Fundamentals of Insurance - Chapter 3 - PDF

 Fundamentals of Insurance Chapter 3 The Role of Government in the Insurance Industry FOI Overview of Insurance Regulation in Canada Insurance regulation ensures consumer protection and market stability. Dual oversight by...

 Fundamentals of Insurance Chapter 3 The Role of Government in the Insurance Industry FOI Overview of Insurance Regulation in Canada Insurance regulation ensures consumer protection and market stability. Dual oversight by federal and provincial governments. Key focus: financial solvency, licensing, and fair practices. FOI Federal Government’s Role in Insurance Regulation Oversees federally licensed insurers via OSFI (Office of the Superintendent of Financial Institutions). Monitors financial stability and enforces strict licensing standards. Key objective: Prevent insolvency and protect policyholders. Provincial Government’s Role in Insurance Regulation Administered by the Superintendent of Insurance in each province. Responsibilities: Supervising insurance contracts. Licensing insurers operating provincially. Monitoring financial stability of provincially licensed insurers. Monitoring Financial Solvency Ensures insurers can meet financial obligations. Regular audits of assets, liabilities, and claims reserves. Actions for non-compliance: Suspension of operations. Asset control by the Superintendent. PACICC: Consumer Protection Against Insolvency Property and Casualty Insurance Compensation Corporation (PACICC). Industry-funded body to cover claims in case of insurer insolvency: Max claim: $250,000 per occurrence. Unearned premium refund: 70% up to $700. Fiduciary Nature of Insurance Definition: Handling consumer funds with trust. Obligations for insurers and brokers: Retain unearned premiums in trust. Refund unearned amounts for policy cancellations. Regulation of Insurance Contracts Provincial control over licensing and operation. Uniformity in property insurance standards. Automobile insurance varies by province. Insurance Act: Governing Policy Standards Legislates contents of insurance policies: Parties, coverage, premiums, subject matter. Standard exclusions and statutory conditions mandated. Statutory Conditions: Overview Rules for insurer-insured relationships. Mandatory inclusion in fire insurance policies. Examples: Misrepresentation. Material change. Termination procedures. Misrepresentation Misrepresentation voids the contract. Types: False description. Misrepresentation of material fact. Fraudulent omission. Material Change Definition: Changes increasing the risk of loss. Insured must notify the insurer promptly. Insurer options: Adjust premium. Cancel policy. Termination of Policies Termination by insurer: Notice period: 15 days (mail) or 5 days (personal). Refunds based on pro-rata premium. Termination by insured: Refunds based on short-rate premium. Salvage and Duties After Loss Insured must: Prevent further damage. Provide proof of loss. Insurer’s rights: Access for loss assessment. Contribution to salvage efforts. PACICC and Financial Protection Covers consumers in case of insurer insolvency. Pays claims up to $250,000 per occurrence. Refunds up to 70% of unearned premiums, max $700. Statutory Conditions in Insurance Contracts Govern fire insurance policies. Examples: Misrepresentation. Material change. Termination procedures. Salvage requirements. Misrepresentation in Detail Types: False description. Misrepresentation of material fact. Fraudulent omission. Contract void if linked to loss. Material Change Requirements Defined as substantial and ongoing. Examples: Change of use for property. Introduction of higher-risk activities. Termination Refunds Pro-rata refund for insurer termination. Short-rate refund for insured termination. Refunds must be processed promptly. Proof of Loss Requirements Must include: Inventory of damaged items. Description of loss circumstances. Details of other insurance policies. Checkpoi nt Challenge FOI Fraudulent Claims Fraud voids the entire claim. Honest mistakes are not fraud. Burden of proof on the insurer. FOI Salvage Requirements Insured must take reasonable steps to prevent further damage. Insurer contributes pro-rata to salvage expenses. No obligation to endanger personal safety. Entry, Control, and Abandonment Insurer’s right to access property for assessment. Insured retains control of property. Abandonment not permitted without insurer consent. Disputes and Appraisal Appraisal process settles disputes on value, not coverage. Triggered by written demand after proof of loss. Governed by the Insurance Act. Timeframe for Loss Payments Losses payable within 60 days of proof of loss completion. Policies may specify shorter periods. Replacement Instead of Payment Insurer may opt to repair, rebuild, or replace property. Notice must be given within 30 days of proof of loss. Repairs must begin within 45 days. Statutory Condition: Fraud Fraudulent claims void the entire claim. Insurer must prove intent to deceive. Honest errors do not constitute fraud. Misrepresentation in Insurance Applications False descriptions or omissions impact insurer decisions. Contract void if misrepresentation is material to loss. Waiver of Terms or Conditions Changes must be in writing and authorized by the insurer. Interim changes require written agreement. Statutory Conditions: Material Change Defined as a substantial and ongoing risk increase. Examples: Change in property use. Introduction of hazardous activities. Termination: Notification and Refunds Insurer-initiated termination requires notice and pro-rata refund. Insured-initiated termination results in short-rate refund. Rights of Subrogation Insurer assumes insured’s right to recover losses. Applies after claim payment. Statutory Conditions: Notice Requirements Notices to insurer must be in writing. Notices to insured delivered personally or by registered mail. Fraud: Insurer’s Burden of Proof Insurer must demonstrate deliberate intent to deceive. Honest mistakes do not void claims. Responsibilities After Loss Insured must: Report the loss promptly. Submit proof of loss. Prevent further damage. Replacement Options in Claims Insurer can opt to repair or replace instead of paying cash. Decision must be communicated in writing. Statutory Condition: Requirements After Loss Promptly notify the insurer of the loss. Submit a detailed proof of loss with: Inventory of damaged items. Circumstances of loss. Other insurance details. Statutory Condition: Fraudulent Claims Fraud invalidates the entire claim. Honest mistakes do not constitute fraud. Insurer must prove intent to deceive. Statutory Condition: Who May Give Notice and Proof Notice can be given by the insured’s agent if: The insured is absent or unable. The reason is satisfactorily explained. Other parties may give notice if entitled to claim. Statutory Condition: Salvage Obligations Insured must take steps to salvage property. Insurer shares reasonable salvage expenses. No requirement to risk personal safety. Statutory Condition: Entry, Control, Abandonment Insurer’s right to access property for damage assessment. Insured cannot abandon property without insurer’s consent. Statutory Condition: Appraisal Process Resolves disputes over value, not coverage. Triggered by a written request. Governed by the Insurance Act. Statutory Condition: Loss Payment Timeline Claims payable within 60 days of proof of loss submission. Some policies allow shorter payment periods. Statutory Condition: Replacement Clause Insurer may repair, rebuild, or replace instead of cash payment. Must notify insured within 30 days of proof of loss. Repairs must begin within 45 days. Statutory Condition: Limitation Period for Legal Action Legal action must be initiated within one year of the loss. Some legislation may allow a longer period. Statutory Condition: Notice Requirements Notices to the insurer must be sent to the head office or chief agency. Notices to the insured must be delivered personally or by registered mail. Summary of Key Regulatory Principles Federal and provincial roles in regulation. Importance of financial solvency and PACICC protection. Statutory conditions for insurance contracts. Questions? FOI