Accident Forgiveness In Automobile Insurance: Introduction, Background, Problem Statement, And Justification

1. Introduction

Describe about the Accident Forgiveness in Automobile Insurance.

Generally, if any auto-insurance policyholder gets engage in any kind of car accident, whether fully at-fault or partly at-fault, the insurance rate use to become higher following the accident.  The “Accident Forgiveness” policy has been introduced to safeguard the interest of the policyholders in such incidents. It provides the assurance that the insurance rates will remain same after the accident at-fault. Mostly, the policy is applicable only for the first at-fault accidents. Normally, the insurance companies provide this policy in the car insurance policies. Sometimes, the policyholders can buy the policy additionally to the auto insurance. The research has described that though it is an important clause in the auto insurance policy, most of the time, the description is not used to be mentioned properly in the policies and hence, meticulously worked on the points that should be included in the policies regarding the disclosure of accident forgiveness features.

For the last few years, accident forgiveness is being the most highlighted features in the insurance sectors. Most of major insurance companies have included the feature in its car insurance policies and used it for the advertisement campaigns to attract more policyholders. The companies are also providing different lucrative terms in accordance to the feature. It has been observed that many of the policyholders are using this feature and the competition amongst the insurance companies for their own benefits. As the clause of accident forgiveness is applicable for the first time accident, many policyholders use to change the insurance companies after committing any accident to enjoy the privilege of the clause for several times. The insurance companies are getting very much concerned about such malpractices. Therefore, many researchers are working on the issue to find out the suitable solution to prevent the malpractices, as well as, to increase the loyalty of the policyholders towards the individual insurance providers.

As discussed earlier, the accident forgiveness feature is more highlighted on the billboards by the insurance companies, rather than giving more focus on the contents of the clause. The insurance contracts do not contain any detail norms and regulation about the feature. Many people use this loophole as an advantage. In this research, the main importance is given on an optimized policy contract that will include the specific norms related to the accident forgiveness so that policyholders will not get any scope to avoid the related consequences for multiple accidents just by switching the insurance providers one after another. The research will be able to provide proper guidelines to the insurance companies in this regard. Apart from that, it has also focused on the effective promotional strategies by which the insurance companies can retain the risk-averse policyholders as well as attract the risk-free clients (Berdoulat et al., 2013).

Background of the Research

From the present scenario of the insurance industry, it is very clear that the insurance companies are suffering from the diverse effect of excessive competition. Even a careful & skilled driver can also cause an accident. Hence, the concept accident forgiveness was developed to save such drivers from the rate growth due to accidents for single time and provide them a chance to maintain the same insurance rate. But, the insurance companies have used it for attracting more customers. Now the customers are using the benefit for their own interest and capitalizing the rivalry in the insurance industry. The companies are now very much unable to sustain a steady client list. Moreover, many of the policyholders have become more careless while driving as they have now found the solution to avoid the rate increase due to multiple accidents. For these reasons, the insurance industry requires a permanent strategy which will be able to block the disadvantages of accident forgiveness and prevent the policyholders to enjoy the unethical benefits of the policy.

The solution cannot be ascertained by joint meetings and planning. The insurance companies should have to collect the information of the clients, from different groups in respect to the age, gender, income, profession etc. and have to analyze the information to understand their psychology. Then only, they will be able to come into a solid conclusion. This is a typical job for the researchers and should be carried out by following a suitable research methodology.

The research will provide permanent solution of the present issue, faced by most of the insurance providers. It will be able to stop the unethical practices of the customers also.

Personal Motivation:-

I have been planning to join in the customer related service sector and insurance is one of my most preferred industry. The research will help me understand the activities of the insurance industry in more detail. Moreover, if I join in an insurance company, the research result will help me to earn a respected position in the company also. Apart from that, if my employer company face any same kind issues in future, I can provide my assistance to them with the experience, which I have gained from this research work.

Problem Statement:-

The main problem, on which the research is based on, is the unavailability of any uniform policy regarding the accident forgiveness clause in the auto insurance policy contract.

Significance of the Research

Justification of the Research:-

The issue should be solved to stop the malpractice of the policyholders, who are taking unethical advantages of the accident forgiveness policy.

Deliverables of the Research:-

The main deliverable, which can be achieved at the end of the research, is the proper description of the accident forgiveness policy and the set of general uniform norms & regulations, which should be maintained by the insurance industries on a whole.

