Personal Lines

Question 1

3 mechanisms for operating a state residual auto insurance market

Answer 1

1. ARP (Assigned Risk Plan) also sometimes called AIP (Auto Insurance Plan)
2. JUA (Joint Underwriting Association)
3. RF (Reinsurance Facility)

Question 2

How does an ARP work?

Answer 2

1. Driver applies & is rejected by the voluntary market
2. Driver applies to the ARP
3. Driver is assigned to an insurer based on insurer’s Written Premium market share
   a. Regulator sets uniform rates (same rates across all insurers)
   b. Insurer fully services policy as if voluntarily written
4. Insurer retains profits/losses
   - Note: Alice KNOWS she is in the residual market, and there could be STIGMA attached to this
   - Note: These plans must all offer policies with the MINIMUM STATUTORY LIMITS (but the insurer may offer higher limits)

Question 3

3 items that may make a driver ineligible, even for an ARP

Answer 3

1. No valid driver’s license
2. Felony conviction within the past 36 months
3. Habitual violation of the law

Question 4

How does a JUA work?

Answer 4

1. Driver applies to an insurer in voluntary market
2. Insurer chooses: keep policy OR insurer/agent/broker forwards to JUA servicing carrier (driver doesn’t know if they go to JUA)
   a. JUA sets uniform rates based on pool experiences
   b. Servicing carrier services claims
3. Insurer shares in profits/losses/expenses in proportion to their voluntary business market share
4. All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks

Question 5

How does a RF work?

Answer 5

1. Driver applies to insurer in voluntary market
2. Insurer chooses: keep policy OR forward to RF (driver doesn’t know if they go to RF)
   a. Rates are set in some manner, RF is a non-profit enterprise
   b. Insurer services claims
3. Insurer shares in profits/losses/expenses in proportion to their voluntary business market share
4. All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks

Question 6

2 differences between an ARP and a JUA/RF

Answer 6

• Driver doesn’t know they have been placed in the residual market
• Premiums, losses & expenses are SHARED among all auto insurers in the state (by share of the voluntary market)

Question 7

Risks often covered under FAIR plans

Answer 7

• Properties in areas susceptible to crime/riots
• Coastal properties that pose greater-than average exposure to windstorm damage
• Properties in some wooded areas subject to brush fires
• Properties that are susceptible to sinkholes
• Individuals with high number of prior claims

Question 8

2 differences between a JUA and a RF

Answer 8

1. Who services policies
   
   • JUA:
     ○ Policy is serviced by servicing carrier
   • RF
     ○ Policy is serviced by insurer
2. How rates are set

Question 9

How does a FAIR plan work?

Answer 9

• Rationale
  ○ Property owners in urban areas couldn’t find coverage due to crime/riot risk
• Operation
  ○ Policies are serviced by a syndicate or private company (who collect premiums, handle claims, & take a cut for their service)
  ○ Premiums & losses are shared by all property insurers in state
• Eligibility
  ○ Coverage must have been denied by the private market
  ○ Property must not be:
  § Vacant or trespassed onto
  § Damaged or poorly maintained
  ○ Property must:
  § Meet building codes