A Pricing Model for Underinsured Motorist Coverage

Underinsured Motorist (UIM) coverage, also known as Family Protection coverage, is a component of most Canadian personal automobile policies, with similar coverage existing in many American states. Traditional ratemaking methods are not appropriate for UIM due to poor credibility of available data as well as the unique characteristics of the UIM coverage. A substitute pricing model is presented that takes advantage of the association between UIM coverage and increased-limits liability coverage. The Ontario auto insurance industry is analyzed to determine the level of adequacy of UIM rates in light of current industry trends.