Once again, gap coverage can save Fran from a large financial burden.

Gap insurance is a must for many drivers. In fact, gap insurance is usually mandated in lease contracts or
included within them. If a gap policy is required but not included in the contract, the consumer must shop
around for this coverage. If gap coverage is included in the car lease, check to see how much is offered and
how much the consumer is going to be paying for it. (In some cases, lease contracts may include what is
known as a gap waiver, which protects the consumer from gap charges in the event that the leased vehicle is
declared a total loss — eliminating the need for a gap policy.)

A few things to keep in mind when buying gap insurance:
    Although most people purchase it when a lease is initiated, some car insurance companies will sell the
       consumer a gap policy anytime during the lease term.
    The consumer must be in compliance with all terms of the lease.
    The gap insurance policy may not be honored if the consumer does not have collision and comprehensive
       insurance coverage.
    Lease contracts generally require that the consumer carry collision and comprehensive at all times.
    If the car is totaled or stolen, carefully follow all requirements made by the auto insurance company. For
       example, some companies require the consumer to continue making car payments on the totaled
       vehicle until the money from the gap insurance is paid out.

When initiating a car loan or lease, the consumer always needs to remember to ask the insurance
agent or loan officer about gap insurance. If the consumer has an accident, they will be glad they planned
ahead. (Edmunds.com)

Total Loss Coverage
Some vendors and insurance companies offer what is called ―Total Loss Coverage.‖ This is similar to ordinary
GAP insurance but instead of paying off the negative equity on a vehicle that is a total loss, the policy provides
a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent
the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in
choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more
advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a
new vehicle.

Gap vs. Total Loss
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, the
―gap‖ is $5000. If the owner has traditional GAP coverage, the ―gap‖ will be wiped out and he or she may
purchase or lease another vehicle or choose not to. If the owner has ―Total Loss Coverage,‖ he or she will
have to personally cover the ―gap‖ of $5000, and then receive $5000 toward the purchase or lease of a new
vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase
price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most
instances, be decided by whether the owner can pay off the negative equity in case of a total loss and/or
whether he or she will definitively purchase a replacement vehicle.

What Consumers Look for When Comparing Insurances:
• Contrast Auto Insurance Policy Vehicle Insurance Prices
It is easy to see that cheaper is better, however make sure consumers compare apples with apples Extremely
low vehicle insurance premiums may signify much more additional dollars later on at the time that a claim is
necessary.

• Contrast Coverage Available
Find out the insurance coverage and the financial responsibility the consumer can manage to tolerate and
compare the estimates that have a minimum of the desired insurance coverage.

• Review Automobile Insurance Claim Process
Certain auto insurance online corporations are able to offer extremely low estimates simply because they have
little or no consumer interaction. When the occasion arrives to make an automobile insurance claim, any
savings on car insurance premiums might be used up in an effort to rectify the problems caused by the
insurance company.

• Review Price Reductions Made Available
No two people possess exactly the same vehicle-operating track records or risk variables, therefore the agent
can provide vehicle insurance that turns the attention to the consumer‘s important coverage points. Some
companies will provide fee reductions to men and women who possess a safe motoring history, to
practitioners of a designated specialty body or to individuals having taken preventive operating training. The
agent needs to be ready to discuss these potential reductions with the consumer.

• Analyze Auto Insurance of On-line Organizations
It is extremely valuable for consumers to compare the vehicle insurance corporations as well as the car
insurance policies. The consumer will seek assurances that the auto insurance carrier will be in business when
the occasion comes to make a car insurance claim. The agent needs to be ready to discuss the company‘s
credit history and rating with the consumer.

Automobile Insurance Premium
Premiums are the price an insurance company charges for coverage, based on the frequency and cost of
potential accidents, theft and other losses. Prices vary from company to company, as with any product or
service. Premiums also vary depending on the amount and type of coverage purchased and many other
factors that will be discussed in this course.

General Basis of Premium Charges
Depending on the jurisdiction, the insurance premium can be either mandated by the government or
determined by the insurance company in accordance to a framework of regulations set by the government.
Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory
liability coverages.

When the premium is not mandated by the government, it is usually derived from the calculations of an actuary
based on statistical data. The premium can vary depending on many factors that are believed to have an
impact on the expected cost of future claims. Those factors can include:
   the car characteristics
   the coverage selected (deductible, limit, covered perils)
   the profile of the driver (gender, age, driving history)
   the usage of the car (commute to work or not, predicted annual distance driven)

Gender
Men average more miles driven per year than women do, and have a proportionally higher accident
involvement at all ages. Insurance companies cite women‘s lower accident involvement in keeping the youth
surcharge lower for young women drivers than for their male counterparts but adult rates are generally unisex.
Reference to the lower rate for young women as ―the women‘s discount‖ has caused confusion that was
evident in news reports on a recently defeated proposal to make it illegal to consider gender in assessing
insurance premiums. Ending the discount would have made no difference to most women‘s premiums.

Age
Teenage drivers who have no driving record will have higher car insurance premiums. However young drivers
are often offered discounts if they undertake further driver training on recognized courses. In the U.S. many
insurers offer a good grade discount to students with a good academic record and resident student discounts
to those who live away from home. Generally insurance premiums tend to become lower at the age of 25.
Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age
group.

Distance
Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of
differentiation would include:

   Reasonable estimation. Several car insurance plans rely on a reasonable estimation of the average
     annual distance expected to be driven which is provided by the insured. This discount benefits drivers
     who drive their cars infrequently but has no actuarial value since it is unverified.
   Odometer-based systems. Cents Per Mile Now (1986) advocates classified odometer-mile rates. After
     the company‘s risk factors have been applied and the customer has accepted the per-mile rate offered,
     customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline.
     Insurance automatically ends when the odometer limit (recorded on the car‘s insurance ID card) is
     reached unless more miles are bought. Customers keep track of miles on their own odometer to know
     when to buy more. The company does no after-the-fact billing of the customer, and the customer does
     not have to estimate a ―future annual mileage‖ figure for the company to obtain a discount. In the event
     of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the
     insurance card to that on the odometer.

Under the cents-per-mile system, rewards for driving less are delivered automatically without need for
administratively cumbersome and costly technology. Uniform per-mile exposure measurement for the first time
provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with
increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and
preventing today‘s windfalls to insurers when decreased driving activity lowers costs but not premiums.
Zip Codes vs. Individual Driving Factors
Individual driving factors should be considered more heavily than additional aspects such as zip codes when
calculating premiums. Many customer associations are advocating such a modification. Insurance agencies
currently decide the amount of weight to dedicate to nineteen aspects in determining premiums.

According to the zip code system, car drivers who reside in small town zip code areas in places where fewer
car accidents occur are likely to feel that rates increase. Persons that are living at densely occupied areas,
such as downtown of Los Angeles, though keep good driving histories at places where an excessive amount
of claims for car damage are filed would likely see costs lessen. Consumer advocates as well as the industry
are at opposite positions of the fence while discussing if rates will increase or decrease with the zip code
system

Many states including Connecticut, Texas and Illinois issued laws preventing insurance companies from
mainly utilizing zip codes to establish their online motor insure rates.

Loan/Lease Payoff
Consumers should be aware that a few states, including New York, require lenders of leased cars to include
GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must
include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey
on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly
payment, without mentioning the State‘s requirements.

Car Towing Insurance
Car Towing coverage is also known as Roadside Assistance coverage. Traditionally, automobile insurance
companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the
automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical
breakdowns, flat tires and running out of gas. To fill that void, insurance companies started to offer the Car
Towing coverage, which pays for non-accident related tows.

Consumer Protection
By buying Automobile insurance, depending on the type of coverage purchased, the consumer may be
protected against:
   The cost of repairing the vehicle following an accident
   The cost of purchasing a new vehicle if it is stolen or damaged beyond economic repair
   Legal liability claims against the driver or owner of the vehicle if the vehicle causes damage or injury to a
      third party
   In many countries it is compulsory to have purchased automobile insurance before driving on public
      roads. This is to protect third parties against the financial consequences of loss, damage or injury caused
      by a vehicle.
   Typically, coverage against loss of or damage to the driver‘s own vehicle is optional


Educating the Consumer (Key Terms)
Before purchasing auto insurance, a consumer should know the following definitions:
Conditions – Explanations in the policy of your responsibilities and the company‘s; for example, how claims
are to be filed and what proofs you must submit with your claim.
Coverage – Description in the policy of the specific circumstances under which you receive benefits.
Declarations – Listing of the details of your particular coverage, such as the policy number, kinds of coverage
and amounts of money provided by each, your name and address, a description of your vehicle, the premium,
and coverage duration.
Exclusions – Descriptions of the situations under which you and your car are not covered.
Supplemental Payments – Court costs, bail bonds, expenses related to a lawsuit including defense, or any
other specific payments your insurance provides which are not specifically listed in other parts of the policy.
Deductible – The amount of a loss or claim you must pay before you can collect from the insurance company.
Liability – Your financial responsibility incurred because of an accident.
Rating – The process by which the price of the insurance coverage is determined. States are divided into
rating territories. Your insurance company bases part of the price of your policy on the claims history of all the
drivers it insures in your territory. Other factors such as your driving record and age also affect the rating.
Premium – The cost of the insurance policy (usually paid out in periodic payments).

The following recommendations may help a consumer save money:

Search and research. Look at whatever vehicle insurance coverage is being offered in the market and obtain
price estimates on charges from a number of different insurance companies to obtain the most lucrative price.

Assess the comparative merits of things other than insurance costs. Ask questions regarding how insurance
claims are authorized (or turned down) and processed, and also the speed with which they are settled.
Investigate the insurance provider‘s economic capacity. In times of stress following a collision or other
accident, the consumer will be turning to the car insurance company, and will want to ensure that the provider
will come through with the provisions promised in the policy.

Opt for a higher deductible. Some policy holders decide on lower deductibles, reasoning that in case it is
necessary for them to submit a claim, their immediate cash expenses will be moderate. On the other hand, the
larger the collision and comprehensive deductibles are the lower the insurance premium. The savings – when
the deductible is raised are significant; the insured could slash 100`s of dollars from the insurance premium.
The insured should choose the maximum deductible within their financial means.

Forego or reduce coverage for older automobiles. When an automobile is getting old, the owner might
want to drop the comprehensive coverage or the collision coverage (or both) on the insurance policy. The
owner should carefully weigh the price of comprehensive and collision coverages against the value of the
vehicle, as well as the deductibles opted for. For example, if you have a ten-year-old vehicle that is worth
about $1,000, and the deductible is $1,000, the coverage is not a benefit to the owner.

Make inquiries seeking available discounts. Most insurance companies provide discounts. Those who are
eligible for these rate reductions can differ based on the insurance company, the state (and area) of residence,
plus whether the consumer has the required eligibility criteria.

Common Discounted Rates Include:
   Multi-vehicle - coverage for more than a single car with the same insurer
   Multiple-line - purchase home and car insurance through a single provider
   Good-Driver - no car crash or speeding ticket in 3 consecutive years
   Good-student - a student with a good grade-point average, generally approximately a 3.0 or higher
     average; driver education course; defensive driving course
   Safe Driver - if the driver has taken and passed an AARP-certified or other accredited driver safety
     program
   Anti-Theft Discount - if your automobile has specific theft-deterrent gadgets installed
   Safe vehicle discount - available if your automobile includes certain supplementary safety features
   Retired persons - usually 50 years or 55 years of age
   Low-Mileage - vehicle is not driven often
   Occupational - work in a particular field or the holder of a particular certification
   Auto-Club - member of an auto association, like the AAA
   Association - part of certain associations, such as a university or college
   Student Away at School - son or daughter at school or college in another town or state
   Automatic Seat Belt and/or Airbag - have automatic seat belts and/or airbags on car
   Anti-lock brakes - brakes improve steering control and stability when a car is brought to a stop, thus
      reducing accidents.

Choose an automobile which costs less to insure. When buying a new car, do a comparison check of the
insurance rates of the possible candidates to observe if there is a significant difference in the insurance cost.
Auto insurance rates are higher on vehicles that are more prone to car theft and have higher repair costs.

Do not drive recklessly. Drivers with no accidents, traffic violations, or insurance claims, usually spend a
smaller amount on their autos insurance coverage. The insured‘s driving record is a significant issue when
deciding the insurance premium. Speeding tickets and at-fault accidents impact the insurance rates you will be
paying for a long time. When the consumer has an imperfect driving profile, he or she will pay more for auto
coverage over the years than a person with a good driving record.

Location Considerations. Premium costs tend to be lowest in rural communities and highest in cities.

Specialty Coverages
Adding supplemental insurance coverages like towing and labor or car rental reimbursement to the basic auto
insurance policy may save the consumer money. For example, for an average of $1 or $2 a month added to
the auto insurance, the consumer can purchase coverage that will pay for a rental car while a car is being
repaired from an accident. If the consumer has this or some other specialty insurance, be sure to notify the
insurance company or agent when filing a claim.

Perils
Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are
known as perils. An insurance policy will spell out which perils are covered by the policy and which are not.

There are many different types of insurance. A single policy may cover risks in one or more categories. For
example, automobile insurance would typically cover both property risk and liability risk. Property risk covers
the risk of theft or damage to the car while liability risk covers legal claims from causing an accident.

Types of Insurance Companies
Insurance companies may be classified as:
    Life insurance companies, who sell life insurance, annuities and pensions products.
    Non-life or general insurance companies, who sell other types of insurance.
    Reinsurance company—sell to other insurance companies
    Composite insurance company sell both life and non-life.
In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The
main reason for the distinction between the two types of company is that life business is very long term in
nature - coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life
insurance cover usually covers shorter periods, such as one year.

Companies may sell both life and non-life insurance, sometimes known as composite insurance companies.

Reinsurance companies sell insurance coverage to other insurance companies. This helps insurance
companies to spread their risks, and protects them from large losses. The reinsurance market is dominated by
a few very large companies, with huge reserves.

General Insurance Companies can also be divided into:
   Standard – typically insure autos, homes or businesses. Use policies without variations between different
     customers. They usually have lower premiums than excess lines and can sell directly to individuals.
     They are regulated by state laws that can restrict the amount they can charge for insurance policies.
   Excess Lines – typically insure risks not covered by the standard lines market. They are broadly referred
     as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the
     states where the risks are located. These companies have more flexibility and can react faster than
     standard insurance companies because they do not have the same regulations as standard insurance
     companies.



Chapter Two: Personal Lines

Personal Line Insurance is meant to cover risks of person and property of individuals or groups of individuals
or liability developing upon them.

Insurance of persons would include:
    Personal Accident
    Medical Claim
    Critical Illness

Insurance of property would include:
    Householders Insurance
    Renter‘s Insurance

Insurance of liability would include:
    liability on a person arising out of his personal actions / inactions
    out of the practice of his/her profession, such as, Personal Liability, or Professional Malpractice for a
       Doctor / Lawyer, etc.
This course will focus only on aspects of the automobile insurance industry and other motorized vehicles.

Automobile Insurance
Automobile insurance is probably the most common form of personal insurance and covers both legal liability
claims against the driver and loss of or damage to the insured‘s vehicle. Throughout most of the United States
an automobile insurance policy is required to legally operate a motor vehicle on public roads. In some
jurisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault
system that reduces or eliminates the ability to sue for compensation, but provides automatic eligibility for
benefits.

Non-owned Vehicle
The insured, using a car or utility trailer that he or she does not own, is covered by:
   their own policy
   the other party‘s insurance

The coverage is going to be identical to the amount of coverage purchased for the insured‘s own car or trailer
and exclusions may apply.

Policies are offered that would cover an insured on any vehicle driven. This coverage is available only to those
who do not own their own vehicle and is sometimes required by the government for drivers who have
previously been found at fault in an accident.
Shopping for Auto Insurance
Rates vary widely among companies, so it pays for consumers to shop around. Following are some guidelines
used by consumers for finding the best deal for their money:

Decide before shopping what coverage is needed.
Consider factors other than price - including a company‘s financial rating and its complaint index. Financial
ratings indicate a company‘s financial strength and stability, while its complaint index indicates a company‘s
customer service record. Buy only from licensed companies and agents.

Understanding Rates
Law requires rates for insurance to be reasonable, adequate, not excessive to the risks for which they apply,
and not unfairly discriminatory. Auto insurance companies set their rates and then file them for review. In some
states, companies do not have to receive prior approval before putting their rates into effect, but if it is
determined that a company‘s filed rates are excessive, the company can be ordered to make refunds to
consumers who were overcharged.

Factors that Affect the Premium (Driver Specific)
   marital status
   Male drivers under 25 and unmarried women under 21 have the highest rates
   companies can add penalties - called surcharges - for major driving offenses and accidents resulting in
      property damage of $1,000 or more. Surcharges are mandatory for rate-regulated companies and stay
      on the premium for three years
   type of car driven. Collision and comprehensive rates are highest for luxury, high-performance, and sports
      cars. Rates may also be higher for cars that damage easily or cost more to repair than others
   How the insured uses the car. Rates are higher for cars driven to and from work or used for business
   credit score. Companies may consider credit scores when deciding whether to sell a policy and what to
      charge. However, a company cannot refuse to sell a policy or cancel or nonrenew a policy solely on the
      basis of credit.
   Whether person drove uninsured. Companies can charge more if a person drove uninsured before
      applying for insurance. However, a company cannot otherwise charge a higher rate for liability coverage
      because of prior lack of coverage.
   add surcharges to premium – some as high as 60 percent – for the following:
        o accidents (the more accidents, the higher the surcharge)
        o moving violations (speeding, etc.)
        o involuntary manslaughter
        o driving under the influence
        o criminally negligent driving
        o driving without a license or with a suspended license.

Impact on Premiums (Not Specific to Driver)
The National Association of Insurance Commissioners (NAIC) notes that the following have impacts on
premiums:
   urban population and greater traffic density
   per capita income
   higher price levels
   tort liability
   auto laws and liability coverage requirements
   labor costs,
   theft and vandalism rates
   incidence of fraud

Where Does the Revenue from Premiums Go? (Averaged figures)
  Claims         64%
  Expenses       23%
  Profits         8%
  Tax             5%

Private Automobile Insurance Premium Allocation
Claims:
Payment to injured persons:
   Medical
   Pain and suffering
   Lawyer‘s fees
   Settling Claims Costs
   Wages Lost
   Non-economic settlements

Expenses
   State premium taxes
   Licenses and fees
   Dividends to policyholders
   Commissions and other selling expenses
   General operating costs

Payment for Automobile Damages
   Property damage liability
   Comprehensive claims
   Costs of settling claims
   Collision claims

Premium Finance Companies
Premium finance companies are specialized lenders that loan consumers money to pay their insurance
premiums, often at high interest rates. Sometimes the only installment plan offered is through a premium
finance company, which might be owned by the agent selling the policy.

If the consumer enters into a premium finance agreement with a premium finance company, the consumer will
pay the down payment to the agent or company. The premium finance company pays the balance of the
premium directly to the insurance company and then collects the amount financed, plus interest, from the
insured in installments.

Losing Insurance Coverage
Companies may cancel or nonrenew a policy for a variety of reasons. Cancellation means the company
terminates a policy before it runs out. Nonrenewal means the company refuses to renew a policy when it
expires. A company must explain in writing its reasons for declining, canceling, or not renewing an insured‘s
policy. This explanation must include the precise incident, circumstance, or risk factor that violated the
company‘s underwriting guidelines, the insurer‘s sources of information about the incident, circumstances, or
risk factor.
An insurance company may not cancel an auto policy that has been in effect for more than 60 days unless the
insured:
    fails to pay the premium
    files a fraudulent claim
    has driver‘s license or motor vehicle tags suspended or revoked. This also applies to other drivers who
       live with insured or customarily use the car.
    during the first 60 days, gets a ticket or has an accident. If the company cancels because of an accident, it
       still must pay for covered damages resulting from the accident. The company must give written notice at
       least 10 days before canceling the policy.

If either the insured or the company cancels a policy, the company must refund any premiums paid in advance
that did not buy coverage. This amount is called the ―unearned premium.‖ For example, if the insured paid a
six-month premium of $600 and the policy is cancelled after one month, the company owes the insured $500
in unearned premium.

Nonrenewal
A company cannot refuse to renew the policy unless it has been in effect for at least 12 months. This means a
six-month policy must be renewed to give the insured a full 12 months of coverage. The company must give
30 days‘ notice before nonrenewal of a policy. In some states the insurer cannot refuse to renew a policy
because of weather-related claims, including damage from:
    hail, floods, tornadoes, high winds, and hurricanes
    colliding with animals or birds
    gravel and other flying and falling objects (the company can raise the deductible with three such claims in
       36 months)
    towing and labor claims (the company can refuse to renew the towing and labor coverage, with four such
       claims in 36 months)
    other claims or accidents that cannot reasonably be blamed on the insured, unless more than one of
       these claims in a 12-month period.

