Rescued by Spread of Risk

Today’s driver does not worry about accident statistics as promulgated by any authority from insurance companies, to both provincial and federal transportation boards, as well as private enterprise. Even the grim truth evoked by the “Fatal Seven-Tenths,” while not largely broadcast as society views it too ghastly and spectral, is ignored. If its story were publicly advertised would drivers be more apt to contemplate their abilities subsequently applying more consciousness to their driving efforts? Or, would human tendency turn the switch of self-awareness off, rendering the information worthless?

The reasonable supposition is that regardless of any amount of accident prevention, the inevitability of auto accidents will continue to be reduced. However, are death or serious injury preventable; can costs be controlled? Likely not. So, the question is how does the insurance industry cope with the inevitable persistence of an auto accident?

DRIVING THE LOSSES

The basic premise of a professional risk bearer for any line of insurance is that loss is unexpected. The chance of loss occurring is however, neither repudiated nor unsuspected. If an insurer knew that a loss was inevitable, they would not take the risk. That is a basic assumption but it takes on a different perspective in terms of auto insurance because accidents are bound to happen – and they do. Yet insurers take the risk.

In certain traffic situations motorists takes risk, such as running a red light – a potential accident in the making. An auto accident could happen, today, tomorrow or the next day with the extent of damage or injury an unknown factor.

Auto accidents can be caused from: momentary inattention – a rear-ender; extreme speed – going too fast to avoid an accident or the careless actions of another driver; failure to signal or turning into oncoming traffic. These and other explanations will provide information as to what happened immediately prior to impact but they do not explain the real reason as to why the accident happened in the first place. Any number of outside influences could impair judgement and rob the driver of sensibilities. It is impossible to know what a driver may have been thinking up to the point of impact. So, the question persists – why does auto insurance exist if there is no way to predict or control it and it is inevitable?

Auto insurance is not a concession to defeatism. An unknown quality exists to auto insurance, as it is completely unlike any other kind of insurance – one that represents a major force of income for insurers. While auto insurance necessitates unavoidable claims payments, it is integral to many companies overall operations and so the science of spread of risk was implemented as a rescue device.

DUAL FEATS OF SPREAD OF RISK

Spreading risk allows optimum underwriting results by facilitating diversity of risk. According to Walter Braddock, Insurance Institute of Canada, within its framed charter and reinsurance facilities an insurer will seek to venture into as many insurance classes as possible to avoid the mistake of “eggs in one basket” underwriting. Braddock adds that it is the expansive pool created by the premium from many dissimilar classes of insurance will pay the claims of the few, although an insurer who is an expert in a particular field can successfully invest into one main class of insurance and still overcome the vagaries. Spread of risk is also explained as a principle of insurance that insurers need to accept homogeneous exposure units spread over a wide geographic area, with the knowledge that only a given number of risks will result in claims or losses. This dispersion of exposure units, according to Mike Miller, managing director of Georgia-based Allcovered Inc., allows insurers to project expected losses from the entire body of insureds, which in turn lessens the potential for catastrophic losses that could effect exposure units in close proximity and allow for the development of rates.

AUTO ACCIDENT IMPETUS

Distribution is an integral factor in spread of risk as it allows the insurer to assume liability over a wide range of risks and localities thus avoiding the danger of exhausting resources in the event of one, or a series of claims.

A fundamental asset to the spread of risk doctrine is loss control as cost control. Revision to auto insurance laws assisted insurers in overcoming the former stumbling blocks inherent in loss and cost control. For example, the introduction in 1990 of the so-called “no-fault” auto insurance law recognized that accidents are not reserved for any one particular class of driver. However, the principle inherent in the introduction of no-fault auto insurance presents a platform for the view that auto accidents are predictable, anticipatory and prospective – all at once.

Predictable. The number of vehicles on the road and their close proximity to one another removes any doubt behind the certainty of auto accidents. Even if defensive driving is employed at every opportunity a collision is possible. Certain circumstances prefacing a non-preventable accident can outweigh any effort to avoid it.

Anticipatory. Road conditions, driver experience or attitude, needing no augmenting, are well-established precursors of accidents.

Prospective. There is a correlation between over-confidence and uncertainty in the ability to safely operate a motor vehicle due to slow reaction timing. Auto insurance is largely dependent on the characterization of the driver, a fact that is complicated when insurers try to determine the potential for expected loss. As a general rule, a driver with a clear conviction and accident record does not require excessive underwriting time. But it would be a mistake to believe that a driver with a clear record does not factor into the accident statistic equation. No driver is immune to the vagaries of vehicle operation or conditions a driver becomes exposed to. The theory is that a clear record driver will eventually become the more questionable risk for an accident because of factors such as over confidence or slow reaction time.

MASQUERADE: THE THREE FACES OF AUTO

Accident causation may therefore divide accidents into three categories, which propose to understand the segmentation of driver-type. The categories are defined as: preventable, non-preventable and accident-prone.

A preventable accident is the most egregious because of the extent that control could have been exerted to prevent its occurrence. Preventable accidents are the potentially the most serious because of negligence or gross negligence (wanton and willful neglect).

Predictable driver types are aware of what they are doing – conscious of the potential consequences. By ignoring the dangers implicit in their driving predictable drivers give credence to the theory that they are falsely confident in their driving abilities and thus ignore the inherent potential for an accident. Such arrogance may be a psychological trait that blanks out cognition of the possibility of a serious event. For this class of driver, examination into causation is compounded by the fact that outside stimulation may be the root cause of an accident not vehicle operation. Therefore, a momentary mental aggravation may dangerously exaggerate an already aggressive driving attitude. In fact, this class of drivers’ recognition of safety may send them headlong into a driving condition that will ultimately result in an accident. Re-training or other disciplinary action may be successful only temporarily.

A non-preventable accident proposes that a driver took every precaution to avoid an accident but the circumstances were beyond his means to avoid it occurring.

Non-preventable accident drivers pose two different sets of characteristics – the domineering attitude of aggressive vehicle operation and the effort to go beyond the duty of safe vehicle operation by deliberately taking steps to avoid an accident. The non-preventable driv er recognizes that striking back could have grievous consequences and they are not only thinking about their own lives but also the lives of others around them. Therefore, the forgiveness factor may be delivered as an antidote to an otherwise offensive attitude in reaction to the failings of other drivers.

Accident-prone incidents indicates that reaction time to braking or the ability to steer away from the ultimate point of impact were not in evidence due to a driver’s inability to think quickly and act decisively to avoid impact.

The accident-prone driver will receive forgiveness. Essentially, the attitude of this class of driver follows the behaviour of the non-preventable accident driver. Both approach the automobiles operation with a view that tells him to be as careful as possible. Both classes do everything possible to avoid an accident, with two exceptions. These exceptions are the accident-prone drivers ability to think and act decisively.

MOTIVATION BEHIND MOTORIN’

Driver type, driving conditions and cerebral root causes of accidents are all part of the motoring scene. Unfortunately, certain factors contributing to an accident will be apparent while others will not. Automobile accidents are inevitable regardless of how we may stage the underwriting process to determine acceptability. The risk inherent in auto insurance will continue to show varying degrees of profit and loss. It is not an easy task to insure auto and the underwriter who chooses to make a decision on acceptance or otherwise, must be congratulated for being able to separate the good from the bad on whatever little evidence a judgment can be based.