Baer.Intro

Question 1

List the 4 types of insurance carriers

Answer 1

1. Individual U/W
2. Joint stock company
3. Mutual Insurance Company
4. Reciprocal/inter-insurance exchange

Question 2

Define an Individual UW Insurer

Answer 2

Like a stock exchange BUT only open to members (U/W members & non U/W members)

Question 3

Define a Joint Stock Company

Answer 3

For-profit and owned by stockholders BUT managed by board of directors. Profits go to stockholders & investors

Question 4

Define a mutual insurance company

Answer 4

Owned by policyholders. Profits are paid to policyholders as dividends

Question 5

Define a reciprocal/inter-insurance exchange

Answer 5

Unincorporated ASSOCIATION of subscribers who EXCHANGE contracts of indemnity (don’t issue policies, members are individually liable)

Question 6

Why are insurer’s partly exempt from anti-trust laws?

Answer 6

It would be bad for short-term price competition (leads to underpricing & insolvency, which hurts customers)

Question 7

What do rating bureaus do?

Answer 7

Promulgate rates & terms of contracts. It is an APPROVED way for insurers to cooporate in setting adequate rates

Question 8

What is the legal status of rating bureaus?

Answer 8

They are authorized & regulated by Provincial Insurance Acts

Question 9

How do rating bureaus collect & analyze data?

Answer 9

Provincial superintendents appoint a statistics gathering agency (usually the statistical division of IBC)

Question 10

What does Insurance Forms Manual Services Publish?

Answer 10

Standardized versions of basic policies & options, so there is no competition on basis of policies in Canada

Question 11

Must auto policies be approved by superintendent before use (y/n)?

Answer 11

Yes

Question 12

Name IBC’s 5 objectives (formed in 1964)

Answer 12

1. Study legislation
2. Collect / analyze data
3. Engage in research
4. Discuss general insurance
5. Promote public understanding

Question 13

Name 1 reason for creating IBC - related to anti-trust

Answer 13

Rating bureaus may have encouraged insurance industry to do things that, in other industries would be considered anti-competitive

Question 14

Name 3 organisations under the IBC umbrella

Answer 14

1. Association of Independent Insurers
2. Canadian Federation of Insurance Agents & Brokers
3. Insurance Institute of Canada

Question 15

What has been the focus of Canadian Insurance Regulation since Confederation?

Answer 15

1. Marketing: marketing integrity & improvement of insurance contract
2. Ownership: encourage canadian ownership
3. Taxes: collection of taxes
4. Honesty: honesty & compentence of intermediaries (ex: agents)
5. Solvency: keep insurer’s solvent to protect policyholders

Question 16

Identify examples of Canadian regulation/legislation (federal or provincial) that promote insurer solvency (6)

Answer 16

1. Creation: oversee creation of (domestic) & licensing (foreign) of insurers
2. Investments: restrictions on the type of investments that are permitted for insurers (to reduce risk)
3. Rating: authorization of rating bureaus for info-sharing
4. Compliance: give government departments authority to enforce compliance with legislation
5. Adequacy: create boards to oversee and ensure adequacy of rates
6. File F/S: require regular filing of Financial Statements

Question 17

What conditions eventually led to public control regarding solvency in the 1870s?

Answer 17

1. Many insurer bankruptcies in the 1860s/70s
2. The recognition that short-term price competition is bad
3. Insurance involves a significant savings component (prepaid premiums) & policyholders must be protected

Question 18

How does federal legislation protect Canadian insureds of foreign insurance companies? (2)

Answer 18

1. Foreign insurers must maintain sufficient assets in Canada (for recovery from insolvency)
2. If a foreign insurer goes insolvent, then a Canadian insurer can assume control over its assets (helps to stop expatriation of capital)

Question 19

What are the superintendent’s power over marketing practices?