Insured Moved to Another Company by Insurer
Sometimes an insurer will move the insured to another company in its group of companies. If a company
moves the insured within its group, it usually must give 30 days‘ notice that the original policy will not be
renewed. If the company fails to give 30 days‘ notice, the company may be forced to renew the policy for
another year in the original company. If a nonrenewal or cancellation notice is received, it is a good idea to
start shopping for new insurance immediately. The insured will need to make sure that liability coverage is
maintained uninterrupted. Also, if money is still owed on the car, the lender will usually require the insured to
maintain collision and comprehensive coverages without interruption. If the insured cancels or loses these
coverages, the lender will buy single-interest automobile physical damage coverage and add the cost to the
loan payment. It is expensive and protects only the lender. Collision and comprehensive may be dropped once
the car loan is paid off, but the owner of the vehicle should keep the coverages as long as money is owed on
the car.

Rights Against Unfair Discrimination
An insurance company cannot deny, refuse to renew, limit, or charge more for coverage because of a
consumer‘s race, color, religion, or national origin. A company also cannot deny, refuse to renew, limit, or
charge more for coverage because of your age, gender, marital status, geographic location, disability, or partial
disability unless the refusal, limitation, or higher rate is based on sound underwriting or actuarial principles.
This means the company would have to show valid evidence that the insured presents a greater risk for a loss
than others it is willing to insure. Also, a company cannot nonrenew a policy because someone in the family
has reached driving age.

In addition, a company cannot unfairly discriminate between individuals of the same rate or risk class in its
rates, policy terms, benefits, or in any other manner. The insured may sue insurance companies for unfair
discrimination, including denial of insurance. However, if the court finds the suit groundless, in bad faith, or
brought for the purpose of harassment, the insured may be ordered to pay the insurance company‘s legal
expenses.

Auto Insurance for ―High Risk‖ Drivers
Many people have less than perfect driving records. Finding auto insurance can be difficult for those drivers
who have recently been involved in a serious accident or motor vehicle violation. Numerous small claims or
infractions of the traffic laws may also make a driver hard to insure. A driver is considered ―high risk‖ if:
    a driver‘s license has been suspended or revoked and requires an SR-22 policy for reinstatement. The
       Registry of Motor Vehicles in the state will notify the person if this is required.
    If you are 70 years or older. Some companies will look at a driving history and may continue to give a fair
       rate to the elderly.
    If the driver is under 21
    A history of auto accidents and violations
    Inexperienced driver
    A sports car
High risk is also referred to as non-standard insurance. It refers to an auto policy that is given to a high-risk
driver.

Insurance Options for High-Risk Drivers
Several major insurer groups write coverage for high-risk drivers through one of their member companies.
Each company has its own underwriting guidelines for deciding whether to insure high risk people. Non-
standard coverage is becoming much more common today and many companies now accept high-risk drivers
in exchange for a much higher than standard premium.

Accidents
Accident Checklist for Consumers
   Move the car, if possible, to avoid blocking traffic and to protect it from further loss or damage.
   Call the police if somebody is injured or killed, if a vehicle cannot be moved, or if the accident involved a
      hit-and-run driver. The uninsured motorist coverage pays for a hit-and-run accident only if the accident is
      reported to the police.
   Get the other driver‘s name, address, telephone number, license plate number, driver‘s license number,
      and insurance information. Give the other driver the same information.
   Record the insurance company name and the policy number exactly as shown on the other driver‘s proof-
      of-insurance card. Similar company names can cause confusion, so make sure the correct company
      name is written.
   Get the names, addresses, and telephone numbers of any witnesses to the accident.
   Notify the insurance company as soon as possible. The company probably has a 1-800 number to report
      claims. If not, call the agent. Some agents have authority to settle small claims. The agent or company
      will advise the insured about seeing an adjuster and getting repair estimates. Also, give the agent or
      company the names and addresses of any witnesses and injured persons.
   If the claim is reported by phone, be sure to follow up in writing as soon as possible.
   Send the company copies of the accident report and any legal papers received about the accident.
   Cooperate with the company‘s investigation. The insured might have to submit a proof-of-loss form and
      undergo a medical examination.
   If the other driver refuses to tell his or her insurance company, get a copy of the police accident report.
      The accident report will list the other driver‘s name and insurance company. If the police investigate the
      accident, report the driver‘s refusal to the police. This could result in a report identifying the driver‘s
      insurance company.
   Keep copies of all paperwork and expenses incurred as a result of the accident.
Accidental Death
Accidental death benefits pay if bodily injury causes death of insured or a family member. Benefits cover the
insured and their spouse if they are involved in an automobile accident, or if they are struck by an automobile.
This coverage can be extended to others for an additional charge.

Protection: Emergency Road Service
If the insured‘s car becomes disabled while traveling, emergency road service will pay for the reasonable cost
of towing and applicable labor costs to fix the car if this coverage has been purchased as an option on the
policy. This coverage only pays for costs up to the amount the insured selected for their policy. Towing
charges are covered when the insured‘s car cannot be driven. It also pays labor charges, such as changing a
tire, at the place where the car broke down.

Accidents Caused by Other Drivers
If the insured is in an accident caused by another driver, the other driver‘s insurance company should pay the
following costs, up to the policy‘s limits:
     repair or replacement of victim‘s car
     car rental while automobile is being repaired
     victim‘s medical and hospital bills
     wages lost because of an injury
     compensation for pain and suffering if anyone is hurt

If the other driver‘s insurance will not cover all of the medical bills, file a claim for the difference against the
victim‘s Personal Injury Protection (PIP) coverage, if he or she has it. For amounts over that, claims can be
filed against the victim‘s uninsured/underinsured motorists coverage or a health insurance policy.

If the other driver‘s policy will not cover all of the victim‘s auto repairs, file a claim against the victim‘s collision
or UM/UIM coverage for the difference (minus the deductible) between the damage to the car and what the
other driver‘s policy will pay.

The other driver‘s insurance company may ask the victim to sign a release to settle a claim and forgo future
claims related to the accident. The victim should not sign a release until satisfied with the total settlement. A
letter needs to be obtained from the doctor estimating the cost and length of future medical treatment. The
victim might want to consult an attorney before accepting a settlement. In most states, a person has two years
after an accident to either settle the claim or file a lawsuit.

Insurance companies are not allowed to delay payment on a claim as a means to pressure a consumer to sign
a release. If it is believed that an insurance company is delaying payment, file a formal complaint.

If the other driver denies fault, his or her insurance company may refuse to pay the claim. If the company
continues to refuse to pay the claim, the victim may have to go to court to resolve the issue.

Before filing a claim against your own company, it is a good idea to talk to the licensee or the company‘s
underwriting department about how a claim might affect your rates on renewal. A company can raise
premiums because of at-fault accidents. Also, a company cannot refuse to renew the policy solely because the
insured had one accident that was not his/her fault in a 12-month period. However, if the accident affected the
insured‘s driving record, the company may consider that in determining rates, whether a claim is made on the
accident or not.

Getting the Car Repaired
The insured‘s insurance or other insurance company will have an adjuster inspect the car and calculate an
estimate for repairs or may ask that the insured or victim provide repair estimates from mechanics and auto
body shops. The insurance company will pay for repairs or replacement only up to the car‘s actual cash value.
Actual cash value is the amount that the car would have sold for before the accident. An insurance company
cannot require the insured to use a particular repair shop. In fact, insurance companies are required to notify
the insured of the freedom-of-choice rights regarding auto repair shops and parts. On collision and
comprehensive claims, however, the company is obligated to pay only for parts of ―like kind and quality‖ to
those that were damaged.

Getting a Rental Car
The insurance company does not want to assume responsibility for a claim greater than the value of the
insured‘s vehicle, assuming that a rental car may be worth more than the insured‘s vehicle.

Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be
unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide
supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards.
These benefits are restrictive in terms of the types of vehicles covered.

Rental Car Collision
Collision Damage Waiver (CDW) is the term used by rental car companies for collision coverage.

Loss of Use
Loss of Use coverage, also known as rental coverage, provides reimbursement for rental expenses associated
with having an insured vehicle repaired due to a covered loss.

If the insured has more than basic liability coverage or the accident was caused by another driver, the insured
should be able to get a rental car while theirs is being repaired:
     If the other driver was to blame, his or her liability insurance will pay for a rental car.
     If the accident was hit-and-run or the other driver was uninsured and at fault, your UM/UIM property
        damage coverage will pay for a rental car.
     If the car was stolen and you have comprehensive insurance, the company will provide a set amount
        each day, up to your policy‘s limit, for a rental car.
     If the car is being fixed or replaced for some other reason, the insurance company will not provide a rental
        car unless the policy has rental reimbursement coverage.

Filing a Claim
Once you have filed a claim, there are deadlines for the insurance company to act. The company must
respond within an allotted time after receiving the claim in writing. After documentation is submitted, the
company has a certain amount of time to accept or reject the claim. When the company agrees to pay the
claim, it must send the check or draft within a specified timeframe too. This varies according to the state where
the claim is filed. The insurance licensee can guide the insured on how to proceed and what forms need to be
completed.

Car Valuation
If the repair estimates are more than the car is worth, the insurance company will likely ―total‖ the car rather
than pay to fix it. Insurance companies typically value the car by the National Automobile Dealers Association
Used Car Guide or by a ―market survey‖ showing average prices of various makes and models. The
company‘s offer might not recognize the car‘s condition, special features, value on the local market, or may be
less than what the insured owes on the car loan. In these instances, be prepared to negotiate with the
insurance company to get a fair deal. A company is more likely to raise its offer if shown that the car would sell
for a higher price in the insured‘s region. The insured needs to get written price quotes for a similar automobile
from several used car dealers, or look in the classified section of the local newspaper for used car prices.

Sometimes the insurance company may want to total the car, but the insured prefers to have it repaired
instead. The insured can keep the car if he or she is willing to subtract its salvage value from the insurance
settlement. First make sure the cost to repair the car will not exceed the car‘s actual cash value. To find out the
salvage value, contact local salvage yards for estimates. Be sure to record the yard‘s telephone numbers and
the names of the people spoken with.
If the insurance company totals the car and an agreement cannot be reached on the amount to be paid, the
insured can demand an appraisal. Appraisal allows the insured and the company to hire separate damage
appraisers. The two appraisers choose a third appraiser to act as an umpire. The appraisers then review the
claim, and the umpire rules on any disagreements. The appraisal decision is binding, but only as to the amount
of the loss. If there is a dispute over what is covered, the insured can still pursue a settlement of the coverage
issue after the appraisal takes place. The insured is required to pay for their appraiser and half of the umpire‘s
costs. Appraisal is available only in disputes between the insured and the insurance company. It is not
available if the other driver was at fault and the insured disagrees with his or her company‘s offer.

Mediation Settlement
Mediation is a process by which the insured and the insurance company submit a dispute to a neutral third
party (the mediator) that works with both to reach a settlement of the dispute. The mediator has no power to
impose an agreement; only the insured can decide to settle the case. One of the purposes of mediation is to
give the insured the opportunity to tell the insurance company his or her perspective on the dispute. Mediation
is effective in joint session. Within the context of the joint session, the mediator will usually meet first with both
parties and then meet with each party privately to resolve the issue. In the private session, the mediator will
discuss the dispute with only the insured or the insurance company representative present. In the private
sessions with each side, the mediator tries to promote a candid discussion of the issues and priorities of each
party. Gaining knowledge of facts from these meetings, a mediator can use the information learned from each
to:
     Reduce the hostility between the parties and help them engage in a meaningful dialogue on the issues at
        hand
     Open discussions into areas not previously considered
     Communicate positions or proposals in more understandable terms
     Probe and uncover additional facts and the real interests of parties
     Help each party to better understand the other party‘s views and evaluations of a particular issue, without
        violating confidences
     Narrow the issues and each party‘s positions, and deflate extreme demands or positions
     Evaluate the receptiveness for a proposal or suggestion
     Explore alternatives and search for solutions
     Identify those issues of importance to each party and those that may be more easily dispensed with
     Structure a settlement to resolve current problems as well as to meet future needs of the parties

The mediation is non-binding, which means that neither the insured nor the insurance carrier is legally
obligated to accept an offer made by the other party. Even if the insured does agree to settle the case in
mediation, he/she has three business days to change their mind. If the insured changes their mind within this
three-day period, the insured must inform the mediator of the decision.
Note: If the insured is represented by an attorney at the mediation conference, and the attorney signs
agreement documents, the settlement is immediately binding.

Who Is Eligible for Mediation?
Any personal automobile policyholder who has purchased physical damage coverage (comprehensive and
collision) from their insurance company and has a claim dispute can make a mediation request subject to
statutory guidelines covering eligibility. Mediation does not apply to commercial automobile coverage, or to
third party liability claims (claims made against another person‘s insurance company). Disputes qualifying for
mediation are those that involve overall claim amounts exceeding $7500 and where the amount in dispute
exceeds $2000.

Issues Eligible for Mediation
    Extent or Amounts of Damage
    Methods of Repair
   Cause of Damage
   Prior Damage vs. Recent Damage
   Total Loss vs. Repairing
   Value of Total Loss

Issues Not Eligible for Mediation
    Coverage issues - the absence of coverage, and other underwriting issues involving failure to insure,
      cancellation, nonrenewal and rating issues.
    Legal interpretations of policy provisions and terms.
    The statute of limitations and contractual limitations on filing periods.
    Agent or broker actions, unless there are allegations that the insurer was responsible for the conduct.
    The inclusion of a lender on a claim payment draft.
    Allegations of bad faith, and other demands for extra contractual payments.


Automobile Insurance for Teen/Children Drivers
Young drivers must comply with the state‘s financial responsibility laws, just as older drivers do. Most young
drivers, however, have the option of satisfying their legal requirements by being added to their parents‘ auto
policy. Adding a young driver to a parents‘ policy can be expensive, but it is cheaper than taking out a separate
auto policy.

A parents‘ policy covers children living at home or away at school, even when not named on the policy. Even
though children are automatically covered on their parents‘ policy, it‘s important that they be listed on the policy
as soon as they reach driving age. Insurance companies are required to charge the correct rate, based on the
classifications of the drivers in the family. If all of the drivers in the family are not listed on the policy and the
company learns about them later - because of an accident claim, for instance - the company will bill for the
extra premium that should have been paid.

If children are attending school away from home, tell the insurance company. Because rates are based on
where a car is usually located, the insurance company may need to adjust your premium. If the school is in
another state, it‘s a good idea to check on the financial responsibility laws in that state to make sure the
insured has the appropriate coverages.

When children are added to a policy, they may be rated on the most expensive auto in the household. The
rules for this are complex and address a variety of situations, however. Generally, if a teen is the ―principal
driver‖ of a particular automobile, his or her rate will be based on that car. If not, the teen-age driver is assigned
to the car (usually the most expensive) that produces the highest rate.

Removing a Child from a Policy
An insured may want to remove children from a policy when they are no longer living at home. The insured will
probably have to prove to the insurance company that a young driver no longer lives at home, however.
Documents like a driver‘s license, lease agreement, or utility receipts can be used to prove that a child has
moved.

It is probably not a good idea to remove children from the policy who have moved because they are attending
school away from home. An insurance company may require the insured to keep them on the policy, even if
insured would like to have them removed. Technically, the child could be removed from the policy with a
―named driver exclusion‖ endorsement. Few companies will agree to this, however. Besides, it is risky to drop
coverage when a teen might occasionally drive at school or when home on visits.

The insured can sometimes remove a teenaged driver from their policy by purchasing a non-owner policy. This
usually is a bad idea. A non-owner policy merely provides additional liability insurance when driving a non-
owned vehicle. If the teenager has an accident while driving the insured‘s car, neither the insured‘s policy nor
the non-owner policy will pay for the vehicle‘s damage. The insured might also be unprotected financially if
held liable for an accident caused by a minor child. Finally, if the non-owner policy is rated properly, the
teenager‘s liability insurance might cost as much as or more than if he or she was on the parent‘s policy.

Saving Money on Insurance for Young Drivers
Unfortunately, insuring young drivers is usually expensive. Some young drivers may qualify for discounts,
however.
   a driver training course
   parent-taught drivers are eligible for the discount if the parent used an approved course.
   good grades in school or belong to certain youth groups. A consumer needs to ask their agent about any
      discounts for young drivers.

Disability Income (in most states)
This coverage will provide a weekly benefit for loss of income if the insured becomes disabled by an
automobile injury (incurred while you were the driver or passenger), or as a result of having been struck by an
automobile. The duration of the weekly benefit is stated in the policy. If the insured is not gainfully employed at
the time of the accident, the benefits are reduced by one half. (Disability income coverage may not be
available in some states, but similar coverage may be available under state Personal Injury Protection plans.)

Auto Insurance Considerations for Military Service Members
If a soldier will be deployed for an extended period of time and no one will be driving the vehicle, he/she may
be able to suspend some or all of the coverage to save on premium payments. Not all states allow for
coverage to be suspended, nor do all insurance companies. The insured should contact the agent or company
and state insurance department for the specific laws and policy limitations.

Expatriate insurance provides individuals and organizations operating outside of their home country with
protection for automobiles, property, health, liability and business pursuits.

Those in the military are also exempt if they are deployed and the vehicle is not being driven. A soldier needs
to file an affidavit in his or her home state to claim the exemption. It can be filed before, during, or after the
deployment at the local tag office.

Nonstandard Market
The nonstandard market is a niche market for drivers who have a worse than average driving record or drive
specialized cars such as high-powered sports cars and custom-built cars. It is made up of small specialty
companies, whose only business is the nonstandard market, and well-known auto insurance companies with
nonstandard divisions.

Automobiles:
For passenger vehicle drivers involved in fatal crashes, the age groups with the highest proportion of alcohol
involvement do not correspond to the age groups with the highest median BA levels. The age groups with the
highest proportion of alcohol involvement for passenger vehicle drivers were generally younger than the age
groups with the highest median BA levels.
Three-fourths (75%) of drivers with alcohol in fatal crashes had BA levels of .10 or .11 which is greater than the
legal limit in all States, the District of Columbia, and Puerto Rico.
One-fourth (25%) of drivers with alcohol in fatal crashes had BA levels of .21 which is more than twice the legal
limit in all States, the District of Columbia, and Puerto Rico.

New Model Statistics
It takes time to gather and tabulate data needed to provide statistically significant results for new models of
vehicles. Complete vehicle registration data for each model year typically are released about two years later,
and data on fatalities are first available approximately nine months after the end of the calendar year. Similarly,
it takes time to amass sufficient insurance claims information to provide meaningful results for a range of
vehicles. For vehicles that have not been fundamentally redesigned, previous model year results are good
predictors of the current model‘s experience. (Insurance Institute for Highway Safety, Highway Loss Data
Institute 2007)

Other Statistics
Nearly 80 percent of crashes and 65 percent of near-crashes involved some form of driver inattention within
three seconds before the event with the primary causes being cell phone usage and drowsiness.
(www.nrd.nhtsa.dot.gov 2006)

Other Insurance Types
Motorcycle Insurance
Choosing the right insurance policy is much like choosing the right motorcycle. The insurance needs to meet
the consumer‘s lifestyle, be within the consumer‘s budget. Although most states require you to carry a
minimum amount of liability coverage, other types of coverage are usually optional. The key to finding which
coverage is best for you involves learning about all the options available in your state.

Liability coverage
Liability insurance covers bodily injury and property damage that you may cause to other people involved in an
accident. It does not cover the insured or the motorcycle. Guest Passenger Liability may be needed to provide
protection in the event that a passenger is injured on the motorcycle. Whether or not this is included depends
on the laws of the state and the company issuing the policy.

Collision coverage
Collision insurance covers damage to a motorcycle if the consumer is involved in an accident. The insurance
company pays for damages, minus a deductible, caused when there is a collision with another vehicle or
object. Collision insurance usually covers the book value of the motorcycle before the loss occurred.

Comprehensive coverage
Comprehensive coverage pays for damages caused by an event other than a collision, such as fire, theft or
vandalism. However, just like collision coverage, the insurance company will pay for damages, minus your
deductible, and cover only the book value of the motorcycle.

Most comprehensive and collision will only cover the factory standard parts on the bike. If additional optional
accessories such as chrome parts, a custom paint job, trailers or sidecars are added, additional equipment
coverage is needed.

Uninsured motorist coverage
Uninsured motorist coverage pays for medical treatment, lost wages and other damages if a driver who has no
insurance hits you. If the uninsured motorist coverage includes property damage, then the motorcycle would
also be covered under the same circumstances. Check the policy to see if property damage may be included
or needs to be purchased separately.

Underinsured Motorist Coverage
Underinsured motorist coverage is similar to uninsured motorist coverage, except it applies when the other
party has lower coverage limits than the victim and damages exceed the other party‘s limits.

Tips for the cost-conscious rider
   In addition to factors mentioned earlier in the course used for auto insurance costs (age, driving record,
      etc), motorcycle factors also include: being a graduate of a rider-training course. Many companies offer
      discounts from 10 to 15 percent on motorcycle insurance for graduates of training courses, such as the
      Motorcycle Safety Foundation (MSF) rider course.
   the type of motorcycle owned. Age of bike, style, miles on bike and where it is stored
   Riders under the age of 25, usually considered a higher risk, may receive some savings by taking this
      course. It is also a good idea for cyclists who have already had accidents.
   In many northern states, riders may save money by buying a ―lay-up‖ policy. With a lay-up policy, all
       coverage except comprehensive is suspended during winter months.
   Multibike discounts
   organization discounts, like being a member of a motorcycle association
   mature rider discounts for experienced riders.
Discounts can range anywhere from 10% to 20%, depending on the company and the state. Availability and
qualifications for discounts vary from company to company and state to state.

