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Chapter 1: Managing Personal Risks
The Smith family, which consists of two parents and a one-year-old son, recently moved into a single home that includes a two-car garage, a garden shed, and a swimming pool. Their parents and their insurance agent counseled them that this is an important event in their lives and that, as new homeowners, they should make a conscious effort to use a structured risk management process to assess their loss exposures and develop and implement a risk management plan to manage them. They decide to undertake this project.
a. Outline the steps the Smiths should follow in developing and implementing a risk management plan.
b. What kinds of assets should the Smiths be identifying that are at possible risk of loss?
c. What kinds of loss exposures can affect real and personal property?
d. How would the insurance agent explain to the Smiths that they may be exposed to liability losses?
e. Explain the difference between a loss prevention technique and a loss reduction technique.
f. Explain two types of risk financing techniques.
Rubric: 25 points in total for this question. For question a, 6 points total. 1 points for each step correctly identified. Question b, 4 points total. Question c, 2 points total. Question d, 4 points total. 1 points for liability loss definition. 3 points for how the liability loss will influence the family assets loss. Question e, 4 points total. Question f. 5 points total. 1 points for each correctly identified techniques. And 1.5 points for each correctly explained technique.
XYZ Insurance has its home office in a state with a population that consists predominantly of people of a particular ethnic origin. XYZ wanted to encourage state residents to buy insurance policies, so it filed rates with the state insurance regulators that extended a flat 70 percent discount to all applicants of the predominant ethnic origin, after considering other rating factors.
Explain why the state regulators might not approve these rates based on each of the following rating objectives.
a. Rates must be adequate to pay all claims and expenses.
b. Rates must not be unfairly discriminatory.
Rubric: 25 points in total for this question. For question a, 10 points total. Please explain what happens if rates are not adequate. For question b, 15 points total. Please explain from the angle of the relationship between loss potential and ethnicity.
Chapter 2: Examining Personal Auto Coverage
Barbara was driving her vehicle, and her friend Kevin was a passenger. They were starting a one-week visit with Kevin’s parents, who live in the same state about 150 miles south of the town where Barbara and Kevin live.
Barbara’s vehicle is insured under a PAP listing her as the named insured.
These are the coverages included in the policy:
Coverage A-Liability: $50,000 Each person
$100,000 Each occurrence
Property Damage: $50,000
Coverage B-Medical Payments: $1,000 Each person
Coverage C-Uninsured Motorists: $50,000 Each person
$100,000 Each occurrence
To lower her premiums, Barbara decided not to carry Coverage D-Damage to Your Auto on her five-year old vehicle.
About one hour into the trip, as they were traveling in the southbound lanes of the highway, a northbound vehicle crossed the median and struck Barbara’s vehicle. This four-door sedan was operated by Louise, who died at the scene.
As part of the accident investigation, it was determined that Louise suffered a heart attack, which caused her to lose control of her vehicle and cross the highway.
Louise had a PAP listing herself and her husband as named insureds. These are the coverages included in the policy:
Coverage A-Liability: $250,000 Each person
$500,000 Each occurrence
Property Damage: $100,000.
Coverage B-Medical Payments: $5,000 Each person
Coverage C-Uninsured Motorists: $100,000 Each person
$300,000 Each occurrence
a. Barbara was severely injured as a result of the accident, for which the court finds Louise liable. Damages are $210,000 for Barbara’s hospital and rehabilitation expenses as well as lost wages for six months. Which policy will cover these expenses and for what amount?
Rubric: 16 points total. 8 points for which policy will cover the expenses. 8 points for the amount of coverage.
b. In addition to the damages for medical expenses and lost wages, the court awards $50,000 in prejudgment interest to Barbara. Explain whether this amount is covered under the PAP, which policy would respond, and for what amount.
Rubric: 16 points total. 8 points for explanation of prejudgment interest. 8 points for the amount available for prejudgment interest payment.
c. Barbara’s vehicle was carrying several boxes of Kevin’s household property, which he intended to store at his parents’ home. Is damage to this property as the result of the accident covered under Barbara’s PAP?
Rubric: 18 points total. 8 points for whether this damage is covered. 10 points for explanation of why this damage is covered (or not covered).
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