Spring 2016 8
When asked to describe why residual market programs for auto insurance are necessary one of the sample answers is "Automobile insurance is compulsory (mandatory, required)" but in the examiners report it states that candidates were not given full credit for incomplete answers such as “auto insurance is mandatory”. This seems to be a restatement of the sample answer and it is saying that you will not receive full credit for such an answer, what should a sample answer look like?
Comments
In this question (part c), it looks like the examiners defined a correct answer as one which includes an aspect of insurance distribution and a way in which residual market helps achieve that aspect. The answer key says "at least one item from each of group A and B," but I imagine they'd be looking for specific pairings of those items.
In that vein, "auto insurance is compulsory" should be paired with "high risk drivers may not find insurance in the voluntary market." They mean to say that giving one of these items alone does not complete the thought.
Furthermore, part B asks how RF profit and loss are shared. The examiners report states it is based on a formula and the common errors include stating that a RF is shared by market share... but the battlecards and readings state that it is shared by market share in the voluntary market for a RF... is the examiners report wrong?
Yes, examiner's report seems to be wrong in this case.
Hi, also for part b), does that mean the other sample solution for RF is wrong too, it states "Periodically losses and operating expenses ..." I found this part confusing, what's periodically losses? Also, there is no direct reimbursement of losses to the insurers, right?
That phrase means that the RF "assesses" insurers for the pool's losses, i.e. they require payment from insurers for these losses according to their voluntary market share.
Insurers don't get reimbursed for losses; RF pays losses and then assesses the insurers.
This discussion may help you with some of the fine points of this topic:
https://battleacts6us.ca/vanillaforum6us/discussion/27/jua-and-rf#latest