Motorcycle Statistics:
  The age groups with the largest driver alcohol involvement in fatal crashes for passenger vehicle drivers
     were 20-29 and 30-39, whereas for motorcycle operators it was 30-39 and 40-49.
  The motorcycle operator age groups with the highest proportion of alcohol involvement in fatal crashes
     are also those with the highest median BA levels. In this respect, motorcycle operators are distinctly
     different from passenger vehicle drivers.
  Without respect to age, motorcycle operators with alcohol in fatal crashes had a lower median BA level
     than other vehicle type operators.
  Motorcycle operators with alcohol in fatal crashes had lower BA levels overall.


Recreational Vehicle (R.V.) Insurance
By insuring a specialty investment with a standard auto carrier, you may also be ensuring a financial loss down
the road should you ever need to file a claim.

To insure proper and adequate coverage, an RV owner should add a separate RV coverage to their current
auto policy. Usually the cost is minimal, especially compared to the alternative of finding out the RV and its
possessions are not covered after a disaster happens.

If the consumer owns or leases an RV, RV Insurance is necessary. It covers injuries to the consumer, other
passengers, and damages to the RV itself. The RV policy consists of:
     Auto (RV) Liability Coverage
       Provides coverage for bodily injury or property damage. Liability coverage can make up more than half
       your RV premium.
       For example, California law requires the consumer to have liability coverage.
     Medical Payments Coverage
       Covers your medical and hospital bills (within policy limits) if you are injured in a car accident. It will also
       cover medical bills (within limits) of any passenger in your RV.
     Collision and Comprehensive Coverage
       Collision insurance pays for: damage to an RV caused in an accident. Comprehensive insurance covers
       damage caused by fire, flood, theft, tornado, and just about any other physical damage that is not
       covered by collision.
     Uninsured/Underinsured Motorist Coverage
       Protects RV owner/leasee, the family members and passengers against injuries caused by a hit-and-run
       driver or someone who has no (or not enough) liability insurance.

Consider these additional RV coverages.
   Full RV Replacement
     Protects the investment by adding Full RV Replacement coverage to the plan. This coverage insures
     that if the RV is less than 5 years old and it is totaled due to an accident, it will be replaced with a new
     RV.
   Personal Effects
     This offers coverage specifically for personal items used while RVing. What this means is, on items used
     while RVing you will not need to file a homeowner‘s claim with many companies.
   Fulltimers
     People who claim their RV as their primary residence need the same type of protection that regular
     homeowners need. This includes personal protection for injuries in or around your RV, personal liability,
     and superior personal effects coverage.
   Suspension of Coverage
     RV owner/leasee should pay for coverage only when needed. When the RV is in storage, suspend the
     collision and liability coverage and save money on the premium. Coverage can be suspended with limits
     imposed (usually up to twice a year for a minimum of 30 days).

Boat/Watercraft Insurance
Most companies provide limited coverage for property damage for small boats such as canoes and small sail
boats or small power boats with less than 25 per hour horse power under a homeowners or renters insurance
policy. Coverage is usually about $1,000 or 10% of property coverage.

For other boats, consumers will need to purchase separate insurance. The size, type, value of the craft and
the water in which the craft is used factors into how much insurance coverage will cost.

Programs for all boats, from the yacht to a small skiff, needs to be insured against loss or damage. The
following are examples of boats and watercraft that can be insured:
    Runabouts
    Bass or fishing boats
    Ski boats
    Pontoon boats
    Jet skis
    Houseboats
    Sailboats

Other vehicles that can be insured include: Classic Cars, Antique Autos, Off Road Vehicles, Snow Mobiles,
Golf Carts, Motor Homes, and Travel Trailers.

Personal Umbrella Liability Insurance
Umbrella liability coverage kicks in when the homeowner‘s liability coverage and the automobile liability
coverage are not enough. For example:
   A pedestrian slips and falls on an icy driveway.
   A child‘s playmate is injured on the swing set in the backyard.
   While driving home from work the insured swerves to avoid a dog in the road and accidentally strikes a
      jogger.
   A fire that started accidentally on the insured‘s property spreads to several adjoining properties and
      results in a large property damage settlement
   Insured is accused of libel or slander and must appear in a court of law. If the case is lost, the policy can
      assist in paying court fees and the damages assessed.

In any of these circumstances, personal insurance policy limits may not be adequate. The insured could face
significant defense fees and court-awarded damages, and the insured may end up completely exhausting your
assets trying to defend yourself. An umbrella policy is one more way you can help protect yourself. Many of
these types of examples could end up in court. Injuries to a person can result in life long care, or permanent
injuries can result in very large settlements.
Aviation Insurance
Aviation insurance insures against hull, spares, deductible, and liability risks. Commercial airlines hold property
insurance on airlines and liability insurance for negligent acts that result in injury or property damage to
passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area
and individual pilots covered.

Terrorism Insurance
Terrorism insurance provides protection against any loss or damage caused by terrorist activities.

Coverage for Stereo Equipment
Auto policies will not pay for CDs, cellular phones, GPS Units, or stereo equipment not permanently installed in
the car. However, endorsements can be purchased that provide separate coverage for these items for an
additional premium.

Coverage When Driving in Other States, Canada, and Mexico
Mexico does not require drivers to have automobile liability insurance. However, drivers can be held criminally
and financially responsible for any auto accidents they cause. If the insured U.S. citizen is in an accident that
results in an injury, police in Mexico may detain the person until they determine who is at fault. The person will
have to show that he/she either has insurance recognized by the Mexican government or the financial ability to
pay any judgment against them.

Anyone can buy Mexican liability insurance from US agents who specialize in it. Some U.S. companies
provide a free endorsement extending the insured policy‘s coverage to infrequent trips of up to 10 days and as
far as 25 miles into Mexico. Coverage can be extended for longer stays, but it is usually valid only within 25
miles of the border. Telephone books in border towns list insurance agents that specialize in car insurance for
travel in Mexico.

A person also may be able to buy a limited Mexico ―tourist‖ endorsement that extends the U.S. liability
coverage to pay expenses exceeding those covered by a Mexican liability policy. This endorsement covers
trips of any distance and any length of time.

Coverage of New or Additional Automobiles
If the insured buys a new or additional car, the policy may automatically cover it, but there are certain
limitations. In general, an additional car usually has the same coverage as the car with the broadest coverage
provided by the policy. For example, if the insured has two cars - one with liability coverage only and one with
liability, collision, and comprehensive - and buys a third car, the third car will usually automatically have liability,
collision, and comprehensive coverage.

A replacement car usually has the same coverage as the car it replaced. For example, if a person trades in an
older car that only had liability coverage, the new car will usually automatically have only liability coverage.

The insured needs to notify the insurance company as soon as possible that a car has been added or replaced
and which coverages are wanted. The insured can lose coverage on a new or additional car if they wait longer
than 30 days.

Take Advantage of Flexible Payment Plans
Flexible payment plans make paying premiums easier for the consumer. A variety of direct billing options is
usually available. Such plans may include conveniently deducting payments from the consumer‘s checking
account. This plan features no paper bills, no checks to write and no clutter. There may be a minimum annual
premium required. (Payment plans vary by state).
Value and Convenience
Losses can occur. Why else would you purchase insurance? The insurance company should be committed to
providing convenient, fair, and fast service when a claim is filed. If the consumer has questions about whether
a loss is covered, they should be able to reach the agent conveniently. Claims Adjuster should demonstrate a
caring and professional attitude when a consumer has a claim. The adjuster will determine the best way to
handle the claim.



Chapter Three: Commercial Vehicle Insurance
A commercial motor vehicle is any motor vehicle used on a traffic way for the transportation of goods, property
or people in interstate or intrastate commerce.

Examples of Commercial Vehicles:
   A trucking company or individual owner/operator hauling a business‘ goods for a fee. (For-Hire Carrier)
   A manufacturing company hauling its own products to retail stores, and retail stores delivering products to
     its buyers. (Not For-Hire Carrier)
   A farm hauling its produce to or from the market.
   A motor coach, airport shuttle or hotel-owned shuttle bus or limousine service transporting passengers.
   Government-owned trucks and buses.
   School buses transporting students to/from school or school-related activities.
   Rented or leased trucks used to transport either commercial or personal goods.
   A truck greater than 10,000 lbs. that is owned and operated primarily for commerce that is being used for
     personal transportation or transportation of personal goods.

General Liability Coverage (Commercial)
Commercial general liability coverage insures a business against accidents and injury that might happen on its
premises, as well as exposures related to its products. It will protect the insured from payments for bodily injury
or property damage to a third party, for medical expenses accruing to the underlying incident, for the cost of
defending lawsuits including investigations and settlements, and for any bonds or judgments required during
an appeal procedure.

No matter how diligently the insured removes all possible hazards from the business, the insured could be
sued successfully for accidents resulting from something as simple as the carelessness of a customer.
General liability insurance is the last line of defense against devastating claims for things over which the
insured may have little or no control.

A basic liability policy that covers four forms of injury:
   bodily injury
   property damage which results in actual physical damage or loss
   personal injury
   advertising injury

Most companies will need to supplement their Commercial General Liability coverage with automobile
insurance and workers compensation.

Umbrella Liability Coverage (Commercial)
Commercial Umbrella Liability Insurance helps to protect customers from catastrophic liability claims such as
an explosion, major crash or product contamination incident that can cause long-term damage to a company‘s
reputation and bottom line.
The umbrella policy is on top of other liability coverages, including General, Auto and even Professional
Liability . If the primary coverage is exhausted, the umbrella steps in, limits start at $1,000,000 and go up from
there.

A business owner may consider an accident that does not involve a fatality a minor item. The reality is that
such an accident may result in millions of dollars of medical care, lost income and other expenses. Can the
business afford a payment of millions of dollars?

Think of accidents involving vehicles that, today, are much safer than 5 or 10 years ago. That means that
accidental deaths are less likely while severe head injury is very likely. Severe head trauma can significantly
increase a claim‘s cost because it may take up to seven years to determine the ultimate extent of injury.
Recovery is often slow and sporadic. These elements combine to make regular insurance coverage
insufficient.

Physical Damage
The Commercial Vehicle Collision Investigation involves the following components:
   Collision investigation protocol
   Criminal, coroner, civil preventability process
   Scene attendance – Identification and interpretation of physical evidence
   Collection of physical evidence – Note taking – Photography
   Preparing a field sketch – use of a traffic template
   Witness statements
   Series of events
   Review and analysis – Determining the ―WHY‖ aspect of preventability

Disabling Damage
Damage which precludes departure of a motor vehicle from the scene of the accident in its usual manner in
daylight after simple repairs. Includes:
   Damage to motor vehicles that could be driven, but would be further damaged in doing so.
   Excludes damage to tires, headlights, or taillights.

Case Example: Qualifying Crash
A tractor semi-trailer strikes the bridge overhead structure with its trailer and the trailer is disabled and must be
towed. The truck tractor is not damaged and is driven off. The vehicle would still be considered to be towed as
it is considered one unit at the time of the accident.

Commercial Automobile Insurance
Commercial automobile policies cover cars, vans, trucks and trailers used in a business. The coverage will
reimburse the owner of the vehicle that is damaged or stolen or if the driver injures a person or any property.

Auto Coverage
Whether a business has a few cars or a fleet of trucks and autos, quality insurance is needed, along with
competitive rates, and hassle-free claims and service. A cost-effective Commercial Auto Insurance Policy can
cover vehicles vital to businesses.

Commercial Auto Insurance can provide coverage for a fleet of vehicles and drivers against injury, loss or
damage to vehicles or cargo, plus damage to other property.

Commercial Auto Insurance policies generally offer convenient, unified billing, and a range of optional
coverages to meet the company‘s needs and vehicle characteristics.
If there is an owner of a small-or-medium sized business, Commercial Auto Insurance offers:
     Coverage on the company‘s vehicles
     Protection for the business against potentially devastating liability costs resulting from an accident
       involving the vehicles

Trucks and Cargo
Primary Liability
Primary Liability Insurance coverage protects the insured from damage or injuries to other people as a result of
a truck accident. This coverage is mandated by state and federal agencies and proof of coverage is required to
be sent to them. Coverage limits usually range from $35,000 to $1,000,000. Pricing is dependant on the region
of the country, driving records, and the history of the trucking operation.

Physical Damage
Physical Damage Insurance is coverage for a truck and trailer. This coverage is for repair or replacement for
damage resulting from things such as collision, fire, theft, hail, windstorm, earthquake, flood, mischief, or
vandalism to a vehicle owned by the insured. Truck Insurance pricing is based on the value of any equipment
and usually pays a percentage of that value. This coverage may be required by the lien holder of a vehicle.

Commercial Truck Insurance
If the insured is like most owner-operators, the business has a lot tied up in their trucks. Insured businesses
keep investments protected with:
     Commercial Auto Liability
       This coverage is mandated by State and Federal regulatory agencies, which companies must forward
       proof of this coverage to those agencies. As implied by the title, it protects the company from damage or
       injuries occurred by other parties involved in the accident. Usually, companies with commercial trucks
       over 10,000 gross vehicle weight are required to have $750,000 limit.
     Commercial General Liability
       General liability is a broad coverage pertaining to everything except automobile. It gives protection from
       injuries or property damage that happens on company property, it covers liability of someone using your
       product or service, and it covers breach of contract.
     Motor Cargo Insurance
       This insurance protects the transporter if damage, theft, or anything should happen to the freight. There
       is a maximum load limit per vehicle.
     Physical Damage Insurance
       This coverage provides actual cash value protection to an insured‘s equipment in the event of an
       accident or theft. It will also provide towing coverage up to a certain amount.
     Trucker‘s Occupational Accident Insurance
       This coverage is customized for motor carriers, owner-operators and contract drivers. Coverage pays
       benefits for accidental death or dismemberment, accident-related medical expenses and temporary or
       continuous total disability. It does not replace workman‘s compensation.
     Worker‘s Compensation
       This policy is required for any commercial trucking company employing drivers and provides disability
       and income benefits in the event of a job-related injury.

You would think with all of the laws and regulations given to truck drivers to safeguard against them driving for
long spans of time without a break, that exhaustion is a major factor in truck driving accidents. In actuality,
statistics show that a little over 1% of fatal trucking accidents can be attributed to fatigue.

Hours of Service Regulations guidelines are as follows:
   Drivers may drive up to 11 hours in the 14-hour on-duty window after they come on duty following 10 or
     more consecutive hours off duty.
   The 14-hour on-duty window may not be extended with off-duty time for meal and fuel stops, etc.
   The prohibition on driving after being on duty 60 hours in 7 consecutive days, or 70 hours in 8 consecutive
       days, remains the same, but drivers can ―restart‖ the 7/8 day period anytime a driver has 34 consecutive
       hours off duty.
    CMV drivers using the sleeper berth provision must take at least 8 consecutive hours in the sleeper berth,
       plus 2 consecutive hours either in the sleeper berth, off duty, or any combination of the two.
http://www.fmcsa.dot.gov/rules-regulations/truck/driver/hos/brochure2005.htm

If drivers violate the HOS rules they could be placed out of service until enough off-duty time has accumulated,
fines anywhere from $1,000 to $11,000 can be assessed, carrier‘s safety rating can be downgraded, criminal
penalties can be brought against the carrier/driver who knowingly violates HOS Regulations.

Miscellaneous Issues
   Installment plans can help with cash flow.
   Deductibles can be combined for tractor trailer and cargo.
   One policy can be had for most coverages.


Trailer Interchange
What is trailer interchange coverage?
Trailer interchange is a type of insurance coverage that many Equipment Providers require. Should the insured
want to do business with these companies, the insurance licensee will need to include trailer interchange on
the certificate of insurance provided on behalf of the insured. The trailer interchange policy needs to cover the
physical damage to non-owned equipment (containers, chassis and/or trailers) while in the insured‘s care,
custody and/or control. Trailer interchange must cover comprehensive and collision. Policies covering only fire
and theft are not acceptable.

Truck Fatalities Trends, 1999-2003
The trends in truck involvements in fatal traffic accidents and in the number of persons killed in those accidents
are broken down by truck configuration, state, and person type.

The truck configurations include:
   straight trucks with no trailers
   straight trucks pulling a single trailer
   bobtails (tractors with no trailers)
   tractors with one semi trailer
   tractors with two trailers (doubles)
   all other truck configurations. The ―other combinations‖ includes both straight truck and tractor
      configurations that do not fit into any of the previous categories.

General Stats
   An average of about 5,100 trucks are involved in a fatal traffic accident each year.
   Tractors pulling one semi trailer are the most common truck configuration, accounting for about 60% of all
     trucks involved in a fatal accident.
   Texas, California, and Florida had the greatest number of truck involvements over the period 1999 to
     2003.
   The number of persons killed in accidents involving a truck increased to 5,409 in 2003, after decreasing to
     5,314 in 2002.
   The number of truck drivers killed in traffic accidents increased from 664 in 2002 to 700 in 2003.
   An average of 362 pedestrians and 68 bicyclists are killed each year in traffic accidents involving trucks.
Accident Conditions
   October had the greatest number of fatal involvements with 499, while January had the fewest with 345.
   About two-thirds of fatal accident involvements occur in rural areas.
   Almost two-thirds of fatal accident involvements occur in daylight.
   80.9% of fatal accident involvements occur on dry roads.
   84.4% of fatal accident involvements occur in ―normal‖ weather conditions. (i.e. no precipitation)
   28.1% of fatal involvements occur on state highways, 25.9% on U.S. highways, and 27.0% on Interstate
     highways.
   In 10.9% of fatal involvements, the other vehicle crossed the center line of the road and struck the truck
     head on.

Vehicle Configuration
These statistics describe the physical configuration of trucks involved in a fatal accident in 2003.
   Of the 5,104 trucks involved in a fatal accident in 2003, there were 3,005 tractor-semi trailers, 1,499
     straight trucks with no trailer, 218 straight trucks pulling a trailer, 87 bobtail tractors, and 157 tractors
     pulling two trailers.
   Straight trucks with no trailer represented 29.4% of all trucks involved in a fatal accident.
   Tractor-semi trailers accounted for 58.9% of the trucks.
   30.2% of the trucks were empty, 20.3% were carrying general freight, and 13.6% were carrying solids in
     bulk (gravel, soil, etc.) at the time of the accident.

Driver
These are statistics on the drivers of trucks involved in fatal traffic accidents.
    2.3% of truck drivers involved in a fatal traffic accident had been drinking.
    Drug use was reported for 1.0% of truck drivers in a fatal crash.
    95.7% of truck drivers involved in a fatal accident were male.
    700 truck drivers were fatally injured in a traffic accident.
    1.6% of truck drivers involved in a fatal accident were recorded as drowsy or asleep.
    Ran-off-road was the most common driver factor recorded (8.4%), followed by driving too fast (8.1%),
       inattentive (4.7%), and failure to stay in lane (4.7%). Cellular phone distraction was cited for 4.5% of
       drivers.
    58.4% of truck drivers had no driver factors recorded.
Injuries are classified according to severity using the following Category Definitions:
K – Fatal injury
A – Incapacitating injury
B – Evident but not incapacitating
C – Complaint of pain
O – No injury

Straight Trucks
A straight truck is a truck power unit with a permanently attached cargo body. Straight truck configurations
include trucks pulling no trailers, trucks pulling a full or other trailer, and wreckers towing cars or other straight
trucks. This section provides descriptive statistics on straight trucks involved in a fatal traffic accident in 2003.
All truck configurations in which the power unit was a straight truck are included in this section.
    Truck configurations with a straight-truck power unit accounted for 34.1% of all trucks involved in a fatal
       traffic accident in 2003.
    262 straight truck drivers were fatally injured in a traffic accident; 50.0% of the fatalities occurred in ran-off-
       road crashes.
Tractors
A tractor is a truck power unit with a fifth-wheel designed to pull semi trailers. Tractor configurations include:
       o tractors pulling no trailers (bobtail)
      o tractors pulling one or more semi trailers
      o other configurations with supplementary units such as jeeps that permit hauling very heavy loads or
        configurations in which the tractor towed other tractors by means of saddle mounts.
   Truck configurations in which the power unit was a tractor accounted for 3,263 of the 5,104 trucks (63.9%)
     involved in a fatal accident in 2003.
   429 tractor drivers were fatally injured in a traffic accident; 46.2% of the fatalities occurred in ran-off-road
     crashes.

Longer Combination Vehicles
The definition of a LCV is based on the Surface Transportation Assistance Act (STAA) of 1982, which
restricted the states‘ ability to regulate truck weights and lengths within their borders. States were required to
permit tractors with two trailers, each up to 28.5 feet long, to operate on Interstate and other designated
highways. In addition, states were prohibited from setting weight limits less than 80,000 pounds. An LCV is
defined as a combination vehicle with two or more trailers that exceeds the minimum weight and length
standards set by the STAA of 1982.