Research Type:-

The research topic is related to the behavioral pattern of certain policyholders in relation to the certain insurance policy. Hence, this research is worked out as per the behavioral research pattern.

Delimits:-

The research is conducted for deriving appropriate norms, which can cover the loopholes of accident forgiveness policy. The purpose of the research is to provide a better solution, which can be enjoyed by both the insurance providers and policyholders,. The purpose does not include any intention to make the policy stiffer, which may cause suffering for the policyholders (Sloan et al. 2014). 

This segment of the report describes the accident forgiveness and its misapplication by many policyholders. The researcher has given focus on the actual objective of accident forgiveness and how it has been mistreated in reality. By going through the history of the insurance, it may be stated that the policy of increasing insurance rate for accidents was established as many of the policyholders were intentionally causing accidents so that they could use the insurance coverage for earning gains or replacing old vehicles with new ones (Brandmaier, et al., 2014). To stop such practices, all the insurance companies jointly decided to increase the rates after any at-fault accidents. This policy helped to such malpractices, but, on the other hand, the policyholders, who never follow such malpractices, had to suffer significantly. Accident should always be avoidable, but, it is a fact the safe drivers also might cause an accident (Husni et al., 2014). In that case, though they have done it without any wrong intentions, they have to bear the penalty in terms of high insurance rates from the next periods. It created diverse effect on the normal insurance policyholders. If, they met an accident they began to switch insurance providers. Moreover, the new policy could not stop the malpractices for which it was started though it was able to decrease the amount of such events. Hence, to facilitate the normal policyholders, the insurance companies started the accident forgiveness policy. But again due to the high competitiveness in the insurance market, many people is utilizing the policy for their own personal gains. The researcher are trying to final solution so that this kind of malpractices can be stopped forever (Nicoletti, 2016).

Overall Problem

Many of the researcher depicts that the main reason for such misapplication of the policy is caused due to the cut and throat competition amongst the various insurance providers. Whenever, any policyholder met an accident, they use to find alternative insurance providers for new agreements. The rival companies, on the other hand, to increase its client list and beat the competitors in term of revenue, does not mind to offer a new agreement to such policyholders. Hence, every time the policyholders meet an agreement, they replace the existing insurance company with a new one. It was noticed in few cases that after shifting the companies for several times, the policyholder had make new agreement with the company, with whom he had made the first contract and the company had also agreed to go for new agreement with such client (Luz, 2015).

The competitiveness may have helped the unethical policyholders, but the actual problem lies within the concept of the policy itself (Collins & Smith, 2016).  If all the companies apply a general set of norms for the policy and maintain it strictly then policyholders will not have scope to misuse the policy (Avraham, 2012). Moreover, if the companies maintain a common database for the accident details of the insured cars, then whenever any policyholder will try to shift the insurance provide after any accident, the company will get the information about the last accident and will charge the increased rate accordingly (Oldham et al.,2014).

Researchers have conducted research on various aspects of auto insurance. It has provided significant support to the present research. These research works are used as the sources for different theoretical information, which has helped to draft the general norms for accident forgiveness.

Risk Factor:-

The success rate of auto insurance should be ascertained on the basis of the risk factors. According to Liu (2015), the policyholders select the insurance policies as per their personal risk analysis. The decision-making process, related to insurance selection, depends on the degree of risk- aversion of the individual client.

Reward Policy:-

The insurance companies have included reward policies in auto insurance contracts to lesser the accident rates. They are providing monetary reward or cut-off in insurance rates if the car owners do not meet any accident within a given period. It has helped to turn the risk-free clients into steady policyholders (Lemaire, 2012).

Type of Accident Forgiveness Policies:-

As mentioned above, there are different accident forgiveness policies. Some are purchasable separately apart from the auto insurance policy, whereas, some are provided by the insurers in addition to the main contract.

Broad Aspect of the Research

Summary:-

By analyzing the literature review, it is very much clear that the most of the researchers have focused on the effect of accident forgiveness clause. The research works do not include any its application by the policyholders. Hence, the issue of this research has not been analyzed deeply. This is the main reason that there is no solution, found for this issue still now (Jaspersen, 2015).

Study Design:-

The suitable study design for this research is Behavioral Research Design. Behavioral Research Design is the study design, which uses to set the structure of research for evaluating the information and finding the solution by analyzing the results of the measurement process (Babbie, 2015). The following chart is presented to describe the structure of the design:-

The above structure exhibits how the research work will be executed and what result can be deduced from the research.