Answer 19

Investigate/order persons to stop offensive practices

Question 20

What are the different levels of insurance regulation? (3)

Answer 20

1. Legislation
2. Regulations by lieutenant governor in council
3. Guidelines by superintendents

Question 21

Difference between guidelines & legislation for insurance regulation?

Answer 21

• Guidelines are more flexible than legislation (since subject to interpretation)
• Legislation must go through senate, house of commons and get approved, guidelines don’t need to go through these steps

Question 22

Why are uniform guidelines easier to establish than uniform legislation?

Answer 22

Guidelines do not need to go through legislative process

Question 23

Cite a case Privy Council used against Fed efforts at insurance regulation

Answer 23

Citizen’s Insurance Company v Parsons

Question 24

Who oversees Canadian solvency regulation (federal or provincial) ?

Answer 24

Both federal and provincial. Cooperative federalism has been achieved in practice

Question 25

Who oversees Canadian rate regulation? (federal or provincial) ?

Answer 25

Provincial

Question 26

Why is provincial insurance legislation so uniform across provinces?

Answer 26

Primarily due to CCIR (Canadian Council of Insurance Regulation)

Question 27

Identify differences between private & social insurance (4)

Answer 27

1. Selectivity: private insurers are MORE selective, social insurance is LESS selective 2. Solvency: private companies monitored by superintendent, social insurance underwritten by government 3. Employees: private insurers have private employees, social insurance has civil servants 4. Fraud Protection: yes for private insurers, not as much for social insurance

Question 28

Identify similarities between private & social insurance (5)

Answer 28

1. Both PROTECT insurance fund 2. Both PREVENT over-compensation 3. Both need to define "covered event" 4. Both need to determine "covered losses" 5. Both need claims & reserving functions

Question 29

What is the principle of indemnity?

Answer 29

The principle of indemnity states that an insured suffering a covered loss will be brought back to their original financial position (with no reward nor punishment)

Question 30

What is a "contract of indemnity"?

Answer 30

Contract where amount recoverable is measured by insured's pecuniary loss

Question 31

Is paying a fixed amount on an occurence considered indemnity?

Answer 31

No, because insured does not have to have a loss

Question 32

Is a life insurance policy an indemnity policy? Explain

Answer 32

No, because the insured's family will receive a fixed amount following the death of the insured. Therefore, not based on pecuniary damages so not indemnity

Question 33

Identify conditions for recovering under an indemnity policy (2)

Answer 33

1. Event must be covered 2. Requires proof of loss from the event (and proof of the amount of loss)

Question 34

Identify the difference between a "valued" policy and a "typical" insurance policy

Answer 34

Proof of amount of loss is not necessary because compensation is pre-determined by contract (therefore compensation is fixed)

Question 35

Identify the necessary conditions for reimbursement under "valued" insurance policy

Answer 35

1. Event must be covered 2. Requires proof of loss, but not amount of loss

Question 36

Glynn v Scottish Union National Ins. Co: Facts

Answer 36

- Glynn injured in auto accident - Was reimbursed by other driver's insurer (incl. medical) - Glynn sued to DOUBLE RECOVER medical from own insurer

Question 37

Glynn v Scottish Union National Ins. Co: Issue

Answer 37

Does Glynn's insurer have right to subrogation? I.e. can Glynn's insurer claim benefits from guilty party's payment to PREVENT double-recovery by Glynn

Question 38

Glynn v Scottish Union National Ins. Co: Ruling 1

Answer 38

Ruling 1: for insured: Glynn gets double-recovery

Question 39

Glynn v Scottish Union National Ins. Co: Ruling 2 (appeal)

Answer 39

Ruling 2: for insurer - Subrogation concept applies because auto policy is contract of indemnity - So Glynn's insurer does NOT have to pay

Question 40

Identify the differences between group & individual insurance (4)

Answer 40

Group: 1. Insures class of people vs Individual 2. Contact is between insurer & sponsor vs Insurer and Insured 3. Contract is open-ended (ex: new employees covered automatically) vs going through U/W process 4. Treated differently by provincial legislation vs individual insurance