Definition of an LCV:
    a truck-tractor with two trailers capable of carrying cargo and at least one trailer longer than 29 feet.
    a truck-tractor with two trailers capable of carrying cargo and a gross combination weight greater than
      80,000 pounds.
    a truck-tractor pulling three trailers capable of carrying cargo.
Over length LCVs have at least one cargo-carrying trailer longer than 29 feet. Overweight LCVs exceed the
weight standard but not the trailer length standard. LCVs categorized as both exceed both weight and length
standards. Triples are LCVs with three cargo-carrying trailers.

Combination Vehicle
A vehicle consisting of a power unit (truck or truck tractor) and one or more trailing units (such as a semi
trailer).

Longer Combination Vehicle
A longer combination vehicle is defined as follows:
    a truck-tractor with two trailers capable of carrying cargo and at least one trailer longer than 29 feet.
    a truck-tractor with two trailers capable of carrying cargo and a gross combination weight greater than
      80,000 pounds.
    a truck-tractor pulling three trailers capable of carrying cargo.

Lowboy
A flatbed trailer with a low floor used for hauling heavy equipment. The deck is typically 12‖ off the ground.

Open Top
A cargo body with sides, but without a permanent top.

Other Trailers
Any trailer that does not fit into the semi or full trailer type categories. Examples are tagalong equipment such
as bush chippers, or trailers with axle placement in any fashion besides the traditional front and rear
configuration of the full trailer.
Over-the-road
Travel from one city to another, typically greater than fifty miles, as distinct from travel in and around the
vehicle‘s base.

Piggyback
Refers to the way empty log trailers are carried on the bed of a tractor such that no axles touch the road. Also
may refer to vehicles carried on the rear of a power unit in a manner that axles do contact the road.

Power Unit
A truck, or the part of a combination that houses the engine.

Private Carrier
A company which maintains its own trucks to transport its own freight.

Rocky Mountain Double
It is defined as any combination with a first trailer over 40 feet long and a second trailer between 20 and 30 feet
long.

Saddle mount Tractor
A configuration consisting of a truck or tractor towing one or more trucks or tractors, where the towed unit is
attached to the vehicle in front of it, utilizing a saddle that is attached to the frame or fifth wheel of the leading
unit. The saddle mechanism is attached to the front axle of the towed vehicle.

Semi trailer
A trailer whose front rests on the back of a tractor, coupled to the tractor by a fifth wheel and kingpin. It has no
front axle.

Triple
A combination vehicle consisting of a tractor pulling three trailers.

Motor Truck Cargo
Motor Truck Cargo insurance protects the transporter for his responsibility in the event of damaged or lost
freight. The truck insurance policy is purchased with a maximum load limit per vehicle. Coverage limits can
range from $10,000 to $100,000 with excess policies available upon request. Pricing for this type of truck
insurance is mainly dependent on the type of cargo being hauled.

Non-Trucking Liability
Non-Trucking Liability (Bobtail Coverage) provides limited liability insurance for owner-operators who are
permanently leased to an Interstate Operating Authority regulated carrier. It provides limited liability protection
when the owner-operator is not on dispatch, nor pulling a loaded trailer. For example, this truck insurance
coverage would apply when the owner-operator gets their truck washed or brings their trucks into a shop for
repairs. Once the owner-operator is under dispatch, they are covered under the Primary Liability insurance
policy of the company that they are leased to.

Bobtail / Deadhead Liability
The truckers policy provides primary liability insurance for the owner or anyone else form whom the named
insured hires a covered auto, while the auto is being used exclusively in the named insured‘s trucking business
and pursuant to operating rights granted to the named insured by a public authority. A truck owner who
operates exclusively for-hire with another trucking firm(s) may therefore have no need for a trucker‘s policy of
their own. In this case, the truck owner does not have his own operating authority and operates his vehicle
under the authority of another trucker.
However, the trucker owner will need to have liability insurance for non-trucking use which is commonly called
―Bobtail Coverage‖ as well as ―Deadheading‖, An independent trucker usually deadheads or bobtails when
traveling between home and the terminal or when returning unloaded from delivering a previous load and the
trucker is not ―under dispatch‖.

To insure the coverage gap created by bobtailing and deadheading, the independent trucker can purchase a
business auto policy (not truckers) with the ―Non-Trucking Use‖ endorsement attached.

Motor Truck Carrier:
Any person or organization engaged in the business of transporting property by commercial automobile.

Owner Operator:
The individual, partnership or corporation who leases equipment to a Motor Truck Carrier and this equipment
is to be operated by the owner of the equipment or his employees.

Permanent Lease:
The written lease agreement between the Motor Truck Carrier and the Owner Operator which is for period of
30 (thirty) days or more.

Why Fleet owners should require bobtail protection for the insured: The insured should require non-business
use coverage (bobtail) for all leased operators. Without it, the primary carrier will often be held liable for non-
business use accidents. That means the insurance company would seek recovery from the insured for a claim
that technically does not apply to the primary policy. Fleet managers must insure that their owner-operators
have this coverage. Maintaining certificates of insurance from each owner operator is not really sufficient.
Certificates do not provide coverage; they only confirm that at one point in time the coverage existed. The
Insured would be hard pressed to continually monitor that the bobtail coverage remains active. A group bobtail
policy for the Insured would put the coverage control in the hands of the insured and ensure that the coverage
remained active.

Interstate Operating Authority
Interstate Operating Authority is permission granted by the federal government to transport regulated freight
across state lines. Interstate Operating Authority is now granted by the Office of Motor Carrier Safety
Administration under the auspices of the Federal Highway Authority. Unlike many of the other regulations
governing interstate operations, there is no minimum weight threshold that requires compliance. Any vehicle
operating for hire in interstate transportation of regulated freight or passengers must have operating authority.

Inland Marine Coverage
Inland marine is a rather misleading name for a type of coverage used to protect high risk, mobile items that
are not covered by commercial property policies. Inland marine coverage for a business can protect valuable
tools, for a mechanic, artwork for a gallery operator, or a jeweler‘s inventory.

It is designed to cover movable property wherever it may be located and may be written on an all-risk, open-
perils or named-perils form. Special policy floaters can cover such diverse items as bicycles, cameras, fine art,
furs, jewelry, livestock, and equipment of all sorts.

Ships/Barges/Freighters
Barges are vessels originally designed for freight-carrying primarily in inland waterways. They have steel hulls
and flat bottoms. Usually the insurance premium is about 0.75%-1% of the value of the vessel.

Marine insurance and marine cargo insurance covers the loss or damage of ships at sea or on inland
waterways, and of the cargo that may be on them. When the owner of the cargo and the carrier are separate
businesses, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire,
shipwreck, etc., but excludes losses that can be removed from the carrier or in such policies, which extends
the indemnity to cover loss of profit and other business expenses caused by the delay of a covered loss.
Maritime Terms
Adventure – The commercial enterprise in which a vessel and goods are subjected to the hazard of a loss at
sea; merchandise is shipped by the seller to realize profit from the sale, and the vessel carries the
merchandise in order to earn freight. The vessel and cargo together make up the ―common venture.‖

All Risks – One of the broadest forms of coverage available, providing protection against all risks of physical
loss or damage from any external cause. Does not cover loss or damage due to delay, inherent vice,
preshipment condition, inadequate packaging, or loss of market. Loss must be fortuitous to be covered.

Approved Merchandise – Goods not particularly susceptible to loss or damage, either by reason of their
nature or because they are well-packed. This term covers practically all manufactured articles or new
merchandise.

Barratry – Fraudulent, criminal or wrongful act willfully committed by ship‘s captain or crew which causes loss
or damage to the ship or cargo.

Break Bulk – Loose cargo, such as cartons, stowed directly in the ship‘s hold as opposed to containerized or
bulk cargo.

Other Commercial Vehicles
Taxi, Limo and Bus Insurance
Special insurance plans are available for Professional drivers of a taxi, bus, limo, charter and all other forms of
public transportation.

Mexican Truck and Bus Insurance
Mexican Buses entering the United States or US Buses entering Mexico need insurance.

Fidelity/Crime Coverage
Fidelity/Crime insurance covers loss of property due to an employee‘s dishonesty, as well as a suspicious loss
of property that cannot be directly attributed to a particular employee. Coverage usually extends to losses of
property due to theft, embezzlement, forgery and computer crimes.

Generally, the policy will cover the loss of property while on the business‘s premises, as well as while the
property is in transit or otherwise temporarily in another location. Because policies differ in these respects, and
because employee dishonesty can take many forms, a thorough reading of the proposed policy, in advance, is
required, to determine the scope of any exclusions.

Liabilities covered by crime insurance usually fall into two categories, although many polices combine both
types of coverage:
    Money and security coverage pays for money and securities taken by burglary, robbery, theft,
       disappearance and destruction
    Employee dishonesty coverage pays for losses caused by most dishonest acts of your employees, such
       as embezzlement and theft

Commercial lines, which account for more than half of U.S. property/casualty insurance industry premium,
includes the many kinds of insurance products designed for businesses.

Commercial insurance performs a critical role in the world economy. Without it, the economy could not
function. Insurers essentially protect the economic system from failure by assuming the risks inherent in the
production of goods and services.
There are over seven million small businesses in the U.S., ranging from construction firms to grocery stores to
home-based businesses. All have one thing in common: Without the right insurance coverage, each could be
wiped out by a disaster or a lawsuit. In addition, almost all businesses are accountable for the safety of their
workers and bear responsibility for injuries suffered on the job.

Equipment Floaters
An Equipment ―Floater‖ refers to the fact that the coverage for the equipment ―floats‖ and is not restricted to
one location. Coverage is provided on a ―Limited Worldwide‖ basis as there are several excluded countries.

What Do Limits of Liability Mean?
The amount specifies the most that will be paid for bodily injury and property damage to others for which the
law holds the insured responsible because of an accident.

Add up the extra benefits. Also provides payments for
   legal defense costs (if insured is sued)
   Court costs
   Costs of premiums on bonds, within the limit of the policy‘s liability
   Reasonable expenses incurred at insurance company‘s request

Care, Custody & Control Exclusion
All Commercial General Liability policies contain an exclusion for property damage to property in the insured‘s
care custody and control. The policy states ― This insurance does not apply to:
    property damage in the care, custody or control of the insured or
    property which the insured is for any purpose exercising physical control‖.
This exclusion was designed to exclude coverage for damage to property that should be covered under
insurance specifically designed for property, such as equipment floaters, bailee insurance, fire insurance and
so on.

Business Insurance
Business insurance can be any kind of insurance that protects businesses against risks. Some principal
subtypes of business insurance are:
   Professional liability insurance
   Business owner‘s policy that bundles many kinds of coverage into one policy

Automobile Business
An automobile business means the business of altering, customizing, leasing, parking, repairing, road testing,
delivering, selling, servicing, or storing vehicles.

Umbrella Liability
An umbrella liability policy is an important coverage to have during these litigious times, especially if the
insured has accumulated a substantial amount of assets. Umbrella coverage provides liability protection
beyond the basic limits of an Auto policy. Most policies are sold in increments of 1 million; however, the
premium is usually a lot less than increasing primary liability limits on an auto policy.

School Buses
U.S. Department of Transportation Holds Public Forum on Seat Belts on School Buses
U.S. Transportation Department in July 2007 called on state and local governments, education officials, school
bus manufacturers, safety advocates and consumer organizations to help the federal government assess the
effectiveness of seat belts on school buses. The Department kicked off a day-long public meeting on the safety
benefits, economic factors and other issues related to requiring seat belts on large school buses. Current
federal standards for large school buses provide protection by the concept of compartmentalization, which
does not require seat belts but creates a protection system like eggs in a carton. Compartmentalization
combines flexible, energy-absorbent, high seat backs found on school buses and narrow spacing between
each row to create a compartment that confines the occupant during a crash.

The statistics tell us that school buses are the safest form of transportation on our highways. The question
asked is how to make them even safer. The Department called on the attendees to explore the best way to
improve the safety of students riding on our nation‘s school buses. It was stated that, ―We owe it to our children
to look at this issue. It‘s time to look at seat belts on buses‖.

According to research by the National Highway Traffic Safety Administration (NHTSA), an average of 21
deaths involving school-aged children with school buses occurs each year. Of those killed, 6 are passengers
inside the school bus and 15 involve pedestrians around the school bus. Nearly half a million school buses
transport over 25 million students each year, traveling a total of 4.3 billion miles annually. School buses remain
the safest means of transporting students to school and school-related activities.

Even though the numbers are not large, school buses still have fatalities and injuries every year. If there are
sensible and practicable ways to more safely transport our children to school, it is our responsibility to
investigate and make them a reality. (US Transportation Dept, 2007)

Selection Criteria for Reportable Crashes
Crashes involving commercial motor vehicles should be reported on a State‘s crash report and to the FMCSA.
In general, the criteria for selection are based upon:
    The vehicle‘s weight (GVWR or GCWR)
    The vehicle‘s passenger capacity
    The presence of a hazardous materials placard
    The severity of the crash in which that vehicle is involved.

Weight Requirements
Report a crash to FMCSA if it involves any truck having a gross vehicle weight rating (GVWR) of more than
10,000 pounds or a gross combination weight rating (GCWR) over 10,000 pounds used on public highways.

Passenger Capacity:
Report a crash to FMCSA if it involves any motor vehicle with seating to transport nine (9) or more people,
including the driver‘s seat.

Hazardous Materials
If a vehicle is discovered to be transporting hazardous materials without a required placard by an officer
knowledgeable in Federal Hazardous Materials Regulations, it should also be reported to FMCSA.

Report a crash to FMCSA if it involves any vehicle displaying a hazardous materials placard, regardless of
weight.

Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as
a result of the dispersal, release or escape of pollutants.

Crash Severity
The qualifying vehicle is involved in a crash including at least one motor vehicle in-transport operating on a
traffic way open to the public that results in:
    A Fatality: any person(s) killed in or outside of any vehicle (truck, bus, car, etc.) involved in the crash or
        who dies within 30 days of the crash as a result of an injury sustained in the crash:
    An Injury: any person(s) injured as a result of the crash who immediately receives medical treatment away
        from the crash scene;
   A Tow-away: any motor vehicle (truck, bus, car, etc.) is disabled as a result of the crash and transported
      away from the scene by a tow truck or other vehicle.

Insurance Principles
There are seven common characteristics of commercially insurable risks. They include:

1. Large Number Of Homogenous Units.
Most insurance is provided to individuals belonging to a very large group. By having large groups or large
homogenous exposure units this allows insurers to benefit from The so-called ―law of large numbers,‖ which in
effect states that as the number of exposure units increases, the actual results are increasingly likely to
become close to expected results. There are exceptions to this criterion. Lloyds of London is famous for
insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that
are infrequent. Large commercial property policies may insure exceptional properties for which there are no
‗homogeneous‘ exposure units. Despite failing on this criterion, many exposures like these are generally
considered to be insurable.

2. Definite Loss
The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a
known time, in a known place, and from a known cause. The classic example is death of an insured on a life
insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion.

3. Accidental Loss
The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the
beneficiary of the insurance. The loss should be ‗pure,‘ in the sense that it results from an event for which there
is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are
generally not considered insurable.

4. Large Loss
Large losses are in a class by themselves. The size of the loss must be meaningful from the perspective of the
insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and
administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the
insurer will be able to pay claims. For small losses these latter costs may be several times the size of the
expected cost of losses. There is little point in paying such costs unless the protection offered has real value to
a buyer.

5. Calculable Loss
There are two elements that must be at least able to be estimated, if not formally calculable:
   the probability of loss
   the attendant cost
Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable
person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented
under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable
as a result of the claim.

6. Limited Risk of Catastrophic Losses
Limited-risk of catastrophically large losses. The essential risk is often aggregation. If the same event can
cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies
becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by
the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their
exposure to a loss from a single event to some small portion of their capital base, on the order of 5%. Where
the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital
constraint will restrict an insurer‘s appetite for additional policyholders. The classic example is earthquake
insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the
policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is
another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since
the combined capital of insurers and reinsures can be small compared to the needs of potential policyholders
in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose
total exposed value is well in excess of any individual insurer‘s capital constraint. Such properties are generally
shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance
market.

7. Affordable Premiums
If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is
large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer.
Further, as the accounting profession formally recognizes in financial accounting standards, the premium
cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such
chance of loss, the transaction may have the form of insurance, but not the substance.



Chapter Four: Automobile Fraud and Safety Issues

Part 1: Fraud
Fraud is the intentional lying or concealment by policyholders to obtain payment of an insurance claim that
would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees,
agents and brokers for financial gain.

There are a number of laws meant to protect the consumer from deceptive practices used while purchasing
automobile insurance. Automobile fraud is a very broad area and there are many different types of automobile
insurers. These include:
    Insurance companies
    Car Dealers
    Car Manufacturers
    Extended Service Contract Companies
    Car Finance Companies

Fraud
Automobile insurance fraud is often conducted in rings, sometimes with ties to organized crime. From
fabricated losses to staged accidents, superfluous repairs and medical treatments, there has been a huge rise
in fraudulent auto insurance claims that is costing consumers millions of dollars in premiums, with certain
states including New York, California, New Jersey, Florida, and Massachusetts carrying the brunt of those
costs, according to the National Association of Insurance Commissioners (NAIC).

One might think that in states like California and New York, states with the most insured cars in the country,
costs would be substantially lower due to the amount of people paying into the system (8.6 million in New York
alone). However, they are not. One of the biggest drains on the system is the no-fault laws that are on the
books in about a dozen states. These laws require insurers to automatically pay for personal injury claims,
sometimes up to $250,000, regardless of who may be found at fault. While originally designed to reduce the
litigious nature of car accidents, they have increased the rates of fraud and contributed to rising rates.

The Insurance Fraud Problem
Insurance fraud is one of the most costly white-collar crimes in America, second only to tax evasion. It affects
every citizen in an immediate and substantial way. While shoplifting costs the retail industry approximately $13
billion each year, insurance fraud is estimated to cost $100 billion. In both instances, the crimes translate into
higher costs for everyone. Insurance researchers estimate that every U.S. household pays $200 to $300 a
year in higher premiums in order to offset fraudulent claims.

What does fraud look like?
Insurance fraud occurs when someone tries to make money from insurance transactions by deceiving others.
Insurance fraud is a criminal offense in most states. The following list highlights examples of insurance fraud
along with a brief description.

Insurance Fraud Falls into Two Categories: Internal and External.
INTERNAL FRAUD
Internal fraud are those perpetrated against an insurance company or its policyholders by insurance
managers, executives, or other insurance employees. Examples include:
    Fake/False Documents – Agent or insurer issuing fake policies, certificates, insurance identification cards
      or binders.
    False Statements – Agent or insurer making a false statement on a filing with the State Department of
      Insurance.
    Pocketing Premiums – Agent or insurer pocketing premiums, then issuing a phony policy or none at all.

EXTERNAL FRAUD
External fraud schemes are directed against an insurance company by individuals or entities as diverse as
policyholders, medical providers, beneficiaries, vendors, chiropractors and career criminals. Examples include:
   Arson-for-Profit – An owner, or someone hired by an owner, deliberately burns a business, home, or
      vehicle to collect insurance money.
   Disaster Fraud – Unscrupulous operators persuade disaster fraud victims to claim more damages than
      actually occurred, or they collect money to repair damaged property, but never complete the work.
   Creating a Fraudulent Claim – Creating a fraudulent claim may include: staged or caused auto accidents;
      staged slip and fall accidents; false claim of foreign object in food or drink; faking a death to collect
      benefits, or filing a phony death claim; murder-for-profit; phony burglary theft or vandalism; arson; staged
      auto thefts; and staged homeowner accident or burglary.
   Exaggerated Claims (Overstating the Amount of Loss) – The most common perpetrators of fraud are the
      occasional ―fibbers‖ or ―padders‖ who overstate their insurance claims to make up for the deductible.
      Consumers pay billions of dollars annually to cover these little exaggerations. Overstating the amount of
      loss can include: inflating bodily injuries from an auto accident; inflating value of items taken during a
      burglary or theft; inflating a physical damage claim from a minor fender bender; and medical providers
      inflating billing or upcoding of medical procedures to name a few.
   Falsifying Theft Reports – A property owner falsely reports items stolen or exaggerates the values of
      items taken in a burglary to collect insurance money.
   Medical Fraud (Medical Mills) – Unethical medical practitioners or providers work in concert with scheming
      patients to create fictitious, accident-related injuries to collect on fraudulent disability, workers
      compensation, and personal injury claims. These providers usually work through middlemen who recruit
      patients for their scams. The doctors often bill insurers for multiple office visits and tests which never take
      place.
   Misrepresenting Facts to Receive Payment – Claiming prior damage occurred in the
       o current accident; claiming a minor injury created a partial or total disability; receiving
      o disability payments while working elsewhere conducting the same or similar work duties;
      o claiming false disability; medical providers billing for services not rendered; providing
      o unnecessary medical treatment; charging for non-provided medical tests; pharmacist ―upcoding‖ for
        medicine by issuing generic pills and charging for name brand.
   Past Posting – When a person becomes involved in an automobile accident, victim of a car theft, or finds
     themselves with a property loss and no coverage, he or she may decide to take a chance at ―past-
     posting‖ insurance coverage. The victim may take the simple approach of going directly from the scene
     of the accident or theft to an insurance agency or create an elaborate scheme of events. The key is the
     coverage must appear to have been in force at the time of loss.
   Personal Injury Schemes (Slip & Fall) – A corrupt attorney reports his client was seriously injured after
     falling on commercial property and demands the business‘s insurance company be notified. The
     business owner has no prior knowledge of anyone falling and has never seen the claimant. The fall was
     staged or fabricated, and there was no such injury. These con artists often target small businesses or
     franchise operations.
   Property Fraud (Multiple Policies for Profit) – A property or vehicle owner illegally buys numerous
     insurance policies for one property or vehicle and then damages or destroys it, collecting on all policies.