Expectation from the Research:-

As the chart shows, the very first step to start any research work is to set the objective or goal of the research. In this case, the main expectation of the research is derive an uniform and permanent solution of the problems, created for the improper application of Accident Forgiveness clause in the Auto Insurance policy (Tesch, 2013).

Process of Research:-

The next step of research design is the execution of research. For this part of research, the researcher should select an appropriate research methodology, that suits with the nature of the research. Many research techniques are there for conducting research works. Amongst them, Qualitative Research Methodology is the most suitable process for the present research (Stangor, 2014).

Process of Deducing the Result:-

The final step of the research is to summarize the information, derived from the research and to draw the conclusion from the information. The researcher use to analyze the information and deduce the result from the net outcome of the information or by putting his own knowledge and experience (Brown, 2015).

Research Planning:-

For executing the research work as per the research methodology, the researcher should maintain proper planning (Marshall & Rossman,2014). The planning includes various procedures for each step of research. As discussed earlier, the research work is being executed by applying Qualitative Research process.

Qualitative Research Process:-

Qualitative research process can be defined as the research procedure where the researcher use to collect information on specific object, analyze the gathered information inductively, gives focus on the purpose of the research and explains the suitable process which is significant and convincing in language (Taylor et al., 2015).

Personal Motivation

Steps of Qualitative Research Process:-

The steps of the qualitative research process, applicable for the present research work is described in the following table (Creswell, 2015):-

Proposed work plan can be referred as the time schedule for the research work. It helps the researcher to complete the research work within the scheduled time-period (Kerzner, 2013). By the proposed work plan, researcher can be able to ascertain the completion period of the research work. If any delay occurs, the researcher can also get an idea about on, which step the extra time was consumed, from the proposed work plan.

The proposed work plan for the present research work is presented in the following Gant Chart (Liu et al., 2014):-

Research Activities	23/5/16	1/6/2016	15/6/16	15/7/16	5/8/2016	26/8/16
Weeks	Weeks	Weeks	Weeks	Weeks	Weeks
Research topic selection
Collection of Secondary data
Layout making procedure
Review of Literature
Proposed Research plan
Selection of research technique
Primary data collection
Analysis of data
Finding of data
conclusion
Rough draft
Research work submission

6. Conclusion

There are many factors, which should be considered for the further analysis of the topic. The issues related to accident forgiveness clause can be solved by proper implementation of appropriate norms, but for that all the insurance companies have to give joint efforts and the maintain the norms strictly as the other insurance policies.

Reference List:-

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Brown, T. A. (2015). Confirmatory factor analysis for applied research. Guilford Publications

Collins, D. M., & Smith, B. (2016). U.S. Patent No. 20,160,086,393. Washington, DC: U.S. Patent and Trademark Office

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Jaspersen, J. G. (2015). Hypothetical Surveys and Experimental Studies of Insurance Demand: A Review. Journal of Risk and Insurance

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Liu, F. (2015). Accident Forgiveness in the Automobile Insurance Contract.International Journal of Economics and Finance, 7(3), p68

Liu, Y. C., Gao, H. M., Yang, S. M., & Chuang, C. Y. (2014, July). Application of Genetic Algorithm and Fuzzy Gantt Chart to Project Scheduling with Resource Constraints. In ICIC (2) (pp. 241-252)

Luz, V. F. (2015). Dynamic competitive insurance. Discussion paper, University of British Columbia

Nicoletti, B. (2016). Innovation in Insurance. In Digital Insurance (pp. 6-46). Palgrave Macmillan UK

Oldham, C., Hobart, M. F., Krieter, D., Porras, J., Herrmann, J. R., & Wojcik, J. P. (2014). U.S. Patent No. 8,719,135. Washington, DC: U.S. Patent and Trademark Office

Sloan, F. A., Robinson, P. A., & Eldred, L. M. (2014). Does Private Information Influence Automobile Insurance Purchase Decisions? (No. w20679). National Bureau of Economic Research

Stangor, C. (2014). Research methods for the behavioral sciences. Nelson Education

Taylor, S. J., Bogdan, R., & DeVault, M. (2015). Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons

Tesch, R. (2013). Qualitative research: Analysis types and software. Routledge