Question 41

Contrast group insurance with subscription policies

Answer 41

Group: one insurer covers many insureds Subscription: multiple insurers U/W different aspects of complex risk

Question 42

Name the important intent of the doctrine of subrogation

Answer 42

Subrogation is intented to prevent overcompensation of insured

Question 43

Tort Recovery vs Collateral Sources: identify the 4 loss-sharing options

Answer 43

1. ELECTION: pick one of tort recovery or collateral sources 2. CUMULATION: pick BOTH tort recovery and collateral sources 3. REIMBURSEMENT: amount not covered by tort recovery is covered by collateral sources 4. RELIEF: tortfeasor's liability reduced by collateral source

Question 44

Fletcher v MPIC: Facts (1990)

Answer 44

Customer relied on MPIC (Manitoba Public Insurance Council) There was no mention of UIM (Under-insured Motorist) coverage on application or insurance certification

Question 45

Fletcher v MPIC: Criteria - for duty of care

Answer 45

MPIC owes a duty of care to its customers if: 1. Does reliance exist? (in this case yes, since insured relies on MPIC to have maximum coverage) 2. Is reliance expected? (in this case yes, since insured is not familiar with type of coverage) 3. Is the reliance reasonable? (in this case yes, MPIC ought to know)

Question 46

Fletcher v MPIC: Issues

Answer 46

Issue 1: is a government insurer responsible for informing customers of available coverages? Issue 2: what is the extent of the government's liability should it fail to do so?

Question 47

Fletcher v MPIC: Ruling 1,2,3

Answer 47

Ruling 1: judge finds for plaintiff (insured wins) Ruling 2: overturned on appeal (MPIC wins) Ruling 3: Supreme Court of Canada reinstates original ruling (insured wins) Final interpretation: - Both private agents and government institutions owe a duty of care - Private agents owe a higher duty of care because of their promised expertise & high degree of personalization promised by the private business model

Question 48

Dillon v Guardian Insurance Company: Facts

Answer 48

- Guardian rejected a settlement that was less than policy limit - Subsequent jury award was greater than policy limit - Insured sued insurer for excess amount of award above policy limit

Question 49

Dillon v Guardian Insurance Company: Define the standard of absolute liability

Answer 49

If a settlement is possible but rejected by the insurer, then the insurer is liable for all costs (even in excess of policy limit)

Question 50

Dillon v Guardian Insurance Company: what are the possible standards for liability (3)?

Answer 50

1. Absolute liability 2. Liability for not acting reasonably 3. Liability for bad faith (builds on lack of reasonableness)

Question 51

Dillon v Guardian Insurance Company: Arguments for absolute liability

Answer 51

Avoids: determining whether the 1st offer was reasonable (since its below policy limits) Lowers: probability of insurer gambling with insured's money

Question 52

Dillon v Guardian Insurance Company: Ruling 1

Answer 52

Insurer liable under all standards (only need 1) Finds in favour of insured

Question 53

Dillon v Guardian Insurance Company: what is the outcome of the case

Answer 53

Guardian paid for amount in excess of policy limits due to absolute liability

Question 54

Give common examples of financial derivatives

Answer 54

Options, forwards, futures, swaps

Question 55

Identify advantages of foreign participation in the Canadian Insurance Industry (3)

Answer 55

1. Increased Competition: produces lower prices, higher availability for Canadians 2. Increased Innovation: good for consumers (since new ideas are brought to better serve customers) 3. Foreign Capital: flows into Canada (which creates a tax revenue for Canada)

Question 56

Identify disadvantages of foreign participation in the Canadian Insurance Industry (3)

Answer 56

1. Runs counter to goal of federal government to promote Canadian ownership 2. Harder to verify financial resources of parent 3. Foreign parent failure is the main cause of Canadian insolvency