Vehicle Scams
Drive Down – A driver waves on another driver, indicating its O.K. to proceed, and then intentionally hits the
passing car.
Hit & Run – Using a pre-damaged vehicle, criminals claim they were in an accident and can‘t identify the other
driver, often calling police to verify.
Paper Accidents – An owner fabricates an accident by making false police and insurance reports.
Policy Misrepresentation – A vehicle owner uses a friend‘s or relative‘s address and misrepresents how far
he drives to work to obtain a lower premium.
Owner Give-Up – The vehicle owner orchestrates the destruction of the vehicle to collect insurance money.
Risky Repairs – An auto body shop owner offers to ―hide‖ the deductible or inflate the extent of damage.
Sideswipe – A driver in the inside lane of a dual left turn lane in a busy intersection drifts into the outer lane,
intentionally forcing a collision.
Swoop & Squat – This scam occurs when the vehicle you are following is suddenly passed by another
vehicle that ―swoops‖ in front of it. This causes the vehicle in front of you to stop abruptly, or ―squat.‖ As a
result, you are unable to avoid colliding with the rear end of the vehicle. The drivers of both the swoop and
squat car planned the accident. The swoop car will never be seen again and the driver of the squat car plans
to submit vehicle damage and personal injury claims to your insurer. Oftentimes, multiple occupants in the
squat car will fabricate bodily injuries as well.
T-Bone – This is normally conducted with the absence of any hostile witnesses. The perpetrator waits at an
intersection and intentionally rams into a car as it passes. When the police arrive, bogus witnesses are planted
to tell the police officer that the victim ran a stop sign or red light.

Wave – A tactic normally conducted in heavy traffic, and when there is a merge. The perpetrator waves to the
victim, pretending to yield the right of way. As the victim begins to merge, the perpetrator quickly accelerates to
initiate contact. When the police arrive, the perpetrator denies ever giving up the right of way.

Shady Helper – This could happen after an honest accident. A stranger approaches you after an accident and
offers numbers to an auto repair shop, lawyer or doctor. This could be a setup. The auto repair shop often
pads your repair cost, and a doctor may give you shady treatment or none at all. A lawyer may even try to
convince you to sue the insurance company.

Most scams are performed by professionals that run practice drills before actually committing the crime. They
are normally very professional and skilled at their craft, but that does not mean you can not take steps from
being victimized. Here are some measures that can be taken to shift the advantage to your side.

Auto Insurance Scams
Insurance company‘s countrywide spends millions of dollars yearly to defend against misleading car accident
claims by mischievous individuals looking to reap the benefits of the insurance claims. How do auto insurance
scams affect the consumer? The consumer pays because the insurance companies raise premiums to
compensate for the loss. It is an unfortunate outcome for the honest citizen. What can the consumer do to help
other consumers and the insurance companies? Contact the insurance provider if you think you have been
scammed or witnessed a scam.

Everyone knows that any rear-end collision is usually the fault of the rear car. It is not hard for an opportunist to
scan the roads for a Mercedes in the rearview mirrors, slam on the brakes, and file a claim. The ―victim‖ may
also go off after the accident to inflict additional damage, and he may later claim more passengers were injured
than were even in his car at the time.

It can get more complicated than that, of course. Getting money to fix the car will not net much, but collecting
to relieve physical pain can drive up the claim quickly. It can take some crooked body shop owners, doctors,
and lawyers to pull these off successfully. Also beware of fake helpers who happen to show up on the scene at
the right moment. While he may seem to be a savior, he is probably in on the scam and will likely recommend
bogus body shops or physicians who will overestimate damages.

Stay skeptical around overly generous motorists. One example might be a merging situation in which the driver
signals his intent to willingly yield to give the victim the right of way. Then he speeds up, a sideswipe occurs,
and when the police arrive, he denies ever giving any such signal.

Possibly easiest of all are ―paper accidents‖, where the cost of accidents are simply exaggerated on paper (by
a shady body shop) or fabricated altogether. Perpetrators typically keep claims under $1,000 so insurers would
be less apt to investigate.

If the scam artist wants to lie, make him lie right there, unrehearsed, for the official record, to the police.

Automobile fraud occurs when a retail seller misrepresents or fails to disclose material facts regarding a new or
used vehicle. There are many categories of automobile fraud:
   sale of wrecked vehicles
   sale of previously repurchased ―lemon‖ vehicles
   odometer fraud
   various financial frauds that occur in the advertising or at the time of sale or lease of the vehicle

Auto Fraud Frequently Asked Questions
What constitutes fraud in the sale of a wrecked vehicle?
Few things are more aggravating in the purchase of a vehicle than to find out that it has sustained prior
material accident damage. It is illegal to sell a new vehicle with any unrepaired damage, any structural damage
or even if repairs were made costing more than 3% of the vehicle‘s value. Vehicles sold as Certified Pre-
Owned vehicles, meanwhile, must live up to the dealership‘s advertised certification standards. It is always
illegal to sell an unsafe vehicle, and if you asked specific questions about a vehicle, new or used, the dealer is
obligated to provide truthful responses (to the best of his knowledge).

So, for example, if you ask a dealer whether a vehicle has been in a prior accident and the dealer says no, that
misrepresentation can be auto fraud. Likewise, if a dealership fails to disclose material damage, even if
previously ―repaired,‖ this can also be fraud.

How do I know if I have been sold a previously wrecked vehicle?
Consumers will typically begin to notice problems in the appearance or performance of their vehicle that may
be tell-tale signs of a previous accident. Common examples of appearance items include: over-spray paint on
portions of the vehicle, panels that don‘t line up or fit correctly, and doors or trunk lids that don‘t close properly.
Common performance-related signs include accelerated or uneven tire wear and front-end pulling.

The best way to tell if your car was damaged is to have it inspected by a body shop. Signs of damage are
usually fairly easy to detect, although a frame check may be required if structural damage is suspected. You
should be aware that Car Fax vehicle history reports often fail to reveal prior accidents or damage – and that
dealers sometimes use these (often incomplete) reports to ―prove‖ that a vehicle has not been damaged.

What are some other ways that people are defrauded through the purchase or lease process?
There are numerous schemes automobile dealerships use to increase profits and defraud consumers during
the purchase or lease process. These schemes include: misrepresenting discounts in advertising and not
disclosing important limitations; altering the terms of the contract and forging signatures; inflating quotes of
monthly payments and then selling add-on products (service contracts, paint sealant, alarms, etc.) as if they
were part of the deal; and adding amounts owed on trade-in vehicles to a purchase or lease contract without
disclosure to the consumer. These schemes are sometimes complex, and most consumers never realize they
have been defrauded.

If the dealership cancels the sales contract within 10 days, do I get my down payment or trade-in back?
Yes. The purchase contract requires the car dealer to return to you all consideration (i.e., everything) given for
the purchase. This includes your trade-in vehicle. If you gave a $2,000 down payment and a car as a trade-in,
the car dealer must give you back both the $2,000 and the trade-in when you return the car you purchased.
Sometimes a car dealer may tell you that it already sold your trade-in, and will offer you the value of the trade-
in as listed on the purchase contract. The language of the purchase contract does not appear to give the car
dealer this option. It requires the return of the trade-in. However, if the car dealer does sell your trade-in, at the
very least, you should tell the car dealer that it has to give you whatever is the highest value for your trade-in
out of either (1) the value of the trade-in as listed on the purchase contract, (2) the fair market value, or (3)
what the car dealer received when it sold your trade-in.

Can the car dealer charge me for using the car I purchased from them?
No. The car dealer cannot charge you for using the vehicle. For instance, it cannot charge you for the miles
driven during the 10-day period. However, you are responsible for any physical damage to the car during the
time it is in your possession.

What if the car dealer tells me they have a new purchase contract for me to sign?
If the car dealer exercises its right to cancel the purchase contract within 10 days, you are not required to sign
a second contract to purchase that same car. Let me repeat this. A car dealer cannot force you to sign a
second contract. If the car dealer cancels the purchase contract within 10 days, you are obligated to return the
car, and the car dealer must give you back any down payment or trade-in that you gave with the purchase.

Common Scams
Scam 1. Negative Equity/Trade-In Overestimation
This arises in a transaction that includes a trade-in vehicle when more is owed on the trade-in vehicle than the
actual cash value of the vehicle. Generally, a customer is led to believe that the dealership is valuing the trade-
in vehicle at the same amount as what is owed (thus the customer won‘t owe anything on the trade-in.) In
reality, the secret actual cash value (the value the dealership is really giving the trade-in) is less than the
amount owed. The difference is added to the cash price of the new vehicle (or the capitalization costs of a
leased vehicle.) By inflating the cash price or cap costs of the vehicle, you the customer are illegally paying
more in sales tax and registration. The dealership may also be violating the laws related to selling a vehicle for
the advertised price (a dealership may not sell for more than advertised price.) A similar illegal practice may
occur when a lease balance is paid off. These are still illegal practices even when the customer is told what is
happening.

Scam 2. Packing (inflated monthly payments)
In a packing case, the customer is quoted an inflated monthly payment. Once the customer accepts the
monthly payment amount, the dealership adds accessories (alarms, service contracts, GAP insurance,
paint/fabric protection, window etching, low jack, etc.) in order to reach the inflated monthly amount. The
customer does not realize that the accessories are optional or that they are paying extra for the accessories
(they are led to believe the accessories are included with vehicle or not told at all.)
Scam 3. Rewritten Contracts/Backdating
Often a customer will not qualify for financing with the terms on the first contract. The customer may be
required to increase a down payment, accept higher APR, etc. in order to qualify for a loan. The dealership has
the customer sign a second contract with the different terms but backdates the second contract with the date
of the first contract. This affects the finance disclosure laws in that the customer is being charged interest for a
time period in which the contract is not yet in effect, etc. In addition to making a material misrepresentation
regarding when the customer takes the obligation of the new contract, a backdated contract often also violates
the single document rule (explained below) because another form (usually called Acknowledgment of
Rewritten Contract) has the actual date when the contract was signed. Further, many customers are not told
that they do not have to sign a second contract, instead they can choose to cancel the contract and return the
new vehicle and have the down payment and trade in vehicle refunded. Finally, a dealership only has 10 days
to tell you they want to make changes to the contract or cancel the contract. After the 10 days, the dealership
cannot change the deal.

Scam 4. ―Must Put It All in One Document‖ Rule
The law provides that all obligations of both parties must be contained in a single document (this explains why
purchase agreements are so long in the automobile industry.) Often, dealerships will have customers sign
other documents, such as trade in forms that state that the customer agrees to pay any difference between the
trade in value and pay off of a trade in vehicle if it is different than the amount on the purchase agreement (and
any associated attorney fees). Or, the dealership will agree to make payments on a trade-in vehicle but not
include the trade-in vehicle in the purchase agreement. Another example is a ―hold check agreement‖ in which
the customer agrees to pay additional money towards the down payment on a later date. These documents
violate the one document rule.

Scam 5. The Deferred Down Payment Scam
Many customers are unable to pay the entire down payment at the time the purchase contract is signed.
Dealerships will allow customers to make down payments in payments (called deferred down payments). The
code recognizes these types of payments and requires that deferred down payments be itemized, including
the amount and date due for the deferred down payments. However, rather than disclosing deferred down
payments are required by the code, dealerships will have customers write checks for the deferred down
payments and then agree not the deposit the checks until an agreed upon date. As part of this transaction,
customers are made to sign a hold check agreements that states what date the checks will be cashed and
also have additional provisions regarding any returned checks, thus creating obligations that are not included
in the single document (purchase agreement.)

Scam 6. Changes to the Advertised Price
The law states that a dealership cannot sell a vehicle for more than the advertised price (even if the customer
is unaware of the advertised price.) What is an advertisement is broadly defined to include window stickers as
well as the usual media ads. If a dealer inflates the cash price of vehicle to include the would, in practice, result
in selling a vehicle for higher than the advertised price. (Which in addition affects the amount the customer is
charged for taxes, licensing & registration fees and finance charges.)

Scam 7. Using Your Language Against You
If a lease/purchase of a vehicle is primarily negotiated in Spanish, then a Spanish translation of the contract
must be provided to the customer prior to signing the English language contract. This law was recently
expanded to include Chinese, Vietnamese, Tagalog and Korean. Failure to comply gives the customer right to
rescind.

Scam 8. The Whole Truth About Used Cars
Dealerships are required to disclose material known facts about a used vehicle such as if the vehicle was:
   involved in a prior accident (that caused substantial damage)
   it was a prior rental vehicle
   a lemon law buy back (the vehicle was repurchased by either manufacturer or dealer under the lemon law
      because of a defect)
   odometer readings not accurate, etc.
They are also prohibited from misrepresenting facts about the vehicle‘s history (such as it‘s never been in an
accident, it was a trade vehicle (when it was a rental), etc.

Scam 9. So is it New or is it Used?
The law requires that a dealership describe the vehicle being purchased as either ―new‖ or ―used‖. A used
vehicle also includes a ―demo‖ or demonstrator vehicle (vehicle used by manufacturer or dealership
representatives) but often the contract will state the vehicle is ―new.‖ Also, some vehicles were previously sold
but for some reason returned (usually because the failure to obtain financing) and this vehicle may also be
used, but is listed as new.

Scam 10. ―Certified‖ Used Vehicles
Several manufacturers and some dealerships have ―certified‖ used vehicle programs. Generally, a used
vehicle that passes certain standards is labeled ―certified used‖ and is suppose to guarantee to the customer
that the used vehicle is in good working order and free from major structural damage (including prior
accidents.) However, a lot of vehicles that do not actually qualify as ―certified‖ under the standards advertised
are being labeled certified. Customers are ending up with certified vehicles with frame damage from prior
accidents.

How to Report Insurance Fraud
Insurance Companies/Licensees
If you are an insurance licensee contact the State Insurance Anti-Fraud Division to provide you with the
appropriate information to submit a complaint.

Public Citizens
The Anti-Fraud Division does not require any specific forms to be filled out to report insurance fraud. An
individual should put in writing a detailed account of the complaint listing all persons who are involved in the
case, any addresses or phone numbers you have and any supporting documents you have in your possession
that you feel would help in our investigation. You may submit a complaint by e-mail in many states however, all
supporting documentation need to be sent by regular mail. An investigation will not commence until
documentation (if any) of the complaint is received.

Once the Anti-Fraud Division receives all information from the consumer, one of three things may happen:
   The case will be assigned an investigator and our investigation will commence.
   The case will be determined to be outside our jurisdiction for investigation and will be referred to the
     appropriate investigating body.
   The case is too old (over 5 years) to seek any criminal charges.

The consumer will be notified by mail of the action taken in the case. If the case becomes an investigation
periodic updates of the case progress will be sent. The consumer may contact the investigator assigned to the
case at anytime to provide further information or to discuss any questions about the investigation.

Avoid Becoming a Victim
Insurance fraud costs every family approximately $850 a year in higher premiums. This money goes to pay for
fraudulent actions made by individuals providers or agents.

These simple guidelines help a consumer to avoid becoming a victim:
   Be suspicious of an agent that will only accept premium payments in cash, money orders or cashier
     checks.
   The buyer never receives a policy.
   An agent pressures you to buy immediately because ―this is your last chance.‖
   A hospital or medical provider bills you for procedures not performed or for office visits you did not attend.
   You are in a minor accident and someone gives you the name of a doctor or lawyer who can ―make you
       some money‖.
This is not a complete list but gives you an idea of the types of things you should be aware of.

About the Anti-Fraud Division
Insurance Department‘s Anti-Fraud Division was established to handle all types of insurance related
misconduct except for Medicaid, Medicare, and workers‘ compensation claimant fraud. Anti-Fraud
investigators review, refer, and investigate cases from all over the state. Staff attorneys review the findings and
facilitate the prosecution or other appropriate disposition of the matter.

The Anti-Fraud Division has investigated hundreds of reports of insurance fraud and has obtained or assisted
in the successful prosecution and conviction of cases in states throughout the nation in 2006. Those
prosecutions have resulted in the return of thousands of dollars to those persons or entities that were
defrauded. The Anti-Fraud Division has also participated in successful joint investigations with various other
state and federal law enforcement agencies including the FBI, IRS, United States Postal Inspector, and many
other state regulatory agencies.

How Does it Work?
Designed to simplify the process of settling medical claims, for example, in no-fault states, each insurer pays
the medical bills for the person carrying their policy. Unfortunately, between staged accidents, unnecessary
and expensive medical testing, and unnecessary visits to doctors and chiropractors, these laws have made it
much easier for corruption to grow. The numbers of claims as well as their costs point directly to a
sophisticated, deliberate effort rather than crimes of opportunity and normal inflation.

Over the past year, the cost of claims for medical no-fault (PIP) in New York state rose by 32%, more than
twice that of Florida, which follows in second place for rising claim costs. This means that it‘s getting more
expensive to treat bodily injury by medical professionals. However, the cost of medical services rose only 4.1%
last year, according to the U.S. Bureau of Labor Statistics, thus showing hard evidence of fraud. In addition to
the cost of claims, the frequency of claims has tripled in recent years. The National Insurance Crime Board
reports that 90% of its fraud reports in New York involve auto insurance. The Insurance Information Institute
(III) also states that for every $100 insurers took in over a period in 2000, they paid out $177 in claims.

Who‘s Doing It?
Another kind of fraud that is equally pervasive is the hidden cost trick. Certain body shops and mechanics may
pad the invoice they present to a customer‘s insurance company, so that their customer does not have to pay
their deductible. A chiropractor may require a patient who has soft tissue damage to come for far more
treatment than medically necessary, charging more for incidentals like ice and electrical stimulation. A doctor
may bill for services never rendered (this is a huge burden on the system, called ―medical mills‖). A small
number of unethical doctors and lawyers, and a few shady middlemen, are making money from these
increasingly sophisticated, seemingly ―victimless‖ crimes. Fraud in New York state‘s medical no-fault system,
according to the III, is a billion dollar industry. Unfortunately, it‘s the insured drivers that have to make up the
costs to cover these schemes.

What‘s Being Done?
In California, a fraud ring that was said to have staged over 100 collisions in Los Angeles over a 9-year period
defrauded the insurance industry out of $2.5 million. Twelve men were arrested in connection with this crime.
In Florida, Miami Dade County has made over 500 arrests related to auto insurance fraud and, as noted by the
state regulator, many have shown links to organized rings. In addition, most states have made auto insurance
fraud a felony and have begun prosecuting criminals involved in these crimes.

Insurers are also working on the problem, trying to recoup millions of dollars from these crime networks, using
the Racketeer Influence and Corrupt Organization (RICO) Act. However, it is an incredibly expensive and
arduous process. One example, from January 2000, shows a group of insurers who joined together to file a
civil suit to try to recoup $2.6 million in fraudulent claims. They recovered less than half that amount and their
expenses ran upwards $500,000 (a cost that will rise as defendants refuse to settle).
Consumers
Recent allegations concerning inappropriate insurance broker activity, has created an increased awareness for
state insurance departments to enhance their collection of information from consumers, insurance producers
and employees of insurers concerning alleged violations of insurance laws and regulations.

In order to adhere to the NAIC Uniform Suspect Fraud Reporting Form structure, the consumer reporting the
inappropriate actions will be requested to complete the following information:
    Reporting Person - your contact information.
    Subject - the person suspected of fraud.
    Claim - the information that was provided with the insurance company.
    Fraud Type - the classification of the fraud allegedly committed.
    Fraud & Investigation - detailed information about the fraudulent activity and the status of any current
       investigations.
    Involved Party - any person that has information regarding the fraudulent activity.

How an Individual Can be Protected
The Better Business Bureau recommends that a consumer of automobile insurance take the following
proactive steps to avoid becoming a victim of automobile insurance fraud:

Plan Ahead
Purchasing insurance itself is not enough. Decide what type of coverage you want and what you can afford in
terms of deductibles.

Shop Around. Average auto insurance rates have declined in recent years. Comparison shop as you would for
any other major purchase. The cost of insurance can vary significantly from company to company.

Get What You Pay For.
Make sure your policy contains the coverage you selected. Take the time to review the coverage and get a
second opinion from a reliable source.

