Glossary of Terms

Insurance

There are two types of insurance as defined by the Insurance Act– life and other than life. Within the other than life category, property and casualty insurers offer automobile insurance. Many insurers not only offer automobile insurance, but also offer homeowners policies and other types of insurance.

Insurance is essentially the pooling of risk. When consumers pay insurance premiums they are putting our money in a pool with others. This pool is then used to meet the claims of those who, in the case of automobile insurance, have been involved in an accident and who have suffered a loss.

Standard Automobile Policy

The laws of the Province currently require that vehicles registered and driven in New Brunswick must be insured to minimum levels and provide minimum coverage for consumers. The coverage includes:

Liability Insurance: Sometimes called PLPD or Section “A” Coverage, this covers you as a vehicle owner and as a driver if you injure someone or damage someone else’s vehicle or property with your car. The minimum requirement in New Brunswick is $200,000, although many New Brunswick consumers choose to carry additional coverage.

Accident Benefits: This is also referred to as Section “B” coverage. This is a “no fault benefit” that provides medical and rehabilitation expenses, funeral benefits, death benefits, and loss of income benefits. Because it is a “no-fault”coverage, it is payable by your own insurer and is payable even if you are at fault for the accident.

Uninsured and Unidentified Insurance: Also know as Section “D” coverage, this coverage protects individuals in the event that you as a driver are involved in an accident with an uninsured driver or in a hit-and-run accident where the automobile or driver cannot be identified.

In addition to these mandatory coverages, there are optional insurance coverages (Section “C” coverage) that many choose to purchase. These include:

Collision or Upset Insurance: This covers damage to your own vehicle, regardless of who is at fault – that is it is payable even if you are at fault. There is usually a deductible by which any claim is reduced. The amount of the deductible affects the rate of the coverage.

Comprehensive Insurance: This covers such risks as damage to your own vehicle caused by theft, vandalism, or fire. There is also a deductible for this coverage, except for theft or fire.

Insurance Premium

The money that is paid for insurance is called a premium, and premium amounts are based on the type of coverage and the amounts of coverage that you have. The actual amount that is paid is based on an insurance company’s assessment of the risk the company must assume to insure your vehicle.

In assessing this risk companies use various factors including your age, sex, marital status, where you live, the type of vehicle, the age of the vehicle, what you use the vehicle for, how many kilometers you drive in a year, your driving record and that of anyone else on the policy, if you have had claims on you policy, etc.

No-Fault

No-fault is a system whereby all benefits are paid by the insured’s own insurance company, that is your own company pays you regardless of fault. The no-fault system concentrates on rehabilitation of injured parties. It provides no or limited compensation for non-economic loss, such as pain and suffering and there is generally no right to sue. Compensation for property damage and personal injury are made up to pre-determined limits. There are presently two completely no-fault jurisdictions in Canada - Manitoba and Quebec. Until this year Saskatchewan has operated under a full no-fault system, however that province now has a choice system, whereby consumers may choose to purchase a no-fault policy or a tort policy. It is important to note that even under a no-fault system, fault is still determined for driving record purposes and may affect the premiums of the at-fault driver.

Tort

A “tort” is a wrong or an injustice committed by one person against another. Tort law is an area of legal practice where a “wronged” party sues the party that it views responsible for the wrong. Under a tort-based automobile insurance system, it is the responsibility of the party at fault to recompense the innocent party and to place the innocent party as close to a position as possible before the accident. Under a tort system, individuals have the right to sue for both economic loss and for pain and suffering.

Benchmark System

Until 1997, New Brunswick operated under a “benchmark” system. Under this system, the Public Utilities Board assembled information from industry on premium income, claims, future trends, etc. and established a benchmark rate to be charged by insurers for automobile insurance. If insurers wished to charge rates that fell within 5% of the benchmark, they could do so. Companies were, however, required to appear before the Board, with certain limited exceptions, every two years. If, however, they wished at any time to charge rates that were greater or lesser than 5% of the benchmark figure, they were required to appear before the Board.

File and Use System

New Brunswick currently operates under a “file and use” system of rate regulation for regular market insurers. Rates are filed with the Public Utilities Board. The Board has the ability, if it determines that the rates charged are excessive, inadequate or discriminatory, to investigate the rates and to confirm those rates or to modify them. Otherwise, insurance companies may use the rates that they have filed with the Public Utilities Board after 30 days of filing. The Facility Association is still required to appear before the Public Utilities Board for any rate change.

Facility Association

Because automobile insurance is compulsory for all drivers in New Brunswick, there must be access to insurance for all drivers, including high-risk drivers. For those drivers who are not able to buy insurance through a regular market insurance company, there is access to coverage from the “Facility Association” or “FA”. The Facility Association is a not-for-profit group of insurance companies that pool resources through which they insure high-risk clients.

Territorial Rating

New Brunswick permits territorial rating of all coverages other than the third party liability (Section "A”) portion of the insurance contract. New Brunswick is the only province that does not permit territorial rating of this portion of the policy (other than Prince Edward Island where there is only one territory for the entire province for all purposes).

Territorial rating is premised on the fact that based on the claims experience of the place of residence of the insured, there is a risk to be considered in insurance coverage. This might include such factors as weather conditions, distances normally traveled for work purposes, road conditions, the number of automobile thefts, etc that are applicable to the particular coverage.

Underwriting Guidelines

The determination of whether or not an insurer will accept a risk is based on its underwriting practices. Different insurers can and do concentrate on different risks to determine its market. Generally speaking, those insurers that are willing to tolerate more risk would respond by charging higher rates.

To permit agents and brokers to determine if companies are willing to accept risks, companies develop underwriting guidelines. Underwriting guidelines are not currently regulated in New Brunswick. Common underwriting guidelines include factors such as the age, sex, marital status, how the vehicle is used, your driving record and accident record and that of anyone who regularly uses your vehicle and the type of vehicle and value of the vehicle.