Investigate. Check out the reputation of the agent as well as the insurance company. If you buy a policy from
an unlicensed agent, you are not protected. Don‘t rely on someone‘s identification for verification. Get their
agent license number and call your state insurance commissioner‘s office to verify an agent‘s licensing status.
To      locate   your     state     insurance     department,      visit  the     NAIC     web       site    at
www.naic.org/consumer/state/usamap.htm. Do not give out any financial or personal information until you do
so.

Never Pay Cash.
Always pay your insurance premiums by check or money order. And, if possible, make your check out to the
insurance company.

Protect Your Records.
Store copies of insurance documents and receipts in a safe deposit box or with an attorney. Documents
should include up-to-date pictures of your vehicles.

Detail Your Claims.
In the event of an accident, your insurance company will meet with you to determine the validity of your claim.
Keep a log of your interactions with adjusters and agents, including conversations, documents and phone
calls, etc.
Beware of Unsolicited Offers.
Be wary if, after an auto accident, one or more strangers contact you to offer ―quick cash‖ or to recommend a
particular medical clinic, doctor or attorney. This unsolicited help could be the work of a fraud ring.

Check All Related Bills.
Ask for detailed bills for all services associated with your auto insurance policy. Carefully check them for
accuracy. Be sure you actually received the service(s) listed and watch for double-billing or unexplained
excess charges.

Report Fraud.
If you‘ve been the victim of auto insurance fraud, immediately contact the fraud division of your state insurance
department. Remember, detailed and precise documentation is your greatest asset when filing claims and will
enhance your chances of winning back what you lost.

Antifraud (D) Task Force
The Mission
The mission of the Antifraud (D) Task Force is to serve the public interest by assisting the state insurance
supervisory officials, individually and collectively to promote the public interest through the detection,
monitoring and appropriate referral for investigation of insurance crime, both by and against consumers. The
Task Force will assist the insurance regulatory community through the maintenance and improvement of
electronic databases regarding fraudulent insurance activities. Disseminate the results of research and
analysis of insurance fraud trends as well as case-specific analysis to the insurance regulatory community.
Provide a liaison function between insurance regulators, federal, state, local, and international law enforcement
and other specific antifraud organizations. Coordinate between state and federal regulators regarding the USA
PATRIOT Act anti-money laundering amendments to the Bank Secrecy Act. The Task Force will also serve as
a liaison with the NAIC Information Systems Division and other NAIC committees to develop technological
solutions for data collection, and information sharing. The Task Force will monitor all aspects of antifraud
activities by its working groups and subgroups on the following charges.

Task Force Implementation
   Appoint an Antifraud Training & Seminar Working Group to identify and develop training sessions
     regarding antifraud issues of importance to insurance regulators, industry and interested parties.
   Appoint an Information Sharing & Technology Working Group to evaluate sources of antifraud data and
     propose methods for enhancing the utilization and exchange of information among insurance regulators,
     fraud investigative divisions, and law enforcement, insurers and antifraud organizations. Recommend
     secure systems for the dissemination of confidential information between insurance fraud agencies.
   Appoint an Antifraud Liaison Working Group to (1) develop initiatives and guidelines to enhance
     relationships with industry Special Investigation Units (SIUs), external private sector antifraud entities
     and antifraud organizations to include but not limited to training opportunities, model protocols and bench
     marking projects. Projects will include guidelines for working with insurance fraud prosecutors, state
     fraud bureaus, and industry referring fraud cases to state fraud bureaus. (2) Develop an Automobile
     Insurance Fraud Model Law. (3) Provide an advisory role for the merger of the Coalition Against
     Insurance Fraud, International Association of Special Investigation Unit (IASIU) and National Insurance
     Crime Bureau (NICB).
   Appoint a Federal and International Enforcement Coordination Working Group to (1) coordinate with state,
     federal and international law enforcement agencies in addressing antifraud issues relating to the
     insurance industry, (2) support insurance regulator efforts to gain access to the FBI Fingerprint
     Identification Record System/Criminal History Record Identification System, and (3) monitor and
     recommend appropriate guidance on state issues arising from the application of 18 U.S.C. 1033, 1034.
   Appoint a Producer, Company, Unauthorized Entities & Unlawful Activities Working Group to (1) develop
     a program to enhance recognition, investigation, and prosecution of unauthorized entities by updating
     and maintaining the Unauthorized Entities Manual and by (2) identifying and developing
     recommendations for coordination and cooperation between state insurance department and law
     enforcement authorities on unauthorized issues. (3) Research and define the process to measure the
     impact of regulatory and law enforcement efforts to combat insurance fraud and (4) develop methods to
     enhance the investigation and prosecution of financial services fraud. (5) Establish guidelines on the
     investigation and prosecutorial resources necessary to investigate insider insurance industry fraud.
   Appoint a NAIC/North American Securities Administrators Association (NASAA) Enforcement
     Coordination Working Group to (1) develop an education and training seminar in cooperation with
     NASAA. (2) Identify and develop recommendations of cooperation and communication between
     insurance and securities regulators.

Good News
There is some good news, though. While the cost of insurance is expected to rise this year, it is the smallest
increase (3.5%) in four years, according to III. Perhaps the awareness, of states, prosecutors, and insurance
companies, of the size and scope of this problem is having real effects on changing the way business and
legislation is being done. Consumers, by maintaining vigilance in doing business only with ethical service
providers, can also do their part. Not participating in the system of corruption does pay. (autoMedia.com 2000-
2006)

Decline in Deceitful Bodily Injury Claims
Besides a lesser number of accidents, a lot of industry specialists state that fraud-fighting successes have
played a major role in a healthy decline in deceitful BI (bodily injury) claims. Roads that ensure safe driving and
vehicles that are designed to protect drivers and passengers, along with graduated licensing programs (two-
step programs for new drivers, which make for safer and more educated drivers) for teens, are additional
factors driving the descending spiral in vehicles coverage premium expenses. The reshaped patterns of
common characteristics of the US populace, with millions of baby-boomers born during the period when birth
rates increased sharply (1946 and 1964, currently all belonging to what insurers calculate to be their safest
driving period, are also bringing about these cost cuts.

More Examples of Automobile Fraud
Odometer Tampering
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic
odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and
reconnecting them later. Resetting odometers requires equipment plus expertise that makes stealing
insurance risky and uneconomical though. There are also powerful legal deterrents to this way of stealing
insurance protection. Odometers have always served as the measuring device for resale value, rental and
leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or
reimbursements for business or government travel. Odometer tampering—detected during claim processing—
voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail.

Other Examples of Auto Fraud:
    Selling an unsafe vehicle
    Selling a vehicle that has a history of being salvaged or flooded
    Inaccurate disclosure
    Arson
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal‘s 24-hour Arson Hot
Line, if available.

Case Example: Personal Automobile with Suspected Arson
The truck is in the parking lot of the business and approximately 3am the car was seen on fire by the security
guard. The guard called the fire department along with the business owner. The owner called the insurance
licensee who came to the scene to examine the truck. The agent smelled gasoline and the security guard
reported seeing a person fleeing on the video surveillance camera. Law enforcement arson specialists were
called by the fire department.
The arson investigator will search for where the fire started called the point of origin. He will look for the cause
of the fire to include:
    Electrical issues
    Combustants
    Unusual Odor
    Burn pattern of the fire

The officer will further interview:
   the first fire fighters for their observations upon arrival
   the security guard
   Anyone that might have seen or heard the fire or other important information
   First responders like police, the owner, paramedics, or neighbors

Backgrounds will be evaluated:
   run insurance history on owner
   search for fingerprints
   Footprints
   Run VIN and tag number of the vehicle

Insurance Issues to Investigate:
    check policy limits
    check claims history
    check recent increase of policy limits
    check recent renewal of policy
    run criminal history on owner
    is this a stolen car

Suspect arson if:
   Combustibles found
   Past history of arson or questionable fire of property including automobiles
   Eye witness to person setting fire
   Policy increases occurred recently
   Delinquent car payments
   Owner needs cash
   Domestic Issues
   Revenge for recent dispute

Fidelity Bond
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by
specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

Part 2: Safety Issues
Some vehicles are safer than others. Safe autos can be found in any price or style group. Safety involves
avoiding crashes to begin with and protecting the consumer if a crash occurs.
Crash Avoidance
All vehicles have basic features and innovative technologies to reduce crash likelihood. One that already is
proving to be effective is Electronic Stability Control. They are:
    extensions of antilock brake technology that help drivers maintain control in the worst situation – loss of
      control at high speed.
    Electronic stability control engages automatically to bring the vehicle back in the intended line of travel.
    This technology lowers the risk of a fatal single-vehicle crash by about half. It is relatively new and will
      take a few model years to become widely available.

Do Not Count on Avoiding Crashes
Millions of crashes occur each year. Tens of thousands of them involve deaths. The most important aspect for
safety is to choose a crashworthy vehicle — one that reduces death and injury risk during a crash.

Top Safety Picks (Crash Worthiness)
The first crashworthiness attributes to consider are vehicle size and weight. Small, light vehicles generally offer
less protection than larger, heavier ones. There‘s less structure to absorb the energy of the crash, so deaths
and injuries are more likely to occur. This is true in both single- and multiple-vehicle crashes. So if safety is one
of the major car buying considerations, pass up the vehicles that are small or light. The heaviest is not
necessarily be safer. Many SUVs are relatively heavy, for example, but the ones with high ground clearance
are likelier than cars to roll over in single-vehicle crashes.

While the risk of death generally is higher in lighter cars, SUVs, and pickups than in heavier ones, size and
weight do not tell the whole story. Some light car models, for example, are safer than others. Some midweight
SUVs are safer than others. This is because some models have more crashworthy designs. The consumer
cannot tell this by looking at the vehicles. Crash test results are needed to make comparisons. If safety is the
ultimate goal, buy a vehicle in the chosen size class with good front, side, and rear crashworthiness ratings.

Choosing a Crashworthy Design
The main aspects of design that determine vehicle crashworthiness are structure and restraints. A good
Structural Design means a strong occupant compartment (safety cage), crumple zones to absorb the forces of
a serious crash, and side structure that can manage the force of a striking vehicle or struck object. Until
recently Restraint Systems typically included a basic lap/shoulder belt and frontal airbags. But now restraints
are becoming more sophisticated. Crash-activated tensioners can reduce safety belt slack, force limiters can
reduce the chances of a rib injury from the belt itself, advanced frontal airbags have inflation characteristics
geared to specific crash circumstances, and other airbags are protecting people‘s heads and chests in side
impacts. Even vehicle seats and head restraints, which can reduce the risk of neck injuries in rear impacts, are
being upgraded. The best way to evaluate a vehicle‘s structural design and restraint system is in dynamic tests
that indicate how well people in real collisions would fare.

Rear Crashworthiness
Compared with front and side crashes, rear impacts are less likely to cause life-threatening injuries. Yet rear-
enders occur frequently and often cause neck injuries to people in struck vehicles. Such injuries can be painful
and involve costly, long-term consequences. When a vehicle is struck in the rear, an occupant suddenly
moves forward with the seat, and if the head isn‘t supported it will lag behind the body. This bends and
stretches the neck backward in a whiplash injury. Seat/head restraints can reduce these injuries by keeping
the head and body moving together in a rear impact. IIHS evaluates how well seat/head restraints accomplish
this by first measuring restraint geometry (the higher and closer to the back of the head, the better) and then, if
the geometry is at least acceptable, testing the seat and restraint together in a simulated rear impact. You‘ll
have to shop carefully for a vehicle that has a good rear crashworthiness rating (not many do). A complication
is that vehicles are sold with optional seat packages; one model may include multiple seat/head restraint
designs with different ratings. Match the seat package in the model you‘re buying to its rating (most seat
packages have been rated). Check to see if the head restraint requires adjustment to extend as high as
needed. If so, adjust it for optimal protection. The restraints are positioned high and close behind the head.
Rollover Safety
Automakers are now working to develop tests for technology that could save thousands of the lives lost in
vehicle rollover crashes.

Federal regulators are concerned that the inflatable curtains automakers are installing for protection in side-
impact crashes often don‘t deploy in rollover crashes.

Some vehicles do include rollover sensors that can detect when they are about to tip and trigger the curtains,
which help prevent people from being ejected. More than half the nearly 10,000 people killed each year in
rollover crashes are completely ejected from their vehicles.

Preventing rollover deaths is a top priority for the National Highway Traffic Safety Administration.

Side curtains typically inflate when vehicles are hit in the side. But they don‘t always activate in a rollover
unless the vehicles have rollover sensors or are hit in the side before they tip over.

―To protect people in rollovers, you‘ve got to keep them inside of the vehicles,‖ says president of the Insurance
Institute for Highway Safety. ―You need curtains that stay deployed.‖

Side curtains usually stay inflated at least four seconds, even though most side-impact crashes last only
milliseconds. But if a vehicle is rolling over, it‘s important that the bag deploy and stay inflated for at least six
seconds in case the vehicle continues to roll.

Technical issues remain. If the bags do not deploy fast enough, they can actually force a person‘s head out the
window, causing more injury. And the sensors need to distinguish between a tipping vehicle and one that is
being driven purposely off-road before triggering the curtains.

Rollovers are slow events compared to frontal and side impacts. They are very slow and very unpredictable.

Bumper Blunders Can Wreck the Consumer‘s Finances
Many Americans believe sport utility vehicles, or SUVs, and pickup trucks cause extensive damage to
passenger cars when they collide just because they are bigger and heavier. While size may be a factor, the
real problem in low-speed collisions is the mismatch between the heights of the bumpers on each.

SUVs, pickup trucks and minivans sold in the United States are not required by the federal government to
have bumpers at all. And while many manufacturers do put bumpers on them, they typically do not match up
with passenger cars. What that could mean for consumers is an unexpectedly costly repair bill resulting from
even the most minor of accidents.

In the 10-mph test crashes repair costs ran as high as $6,100 for both vehicles.

NHTSA Reports Cellular Phone Use by Motorists Is on the Rise
More motorists than ever are using cellular phones while they drive, according to the latest survey by the
National Highway Traffic Safety Administration (NHTSA). In 2004, at any given daylight moment, an estimated
8 percent of all motorists in the U.S., or about 1.2 million drivers, were using cellular phones (both hand-held
and hands-free) while operating their vehicles. This compares to 6 percent in 2002 and 4 percent in 2000. The
survey also estimated that 5 percent of motorists in 2004, or about 800,000 drivers, were using hand-held
cellular phones at any given daylight time, compared to 4 percent of drivers in 2002 and 3 percent in 2000.

Teen Drivers
Teenage drivers have the highest crash risk of any age group. Per mile traveled, they have the highest
involvement rates in motor vehicle crashes of all types. The problem is worst among 16 year-olds, who have
the most limited driving experience and an immaturity that often results in risk-taking behind the wheel. Shown
below are the characteristics of fatal crashes involving certain age groups.
Percentage of fatal crashes by characteristic, 2004
Driver Age           16    17-19 20-49
Driver error         78    69    55
Speeding              39    33    23
Single vehicle        52    45    39
3+ occupants         29    24     18
Drivers killed with  13     25    44
0.08+ BAC

Driver error: Compared with older drivers‘ fatal crashes, those of 16 year-olds more often involve driver error.
Speeding: Sixteen-year-old drivers have a higher rate of fatal crashes in which excessive speed is a factor.
Single-vehicle crashes: More of 16 year-olds‘ fatal crashes involve only the teen‘s vehicle. Typically these
are high-speed crashes in which the driver lost control.
Passengers: Sixteen year-olds‘ fatal crashes are more likely to occur when other teenagers are in the car.
The risk increases with every additional passenger.
Alcohol: Although this is a problem among drivers of all ages, it‘s actually less of a problem for 16 year-olds.
Typically, fewer than 15 percent of fatally injured 16-year-old drivers have blood alcohol concentrations of 0.08
percent or more, but alcohol quickly becomes a problem in later teen years.
Night driving: This is a high-risk activity for beginners. Per mile driven, the nighttime fatal crash rate for 16
year olds is about twice as high as during the day.
Low belt use: Teenagers generally are less likely than adults to use safety belts.

Teenagers perceive a driver‘s license as a ticket to freedom. An effective way to reduce this toll is to enact
graduated licensing, under which driving privileges are phased in to restrict beginners‘ initial experience behind
the wheel to lower risk situations. The restrictions gradually are lifted, so teenagers are more experienced and
mature when they get their full, unrestricted licenses. Graduated systems that are well designed restrict night
driving, limit teen passengers, set zero alcohol tolerance, and require a specified amount of supervised
practice during the initial phase.

Graduated licensing laws have reduced teens‘ crash rates in the United States, Canada, and New Zealand.
But not all states have such laws, and the laws are not all strong.

AAA Stats
According to a recent study by the American Automobile Association (AAA) 30,917 fatalities over the past 10
years were the result of crashes involving drivers ages 15-17 years old.

A third of those killed were the teenage drivers themselves ages 16-18 – while another third were passengers
riding with the teenage driver. But a third of the fatalities were occupants of other cars - --or pedestrians who
just happened to be in the wrong place at the wrong time. AAA says that makes teen drivers the single most
dangerous group of motorists on the road – to others as much as to themselves.

The most lethal combination of all is a teenage driver with a bunch of his (or her) teenage friends along for the
ride. According to AAA, the risk of a potentially fatal accident involving a teen driver more than doubles when
there is a teenage passenger in the car – and quintuples with the presence of two or more teen passengers.

Any former teen that made it safely to adulthood probably understands the connection immediately. Most of us
can remember being 16 – and the sense of liberation that accompanied access to a car. For a lot of us, the
first thing on the agenda was to pick up some of our friends and do what comes naturally to teens – go out and
have a good time. Some of us also liked to impress our friends with our driving prowess – which often as not
led to our first fender-bender (and sometimes worse). Also, talking and/or eating and driving at the same time –
with many a close call the result.
This is common knowledge – and part and parcel of being a teen. What‘s lacking is common sense to protect
teens (and the rest of us) from the natural consequences of being a teenager – and an inexperienced new
driver.

Several states have tried passing laws forbidding teens from driving other teens (inconvenient for them, but
with solid reasoning behind it) as well as curfews and other limitations. AAA also wants every state to require a
6-12 month probationary license for all teen drivers (which could be revoked for bad behavior) as well as at
least 50 hours of adult-supervised driver training during the learner‘s permit stage.

This is a step in the right direction but really, just a small one. It is not all teens who are the cause of so much
trouble. Its inexperienced teens allowed onto the road before they have been properly trained – and
adequately tested. A great many of the accidents reported by AAA, for example, are single-vehicle crashes
resulting from driver error such as over-correcting after an outside wheel inadvertently dips off the road onto a
gravel shoulder. Instead of smoothly maintaining control and easing the car back onto the pavement, an
inexperienced teen driver will more often than not jerk the wheel hard to the left, which in turn causes the car to
skid back onto the road, over the double yellow line – and right into the path of oncoming traffic.

Case Example #1: Teen Driver
When their 16-year-old son Tyler missed his curfew, his parents started to fear the worst. Tyler had died with
two teenage friends in a crash earlier that night. Tyler and some friends were supposed to meet at the movies,
but only a few people showed up. That‘s when Tyler and others headed home. None had been drinking, and
they had only three miles to drive. But 17-year-old Tonya was going about twice the speed limit when the car
veered off the road and hit a telephone pole, killing all three teens instantly.

Case Example #2: Teen Driver
Emma was 16 years old. Emma died in a single vehicle crash less than a year after getting her license. It was
still daylight as Emily was driving to a birthday party. She was rounding a curve in the road, drifted over the
shoulder, overcorrected, struck a culvert, and was ejected through the passenger window of her car. Her
parents could not believe Emma did not have her safety belt on. She was so bright and practical, and level-
headed. Sometimes, parents just assume kids are doing the things we teach them. The convenience of having
Emily drive and the fun she had driving were short-lived. If parents knew the statistics, more parents make
their teens go through a step-by-step process to earn driving privileges. Anything would be worth saving their
kids from a fatal accident.

The Most Common And Dangerous Mistakes Witnessed On The Road
Pushing Buttons. Car companies and their suppliers jump through lawyers‘ hoops when developing central
information consoles that can include satellite navigation, stereo controls and climate gauges. And with good
reason. Tweaking these devices while driving is a leading cause of accidents and near misses, according to
Drive for Life, the National Safe Driving Test and Initiative. Most new consoles will not allow you to plug
directions into a satellite navigation system while the car is in gear, but almost all allow you to play with the
stereo. Try to do this when stationary, at traffic lights.

Aggressive Driving is a factor in about 56 percent of fatal crashes, says the latest study on driving habits
from the Surface Transportation Policy Partnership. Though subject to debate, the study has classified
aggressive driving as ―speeding, tailgating, failing to yield, weaving in and out of traffic, passing on the right,
making improper and unsafe lane changes and running stop signs and red lights.‖ The group says that most
drivers admit to making the same mistakes they hate to see other drivers commit.

Distracted by trying to read a map and directions or looking for a free parking space.

Pushing the Wrong Pedal. In November in California last year, Huntington Beach police officer Brian Knorr
was honored for his actions after he rescued an 83-year-old Orange County woman whose car was partially
submerged in a water channel. Uninjured, the driver told a local newspaper she thought she had pressed the
brake pedal of her 1999 Chrysler Concord only to find her car accelerating off the road into the water. She also
said Chrysler had not been too responsive in her efforts to find the root of the problem, which she blamed on
mechanical failure.

Tragically, this is an all-too-familiar story. In Santa Monica, Calif., in 2003, an 86-year-old man drove his car
through a crowded farmer‘s market, killing 10. Elderly drivers rank as one of the safest groups, often sustaining
unblemished driving records over long periods. But self-awareness combined with oversight by family
members is key to upholding driver safety. Many more elderly drivers report trouble checking blind spots and
looking over their shoulders due to physical restraints.

No Seatbelt. Fatal crashes fell slightly from 43,443 in 2005 to 43,300 in 2006, or just under five every hour
nationally. More than half of the fatally injured were unbuckled.

Bad Tread on Tires. Reading the tread of your tires can foretell the future.

Road Rage. Spontaneous road-battles are the worst. When dealing with someone with road rage, suddenly
you‘re expected to dodge insults, trash and who-knows-what-else.

A slightly obese person with road rage got stuck in her sunroof trying to climb out of her car in order to hit
someone with her shoe. She got rid of her car shortly thereafter, swearing that she has too much road rage to
be behind the wheel.

Grooming While Driving. Has anybody actually met someone by exchanging glances on the road going 60
mph? It‘s like a car is a dressing room for some people – people that need perfectly manicured hair and
flawless skin at all times.

No Turn Signals. There are two types of drivers that don‘t use turn signals? There are the ones that do not
use their signals because they are trying to be sneaky and grab the incredibly tight space in front of your car in
bumper-to-bumper traffic.

Then there‘s those who just do not seem to remember or care to use their signals, like the guy who veers into
a turn in front of oncoming traffic and freaks everyone out at the intersection.

Slowpokes in the Fast Lane. ―Keep right except to pass.‖ Some drivers just do not get it. They just love that
left lane, even when they‘re rolling along 20 mph under the speed limit. Maybe they get nervous when cars
whiz past their window. The left lane‘s no-traffic shoulder may seem friendlier.

Also, it‘s easier to see the scenery out the driver‘s side window from the left lane, as there are no cars to block
the view. Highway departments should develop something like a high-speed snowplow to come up behind
these ‗pokers, and gently shove them over to the right.

Driving Greedy. There was a driver so protective of his space behind a tractor trailer that, while maneuvering
to keep someone else from merging, he actually got his bumper stuck on the back of the truck. The truck
pulled away and yanked the whole bumper off. And the other car jumped into the space anyway, rubbing
some salt in the wound.

The Multi-Lane Dash. Don‘t you just love it when a car makes a desperate diagonal bee-line across three
lanes for an exit?

Avoiding a Speeding Ticket. People who get speeding tickets are often guilty of more than simply
driving faster than the posted limit. It‘s getting noticed in the first place.



Chapter Five: State Specific Rules and Regulations
State auto liability insurance laws fall into four broad categories:
    1. those based solely on the traditional tort liability system; a tort is a wrongful act other than a breach of
        contract that injures another person and for which the law imposes civil liability.
    2. those that require an insurance company to pay first-party (policyholder) benefits, regardless of who
        was at fault in the accident, but retain the right to sue as in tort liability states;
    3. those that provide no-fault first-party benefits but restrict the right to sue except under certain
        conditions; and
    4. those that provide a choice between the traditional liability system and a no-fault system. These
        alternative systems have evolved over time as consumers, regulators and insurers have sought ways
        to lower the cost and speed up the delivery of compensation for auto accidents.

Additionally, car insurance fees are also impacted by the degree of coverage policyholders decide to get. Each
U.S. state demands a legally-required amount of minimal insurance coverage for all motorists in the state.
Despite this, the National Association of Insurance Commissioners or NAIC found during 2004, for instance,
that 23% of drivers with insurance coverage did not take out comprehensive coverage, and as many as 28 %
decided against optionally getting collision coverage. Drivers who buy neither comprehensive nor collision
coverage evidently have smaller car insurance premium interest rates while opting to self-insure (by putting
aside a reserve fund for self-protection against a loss) to safeguard against theft and other losses and
damages.

State-by-State Requirements . . .
Not all states require consumers to have certain types of automobile insurance, but all states do require a
person to prove that a specified amount can be paid if he or she causes bodily injury or property damage while
driving. The proof would be insurance or large amounts of cash or some other security. Without one of these, a
consumer may lose a driver‘s license and vehicle registration. Visit the Insurance Information Institute‘s web
site at www.iii.org to find the specific auto insurance coverages required by each state.



Minimum Levels of Required Auto Insurance by State
In the table below the 3 numbers in the liability column represent:
     1. bodily injury liability maximum for one person injured in an accident
     2. bodily injury liability maximum for all injuries in one accident
     3. property damage liability maximum for one accident


   STATE                 Required?/Liability                                                     Uninsured
                         Minimums (per                                                            motorist
                                                   PIP Required         No-fault State?
                         thousands)                                                              coverage
                                                                                                 required?
   Alabama               Yes, 20/40/10                  No                      No                  No
   Alaska                Yes, 50/100/25                 No                      No                  No
   Arizona               Yes, 15/30/10                  No                      No                  No
   Arkansas              Yes, 25/50/25                  No                      No                  No
   California            Yes, 15/30/5                   No                      No                  No
   Colorado              Yes, 25/50/15                  Yes                     No                  No
   Connecticut           Yes, 20/40/10                  No                      No                  Yes
   Delaware              Yes, 15/30/10                  Yes                     No                  No
   Florida               Yes, 10/20/10                  Yes                     Yes                 No
   Georgia               Yes, 25/50/25                  No                      No                  No
   Hawaii                Yes, 20/40/10                  Yes                     Yes                 No
   Idaho                     Yes, 25/50/15              No                   No                    No
   Illinois                  Yes,                       No                   No                    Yes
   Indiana                   Yes                        No                   No                    No
   Iowa                      Yes                        No                   No                    No
   Kansas                    Yes                        Yes                  Yes                   Yes
   Kentucky                  Yes                        Yes                  Yes                   No
   Louisiana                 Yes                        No                   No                    No
   Maine                     Yes                        No                   No                    Yes
   Maryland                  Yes                        Yes                  No                    Yes
   Massachusetts             Yes                        Yes                  Yes                   Yes
   Michigan                  Yes                        Yes                  Yes                   No
   Minnesota                 Yes                        Yes                  Yes                   Yes
   Mississippi               Yes                        No                   No                    No
   Missouri                  Yes                        No                   No                    Yes
   Montana                   Yes                        No                   No                    No
   Nebraska                  Yes                        No                   No                    No
   Nevada                    Yes                        No                   No                    No
   New Hampshire             No                         No                   No                    Yes
   New Jersey                Yes                        Yes                  Yes                   Yes
   New Mexico                Yes                        No                   No                    No
   New York                  Yes                        Yes                  Yes                   Yes
   North Carolina            Yes                        No                   No                    No
   North Dakota              Yes                        Yes                  Yes                   Yes
   Ohio                      Yes                        No                   No                    No
   Oklahoma                  Yes                        No                   No                    No
   Oregon                    Yes                        Yes                  No                    Yes
   Pennsylvania              Yes                        No                   Yes                   No
   Rhode Island              Yes                        No                   No                    Yes
   South Carolina            No                         No                   No                    Yes
   South Dakota              Yes                        No                   No                    Yes
   Tennessee                 Yes                        No                   No                    No
   Texas                     Yes                        No                   No                    No
   Utah                      Yes                        Yes                  Yes                   No
   Vermont                   Yes                        No                   No                    Yes
   Virginia                  No                         No                   No                    Yes
   Washington                Yes                        No                   No                    No
   Washington D.C.           Yes                        No                   No                    Yes
   West Virginia             Yes                        No                   No                    Yes
   Wisconsin                 No                         No                   No                    Yes
   Wyoming                   Yes                        No                   No                    No
        (Last Updated July 17, 2006 info.insure.com)




All 50 states have different requirements for automobile insurance. In some states liability coverage must be
proven before a car can be registered. Some do not require proof of liability, but expect the insured to have
liability coverage in the event of an accident or traffic violation. The states that require liability also set the
minimum amount that must be purchased.

No-fault Insurance
In Pennsylvania and New Jersey a hybrid no-fault system known as ―choice no-fault‖ exists. In these states
you may choose:
   to be insured under a strict no-fault plan in which case you are unable to sue an at-fault driver and also
      cannot be sued if you are at fault.
   the other option is not to take out no-fault insurance coverage and be able to sue other drivers or to be
     sued.
PIP only pays medical bills and lost income up to the limits of the policy.

Florida
The state‘s no-fault law is scheduled to expire soon unless reenacted. Insurers would like to see it replaced by
a new law based on the tort system because personal injury protection benefits, which pay for medical care
and related treatment, have been subject to fraud and abuse. Under the current system, unscrupulous medical
clinics and attorneys can run up medical care costs for minor accidents, pushing up the cost of coverage for
everyone else. Insurers say that a return to the tort system could save policyholders as much as $250 a year.

A study by the Property Casualty Insurers of America (PCI) shows that auto injury claim costs have risen faster
in Florida than the national average. During the first quarter of 2005, the average PIP claim cost shot up more
than 17 percent, resulting in an overall increase of 44 percent since 2000. Among the explanations for soaring
costs are:
    a higher-than-average number of office visits to medical practitioners,
    higher health care costs and
    more sprain and strain soft-tissue injury cases that are harder to evaluate both for the degree of injury and
       recovery.
These higher costs make it easier to reach the tort-threshold limit of $10,000 and to sue for additional
compensation, weakening the basis for the no-fault system.

New York
Regulation 68
In an attempt to address this drain on resources, New York created regulation 68, a reform measure adopted
in 2002 that substantially shortens the time period for reporting auto accident injuries and submitting bills for
medical treatment. It is divided into 4 parts that each address a separate regulated aspect of the no-fault
reparations system:
    Regulation 68-A Prescribed Policy Endorsements
    Regulation 68-B Rights and Liabilities of Self Insurers
    Regulation 68-C Claims for Personal Injury Protection Benefits
    Regulation 68-D No-Fault Arbitration

It is expected to reduce such claims. The reduced notification time allows insurers to look at the treatment plan
sooner, thus providing fewer opportunities for unnecessary diagnostic tests and treatments.

The most recent amendments to Regulation 68 became effective March 14, 2007. There were two
amendments requiring insurers to issue no-fault denials with specific wording so that the applicants were
aware that they could apply for special expedited arbitration to resolve the issue of which eligible insured are
designated for first party benefits, and providing the procedures for administration of the special circumstances
for arbitration for disputes regarding the designation of the insurer for first part benefits.

A clarification letter regarding Regulation 68 was issued to insurers in New York by the Insurance Department
for New York dated September 2006. The agency became aware of a practice whereby the parties to a no-
fault claim entered into an agreement to settle the dispute for a monetary amount without itemizing the
principal and interest components of such amount. This practice does not comply with Regulation 68-C which
requires the separate identification of any interest payment from the principal and that interest payments are
not to be included in ratemaking calculations. Also, insurers are prohibited from taking credit for interest
payments in calculating whether the maximum aggregate policy limits have been reached. Therefore, if the
terms of a settlement include interest, the insurer should separately identify the amounts allocable to the
principal and the interest in each case. (NY State Ins. Dept. 2007)
Michigan
As insurers and legislators search for ways to rein in rising costs in no-fault systems nationwide, two studies —
one addressing the Michigan system, the other auto insurance in general — provides recommendations that
could provide good information for debate. Both suggest adding more coverage options. It examined the
Michigan no-fault system and how it compares with other no-fault systems around the country. Michigan in the
past has served as a model for other states. The Michigan report advocates a choice-no-fault system and, for
those who choose no-fault, a choice of personal injury protection levels. In addition, it suggests the creation of
a fraud bureau within the office of the attorney general. Michigan is the only no-fault state without a fraud
bureau and one of seven states without one nationwide. The other study, ―Auto Insurance Reform Options,‖
one of a series of public policy papers commissioned by the National Association of Mutual Insurers, reviews
the weaknesses of auto insurance laws, both tort and no-fault systems. Among the no-fault system reforms
proposed to lower costs are the elimination of compensation for pain and suffering (the ―pure‖ option, under
which lawsuits that met the threshold definition could only be filed for economic losses), the replacement of
weak thresholds with strong verbal thresholds, and a pain and suffering ―schedule‖ which would set out dollar
amounts for death and various types of injuries. The study‘s author also recommends giving consumers a
choice between their current no-fault threshold and one that only allows recovery of uncompensated economic
losses. In addition, he identifies a number of reforms that could reduce fraud, including making regular health
insurance the primary payer of medical bills and adopting regulations that cut the time period for reporting an
accident and seeking medical treatment.

Washington D.C.
The District of Columbia has neither a true no-fault nor an add-on law. It offers drivers the option of no-fault
benefits or fault-based coverage. In the event of an accident, a driver who originally chose to receive no-fault
benefits has 60 days to decide whether to receive these benefits or to take the other party to court. This means
that, in effect, there are no restrictions on lawsuits.

California/Hawaii
The first attempt at a pure no fault system was ―pay-at-the-pump,‖ a plan to pay for no-fault auto insurance
through a fee collected on gasoline sales. The ―pay-at-the-pump‖ initiative campaign failed in all states in which
the plan was considered, including California, due to opposition to the gasoline usage-based fee but the pure
no-fault idea was incorporated into a variety of legislative proposals in various states including both Hawaii and
California. Proposals introduced in Congress for a ―choice‖ pure no-fault auto insurance system never reached
the floor for a vote.

Other States
There is a wide variation in no-fault laws, with significant differences in monetary thresholds and in other
benefits provided. For example, monetary thresholds range from $1,000 in Kentucky and to $4,000 in
Minnesota. In Utah, the medical benefits limit is $3,000 and in Michigan there is no limit on the medical
benefits a claimant may receive. One problem in states with higher than average PIP benefits is that dishonest
providers of professional services have found ways to abuse and cheat the system, pushing up the cost of
auto insurance. New Jersey pioneered reforms designed to curb overuse of medical care in its overhaul of the
auto insurance system in 1998. Other states are modeling their reforms on the New Jersey protocols.

Fraud and PIP Benefits: In a number of no-fault states, PIP coverage is being exploited by fraud rings that
include phony pain clinics and corrupt physicians, chiropractors and lawyers, particularly in states where PIP
benefits are generous.

These criminal groups have created medical ―mills,‖ phony clinics that file fraudulent auto insurance medical
claims.

                                             Distracted Drivers
State lawmakers are attempting to crack-down on driving while using wireless communications devices.
Lawmakers have focused much of their attention on teen drivers. This is consistent with studies conducted by
Nationwide and Liberty Mutual, which have shown that cellular phone use was highest among teen drivers and
text messaging is the biggest distraction. Finally, as wireless communication devices continue to proliferate,
the analysis also has shown the difficulties that lawmakers are having in drafting statutory language that
adequately describes the new technologies. (www.ctia.org)

Cell Phone Laws
Five states (California, Connecticut, New York, New Jersey, and Washington) and the District of Columbia
have enacted a jurisdiction-wide ban on driving while talking on a handheld cellular phone. Washington state
has also enacted a jurisdiction-wide ban on text messaging while driving.
     Six states (Illinois, Massachusetts, Michigan, New Mexico, Ohio, and Pennsylvania) allow
        localities to ban cell phone use. Localities that have enacted restrictions on cell phone use
        include: Chicago, IL; Brookline, MA; Detroit, MI; Santa Fe, NM; Brooklyn, North Olmstead and
        Walton Hills, OH; and Conshohocken, Lebanon and West Conshohocken, PA.
     Eight states (Florida, Kentucky, Louisiana, Mississippi, Nevada, Oklahoma, Oregon, and Utah)
        prohibit localities from banning cell phone use.
     Fourteen states (Arizona, Arkansas, California, Connecticut, Delaware, Georgia, Illinois,
        Kentucky, Massachusetts, New Jersey, North Carolina, Rhode Island, Tennessee, and Texas)
        and DC prohibit the use of all cellular phones while driving a school bus.
     Fifteen states (Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, Nebraska,
        New Jersey, North Carolina, Rhode Island, Tennessee, Texas, Virginia, and West Virginia) and
        DC restrict the use of cellular phones by young drivers.
     All but seven states with cell phone bans have primary enforcement laws. New Jersey‘s ban is a
        secondary enforcement law for everyone except school bus drivers and learner‘s permit and
        intermediate license holders. Colorado, Maryland, Nebraska, Virginia, Washington, and West
        Virginia have secondary enforcement laws. Secondary enforcement laws may only be enforced
        when a driver has been stopped for another infraction. Utah‘s law defines careless driving as
        committing a moving violation (other than speeding) while distracted by use of a hand held cell
        phone or other activities not related to driving.


State
                       Cell phone restrictions
                         Hand-held Ban                                      All Cell Phone Ban
Alabama                         no                                                   no
Alaska                          no                                                   no
Arizona                         no                                           School bus drivers
Arkansas                        no                                           School bus drivers
California               yes (eff. 7/1/08)                             School and transit bus drivers
Colorado                        no                                        Learner‘s permit holders
Connecticut                    yes               Learner‘s permit holders, drivers younger than 18, and school bus drivers
Delaware                        no                School bus drivers and learner‘s permit and intermediate license holders
District of Columbia           yes                            School bus drivers and learner‘s permit holders
Florida                         no                                                   no
Georgia                         no                                           School bus drivers
Hawaii                          no                                                   no
Idaho                           no                                                   No
Illinois                  By jurisdiction        Learner‘s permit holders, drivers younger than 18, and school bus drivers
Indiana                         no                                                   No
Iowa                            no                                                   No
Kansas                          no                                                   No
Kentucky                        no                                    School bus drivers (eff. 6/25/07)
Louisiana                       no                                                   No
Maine                           no                           Learner‘s permit and intermediate license holders
Maryland                        no                           Learner‘s permit and intermediate license holders
Massachusetts             By jurisdiction                                    School bus drivers
Michigan                  By jurisdiction                                            No
Minnesota                       no               Learner‘s permit holders and provisional license holders during the first 12
                                                                                    months after licensing (eff. 1/1/2006)
Mississippi                                  no                                                       No
Missouri                                     no                                                       No
Montana                                      no                                                       No
Nebraska                                                       Learner‘s permit and intermediate license holders younger than 18 may not use
                                             no
                                                                      a cell phone or other wireless communication device (eff. 1/1/08)
Nevada                                      no                                                        No
New Hampshire                               no                                                        No
New Jersey                                 yes                    School bus drivers and learner‘s permit and intermediate license holders
New Mexico                            By jurisdiction                                                 No
New York                                   yes                                                        No
North Carolina                                                                      Drivers younger than 18 (eff. 12/1/06)
                                             no
                                                                                       School bus drivers (eff. 12/1/07)
North Dakota                                no                                                        No
Ohio                                  By jurisdiction                                                 No
Oklahoma                                    no                                                        No
Oregon                                      no                                                        No
Pennsylvania                          By jurisdiction                                                 no
Rhode Island                                no                                 School bus drivers and drivers younger than 18
South Carolina                              no                                                        no
South Dakota                                no                                                        No
Tennessee                                   no                    School bus drivers and learner‘s permit and intermediate license holders
Texas                                                          Bus drivers when a passenger 17 and younger is present; intermediate license
                                             no
                                                                                         holders for first six months
Utah                                yes (eff. 4/30/07)                                                no
Vermont                                     no                                                        No
Virginia                                    no                                    Intermediate license holders (eff. 7/1/07)
Washington                         yes (eff. 07/01/08)
                                     text messaging
                                                                                                       No
                                      prohibited (eff.
                                        01/01/08)
West Virginia                               no                           Learner‘s permit and intermediate license holders (eff. 6/9/06)
Wisconsin                                   no                                                       No
Wyoming                                     no                                                       No
1996-2007, Insurance Institute for Highway Safety, Highway Loss Data Institute




Text-Messaging
Washington
Washington became the first state in the country to enact a bill on text messaging when the Governor signed it
into law on May 11, 2007. The bill takes effect Jan. 1, 2008. The bill was introduced based on a five-car and
bus pileup on Interstate 5 near Seattle in December 2006. The driver responsible for the crash apparently had
taken his eyes off the road to use an electronic wireless communications device.

Driving, and Wireless Communications Devices
Total Prohibition
Washington also had the distinction of becoming the fifth state, along with the District of Columbia, to enact
a law banning the use of a handheld cellular phone while driving. Senate Bill 50378 takes effect on July 1,
2008. Law enforcement officers are restricted to only enforcing it as a secondary offense. Any infractions that
result are also prohibited from becoming part of the driver‘s record, and information about the infraction also
shall not be made available to insurance companies or employers. Using a cell phone while driving should be
illegal or restricted to a hands-free device. In all, 21 states introduced some type of legislation that would
prohibit the use of cellular phones while driving.

Inattention While Driving
The McDonald bill said a person operating a moving motor vehicle while ―reading, manually writing, or sending
a message on an electronic wireless communications device‖ would be guilty of a traffic infraction and could
be fined up to $250. The bill did not apply to anyone operating an authorized emergency vehicle; reporting
illegal activity; summoning medical or other emergency help; or preventing injury to a person or property. As
the bill made its way through the legislative process, though, a few amendments were added. One makes the
law a secondary action, which means it only can be applied after a law enforcement officer has detained a
driver for a primary offense. Another amendment prohibits infractions from becoming part of an individual‘s
driving record, while a third amendment says that any information about the infraction shall not be made
available to insurance companies or employers.

Five other states – Connecticut, Florida, Hawaii, Maryland and Tennessee – each considered text messaging
bills during their legislative sessions. Five states still are also considering text messaging bills. They include:
California, Delaware, New Jersey, New York and Oregon. Only the bills in California and Oregon appear to be
moving at this point. California Senate Bill 336 is part of a broader bill that prohibits the use of cellular phones
while driving. Oregon House Bill 28727 applies to persons under 18 who drive and use a mobile
communication device, the definition of which includes text messaging. The bill, which is before a conference
committee at this writing, would make any offense a Class D traffic violation and punishable with a maximum
$90 fine.

Teen Drivers
Four states – Maine, Nebraska, Virginia and West Virginia – each passed legislation to prohibit teens from
driving and using cellular phones at the same time. Cellular phone use was highest among teen drivers and
text messaging is the biggest distraction. Fifteen states and the District of Columbia now restrict the use of
cellular phones by young drivers.

Maine
Maine Legislative Document 161, 13 which was introduced, prohibits a person who has not attained 18 years
of age from operating a motor vehicle while using a mobile telephone or hand-held electronic device. A person
who violates this law commits a traffic infraction that is subject to a $50 fine for the first offense and not less
$250 for a second or subsequent offense. LD 161 takes effect 90 days after adjournment.

Nebraska
Probably the most intrigue associated with any of the states passing teen cellular phone legislation came in
Nebraska. While the bill was intended to make several changes to the state‘s law governing provisional
learner‘s permits and provisional operator‘s licenses, the bill also had a provision prohibiting a person with a
provisional learner‘s permit or school permit from using interactive wireless communication devices, including
cellular phones, when driving. The law treats any violation as a secondary offense. The bill easily passed the
Legislature, but was vetoed by the Governor.

In Virginia, Senate Bill 103914 is now in effect. It prohibits a provisional driver from operating a motor vehicle
while using any cellular phone or other wireless telecommunications device, regardless of whether the device
is or is not hand-held. A violation of this law is considered a traffic infraction and a subsequent violation could
result in the juvenile‘s privilege to drive being suspended for six months. West Virginia and Maine have similar
bills.

In all, nine states introduced bills dealing with the use of video equipment within the view of the driver. New
York is the latest to issue a bill on this subject.

Distracted Driver Studies
Maine initially introduced Legislative Document 57625 to have the Department of Public Safety study the effect
of cellular phones on motor vehicle accidents. The bill was subsequently amended to require the department
to analyze available data, including data from its upgraded crash reports, to determine the role various types of
distractions play in motor vehicle accidents. The department is also directed to submit an interim report of its
findings to the Legislature by Jan. 15, 2009. A final report is due the following year when legislation shall be
submitted based on the department‘s report.
Connecticut, New Jersey, New York and Washington, D.C. have banned the use of hand-held cell phones
while driving. California is scheduled to ban their use by July 2008.

Older Drivers Are a Growing Problem
Example: A 90-year-old widow named Maggie set out on a morning drive to the store. She backed out of her
driveway, across her lawn and off the curb. Her car then hit the curb across the street, before Maggie mistook
the gas pedal for the brake and lunged forward with excessive speed. Six blocks away, Maggie drove through
a red light. The car slammed into Jenny, a 17-year-old high school student who was driving to school. Three
days later, Jenny died.

Many aging drivers are clinging to the independence that cars give them, but losing their ability to operate the
vehicles, causing more accidents. Fatality rates for drivers begin to climb after age 65, according to a recent
study by University of Pittsburgh and the AAA Foundation for Traffic Safety, based on data from 1999-2004.
From ages 75 to 84, the rate of about three deaths per 100 million miles driven is equal to the death rate of
teenage drivers. For drivers 85 and older, the fatality rate skyrockets to nearly four times higher than that for
teens.

States have tried a range of approaches, but for the most part they have struggled to establish precise
standards for determining when seniors should be kept off the road while being fair to older drivers who remain
capable.

State laws are inconsistent on the issue. Most state driver‘s license laws require basic eye exams but typically
cannot detect a driver‘s diminished physical capacity and cognitive awareness. No state has an age limit on
drivers.

Normal aging causes medical problems that affect driving. Reflexes, flexibility, visual acuity, memory and the
ability to focus all decline with age. Medicines that treat various ailments also make it more difficult to focus and
make snap decisions.

Elderly drivers are less likely than other drivers to be in crashes involving high speeds or alcohol, but they are
more likely to crash at intersections where they miss a stop sign or turn left in front of oncoming traffic. A series
of incidents involving elderly drivers in the past few years has fueled the debate over how to deal with the risks
they can pose.

That‘s partly why insurance rates usually are only slightly higher for drivers 75 or older – and far lower than
such rates for teenage drivers. Insurance analysts say the car insurance industry does not see a big liability
threat from the rising number of elderly drivers because such drivers hurt themselves more than others and
tend to stop driving on their own. The industry views them as pretty much a self-policing group. Many elderly
drivers do not drive at night. Many will make three right-hand turns instead of one left-hand turn.

Twenty-three states require licensed drivers of a certain age to appear periodically at a department of motor
vehicles office to renew their license. In 16 states, older drivers must prove that they can see well enough to
drive. Some states have tried other ways to identify drivers who, because of age-related health problems, put
themselves or others at risk.

Without precise measures, analysts estimate that 500 good drivers would have to be taken off the road to
prevent a single crash. Among states‘ efforts to restrict elderly drivers:
   California tested a three-tiered pilot plan for assessing drivers of all ages that included a driving
     knowledge test, cognitive screening and vision tests. People who failed the first tiers had to pass a road
     test. The 2003 study of 152 drivers did not predict who would go on to have a crash.
   Maryland conducted a study that found drivers who performed poorly on certain cognitive tests – such as
     following basic commands and repeating simple movements – were about 25% more likely than others
     to go on to cause a crash. Results of the study of 1,910 drivers ages 55 to 96 were published in January
     2006 in the Journal of the American Geriatrics Society. Maryland now uses such screening on a regular
     basis with drivers whose actions raise concerns about their cognitive abilities.
   Florida‘s requirement that drivers 80 and older pass a vision test resulted in the loss of a license for about
      7% of elderly drivers seeking renewal, according to a study by the IIHS.
Nearly 20% of those 80 and older who needed to renew their license told researchers they decided to give up
driving because they did not think they could pass the vision test.

School Bus Drivers
In Kentucky a bill is in effect that prohibits a person operating a school bus from using a cellular phone while
the bus is in motion and carrying school children. Exemptions are allowed where the bus does not contain a
functioning two-way radio or in the case of an emergency. A bus driver violating this law shall be fined $50 for
a first offense, while the fine for a subsequent offense is $100 with the driver losing his or her school bus
endorsement for six months. In addition to Kentucky, lawmakers in Hawaii, Maryland and Texas also
introduced similar legislation, but none of those bills moved forward before the states adjourned for the year.
Twelve other states, plus the District of Columbia, already prohibit the use of cellular phones while driving a
school bus.

Five states – Florida, Louisiana, Mississippi, Pennsylvania and Tennessee – introduced bills to prohibit the use
of cellular phones in school zones during posted hours with certain exceptions for public safety or law
enforcement entities, persons in a parked motor vehicle, or emergency personnel in the performance of their
duty.

Unnecessary Medical Treatment
New Jersey dealt with the problem of unnecessary medical treatment by creating pre-certification medical
guidelines, or Care Paths, for the treatment of specific injuries that result from auto accidents, primarily soft
tissue injuries. In Massachusetts, where experts estimate that $80 million in personal injury claims are
fraudulent, the state is seeing the same increase in faked accidents, the use of runners, phony medical clinics
and dishonest medical providers and attorneys that other no-fault states are experiencing.

More recently, some auto insurance reformers have been proposing the elimination of noneconomic damages
from tort liability coverage as a way to reduce costs, with optional coverage provided as a first-party coverage
with a pre-determined limit. The premium savings would come not only from the elimination of coverage but
also from the reduced temptation to inflate medical costs to boost noneconomic damages which are generally
calculated as a percentage of economic damages.

Variations on the No-Fault Concept: In the 1960s, the traditional auto liability insurance system became the
target of public criticism. Dissatisfaction was expressed not only by those purchasing auto insurance but by
companies and agencies marketing it and by state officials regulating it. The debate focused on the often
expensive and time-consuming process of determining who is at fault — legally liable — when accidents
occur.

To reduce the delays and inefficiencies of the system, legislation was introduced in the 1970s in many states,
which allows accident victims to recover such financial losses as medical and hospital expenses and lost
income from their own insurance companies. In the states that have adopted such laws, the major variations
involve: dollar limits on medical and hospital expenses, funeral and burial expenses, lost income and the
amount to be paid a person hired to perform essential services that an injured non-income producer is unable
to perform.

The states where first-party insurance benefits have been added on to the traditional liability system are known
as ―add-on‖ states. In add-on states there are no restrictions on lawsuits, first-party coverage may not be
mandatory and first-party benefits may be lower than in true no-fault states. Pennsylvania, formerly an ―add-
on‖ state, began offering consumers the choice between a verbal threshold and no restrictions on lawsuits in
July 1990. (New Jersey and Kentucky also offer such a choice, except that Kentucky‘s threshold is monetary).
This is Pennsylvania‘s second no-fault law. An earlier law was repealed in 1984.
In the late 1980s, Project NEW START, a national nonprofit consumer organization that was devoted to
promoting a new auto insurance policy, developed legislation that would offer motorists a choice between a
traditional liability-based policy and a strict no-fault policy. Motorists who chose the no-fault program would
have had the option to purchase personal injury protection (PIP) above the basic limits and also coverage for
pain and suffering. In the first full year after the law took effect, drivers who chose the no-fault policy would
have seen their premiums reduced by a significant amount — at least 20 percent of the statewide average
premium for insurance required by the state‘s financial responsibility law, according to the plan. Another
version of choice no-fault was known as the O‘Connell plan, after Jeffrey O‘Connell, who first proposed a no-
fault accident compensation system in 1965. This plan allowed a policyholder who chose the tort system and
was involved in an accident with a no-fault driver to file a claim under the uninsured motorist provision of the
policy. The no-fault driver could not sue and was immune from suits.

Pay-At-The-Pump
Pay-at-the-Pump is a system proposed in the 1990s in which automobile insurance premiums would be paid
to state governments through a per-gallon surcharge on gasoline.

Beginning in the early 1990s, a concept that melded a no-fault auto insurance system with funding through
surcharges on gasoline was considered in several states, including California where its supporters worked to
put it before the voters as a ballot initiative. However, overwhelmed by the fierce opposition to the concept by
California businesses and suburban and rural motorists who would have shouldered the brunt of the gasoline
tax increase, the coalition for Common Sense Auto Insurance withdrew their proposal.

The initiative, called the Uninsured Motorist Act, because it would force all drivers to pay something towards
the cost of auto crashes, was sponsored by financial columnist Andrew Tobias. The measure would have
imposed a 25-cent per gallon surcharge on gasoline and a $141 auto registration surcharge to fund the state-
run insurance operation. Bad drivers would have paid an additional surcharge.

The pay-at-the-pump concept is based on the premise that the primary determinant of accident costs is miles
driven, when in fact miles driven plays only a minor role in the cost of accidents. Research suggests that the
major determinant is traffic density.

Since the concept first surfaced in California, pay-at-the-pump bills have been introduced in Colorado,
Massachusetts, Nevada and Texas and the concept was considered by the Council of the City and County
of Honolulu, Hawaii. In Florida, the House Insurance Committee studied the feasibility of the pay-at-the-pump
concept. A pay-at-the-pump bill has been introduced in Colorado periodically but it has garnered little support.
And in Louisiana and Hawaii, as part of an effort in 1997 to reduce auto insurance prices, committees were
formed to study the idea.

Pay-at-the-pump’s greatest virtue is that it would eliminate the cost of litigation, like a traditional no-fault
system. Beyond that, the proposal has serious flaws.
   First, instead of paying one premium every six months, drivers would be taxed to pay for insurance in
      hundreds of transactions throughout the year. They would pay every time they bought gasoline and
      when they registered their car. In addition, their health insurance premiums would rise since pay-at-the-
      pump pays only for unreimbursed medical care costs.
   It treats all drivers alike by making how much gasoline a person uses the primary determinant of how
      much a person will pay for insurance instead of an individual‘s driving experience and driving record, and
      the type of vehicle that person drives. Thus, a parent driving a group of ten-year-olds to a neighborhood
      baseball game in a minivan would pay more for insurance coverage than an eighteen-year old cruising
      around on a Saturday night, despite the fact that adults as a group are safer drivers than teenagers and
      minivans are among the safest types of cars. Small cars use less gasoline than minivans so drivers of
      small cars would pay less for their insurance than minivan drivers, even though small car collision claims
      are 75 percent higher and small car occupants more likely to suffer serious injury in a collision.
   It places a burden on those who have to drive long distances to get to work. People who drive long
      distances to work in outlying areas, for example, could end up paying twice as much for insurance
      coverage as under the current system because pay-at-the-pump ignores distinctions between driving
      conditions in congested city areas where claims are high and driving conditions in the outer suburbs and
      rural areas.

New York Case Example
In New York, there is a unique law in keeping with its stature as a global business center. New York‘s former
State Attorney General fought with major national insurance carriers. He alleged that Marsh & McLennan
steered business to insurance carriers based on the amount of contingent commissions that could be
extracted from the carriers, rather than basing decisions on whether carriers had the best deals for clients.
Several of the largest commercial insurance brokerages have since stopped accepting contingent
commissions and have adopted new business models.

International Considerations
In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United
States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license
and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum
required by law is third party insurance to protect third parties against the financial consequences of loss,
damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver‘s own
vehicle is optional - one notable exception to this is in Saskatchewan, where State Government Insurance
(SGI) provides collision coverage as part of its basic insurance policy. In South Australia Third Party Personal
insurance from the State Government Insurance Corporation (SGIC) is included in the license registration fee.
South Africa allocates a percentage of the money from petrol into the Road Accidents Fund, which goes
towards compensating third parties in accidents. Most countries relate insurance to both the car and the driver,
however the degree of each varies greatly.

The Shared/Residual Market and Non-standard Markets
All states and the District of Columbia use special systems to guarantee that auto insurance is available to
those who cannot obtain it in the private market. Each type of system is commonly known as an assigned risk
plan. The assigned risk and other plans are known in the insurance industry as the shared, or residual, market.
Policyholders in assigned risk plans are assigned to various insurance companies doing business in the state.
Hence the term voluntary (regular) market, where auto insurers are free to select policyholders rather than
have them assigned.


Summary

Insurance has been an institution of human society for thousands of years, having been practiced by
Babylonian traders long ago. Eventually it was practiced by early Mediterranean sailing merchants. The
Greeks and Romans had ―benevolent societies‖ which acted to care for the families and funeral expenses of
members upon death. Guilds in the middle ages served a similar purpose. Insurance became much more
sophisticated in post-Renaissance Europe, and specialized varieties developed. In America, Benjamin Franklin
helped to popularize and make standard the practice of insurance, particularly against fire.

Today issues like teen driver safety, cell phone distractions, no-fault insurance and improved safety of vehicles
themselves are hot topics. These and other issues cause a continued change in the insurance industry in an
effort to improve the products available, better meet consumers‘ needs and save more lives.
Glossary
Assigned Risk – A driver who is not acceptable to a standard lines insurance company due to a poor driving
record and is assigned to an insurance company participating in the assigned risk pool.
Automobile Insurance – A type of insurance that protects against losses involving automobiles. Auto policies
contain a variety of coverages that can be purchased depending upon the needs and wants of the
policyholder.

Binder – A short-term agreement that provides temporary insurance coverage until the policy can be issued or
delivered.

Cancellation—The insurance company terminates a policy before it runs out.

Comparative Negligence – The percentage of fault shared by each driver in an accident in which both
contribute to causing the collision.

Comprehensive Coverage – Pays for damage to your car caused by reason other than collision, such as fire,
theft, vandalism, windstorm, flood, et cetera.

Collision – Pays for damage to your car caused by physical contact with another vehicle or with another
object, such as a tree, boulder, guardrail, structure, or person.

Conditions – Explanations in the policy of your responsibilities and the company‘s; for example, how claims
are to be filed and what proofs you must submit with your claim.

Coverage – Description in the policy of the specific circumstances under which you receive benefits.

Declarations – Listing of the details of your particular coverage, such as the policy number, kinds of coverage
and amounts of money provided by each, your name and address, a description of your vehicle, the premium,
and coverage duration.

Deductible – The amount of a loss or claim you must pay before you can collect from the insurance company.

Endorsement – A written agreement that changes the terms of an insurance policy by adding or subtracting
coverage.

Exclusions – Descriptions of the situations under which you and your car are not covered.

First Party – The policyholder (insured) in an insurance contract.

Fraud—Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would
otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents
and brokers for financial gain.

Liability – The financial responsibility incurred because of an accident.

Liability Insurance—Insurance for what the policyholder is legally obligated to pay because of bodily injury or
property damage caused to another person.

Loan Gap Coverage – This coverage pays the difference between the fair market value of your vehicle and
the loan balance owed to your lender. This coverage is available on new vehicles only.

Low Cost Auto – A pilot program for the residents of eligible counties only, who meet specific lower income
requirements.

Medical Payments Coverage – Covers the medical costs (up to the specified limit) resulting from an auto
accident for you, your family, or others in your car. This coverage pays regardless of fault.

Nonrenewal—The insurance company refuses to renew a policy when it expires.
Pay-at-the-Pump—A system proposed in the 1990s in which auto insurance premiums would be paid to state
governments through a per-gallon surcharge on gasoline.

Personal Lines – This term is used to refer to insurance for individuals and families, such as private
passenger automobile and homeowner policies.

Premium – The cost of the insurance policy (usually paid out in periodic payments).

Premium Finance Company – A lending institution that finances automobile insurance premium for a fee.

Private Passenger Automobile – Four-wheeled motor vehicles of the private passenger, station wagon, or
van type. Private passenger automobiles are designed for use on public highways and subject to motor vehicle
registration.

Producer – A term used by the insurance industry to refer to agents and brokers.

Rating – The process by which the price of your insurance coverage is determined. States are divided into
rating territories. Your insurance company bases part of the price of your policy on the claims history of all the
drivers it insures in your territory. Other factors such as your driving record and age also affect the rating.

Rescission – The cancellation of a policy back to its effective date resulting in a return of all premium charged.

Rental Reimbursement Coverage – This coverage pays your expenses to rent an auto if you have a loss
covered under Comprehensive or Collision benefits. Coverage is sold based on a daily amount of expense
subject to a maximum limit.

Replacement Cost – The amount that it costs to replace lost or damaged property with new property of like
kind or quality in the local market.

Salvage – Damaged policyholder property that is legally signed over to an insurer in a loss settlement.
Insurance companies sell salvaged property in order to reduce their overall monetary loss.

Second Party – The insurance company in an insurance contract.

Subrogation – The process of recovering the amount of claims damages paid out to a policyholder from the
legally liable party. When a company pursues the legally liable third party, they are required to include the
policyholder‘s deductible in the recovery process.

Supplemental Payments – Court costs, bail bonds, expenses related to a lawsuit including defense, or any
other specific payments your insurance provides which are not specifically listed in other parts of the policy.

Surcharge – An extra charge applied to the premium by an insurance company, usually applied to an at-fault
accident or moving violation.

Third Party – An individual other than the policyholder or the insurance company who has suffered a loss and
may be able to collect compensation under the policy due to the negligent acts or omissions of the
policyholder.

Total Loss – Damage or destruction to real or personal property to such extent that it cannot be rebuilt or
repaired to its condition prior to the loss or when it would be cost prohibitive to repair or rebuild in comparison
to the value of the property prior to the loss.

Towing Coverage – Addition to an automobile policy that pays a specified amount for towing and related
labor costs.
Umbrella Policy—Coverage for losses above the limit of an underlying policy such as auto insurance. While it
applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader
than those of underlying policies.

Underinsured Motorist Endorsement – Addition to a Personal Automobile Policy (PAP) that covers an
insured who is involved in a collision with a driver who does not have sufficient liability insurance to pay for the
damages.

Uninsured Motorist Coverage (UMC) – Provides coverage for a policyholder involved in a collision with a
driver who does not have liability insurance or who does not have sufficient liability limits to pay for damages.

				
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