insurance as a risk man tool

8/12/2019 Insurance as a Risk Man Tool

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INSURANCE AS A RISK MANAGEMENT

TOOL


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Property insurance can

protect you financially if

your home is destroyed or

your possessions are stolen.


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CONTRACT OF INSURANCE

Inbetween the insured and insurer

INSURED:- Party effecting insurance,

(Individual, Company, Firm,

Corporate body etc., withlegal status)

INSURER:- Party granting the protection

under an insurance policy.

Policy:- Is the evidence of contract


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Insurance contracts are governed by laws of Jamaica

which states that to be legally valid following

elements should be in order.

A. Offer and acceptance

B. Consideration

C. Agreement between the parties

D. Capacity of the partiesE. Legality of the contract


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UTMOST GOOD FAITH:

The greatest degree of good faith by law, is

expected from the proposer, that is the main

reason why good faith in case of Insurance

contracts becomes UTMOST good faith.

It is the duty of the proposer to disclose all

material facts not only already known but alsoextends to material facts which he ought to

know.


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Real propertyis property attached to land, like a house,

business, garage, or other building.

Personal propertyconsists of possessions that

can be moved, like furniture, jewelry, and

electronic equipment.


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Liability insurance protects you from the costs of injuries

to others on your property.

Pays for:

Actual damages for which you are held liable

Legal expenses for the accident in case youre sued


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Standard fire policyinsures against damage due to

fire or lightning.

Extended coverageprotects against damage

from riots, car or airplane crashes,

windstorms, hail, and even explosions.


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The basic policy usually protect against personal

liability and property destroyed by:

Fire/lightning Smoke Windstorms/hail Vehicles

Explosion Property removed in

danger of fire etc.

Riots Aircraft Theft Vandalism

Breaking glass


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Capable of being acquired, owned, used

A legally protected right or interest over which the owner

has the ability to exercise dominion.

A bundle of rights - that are recognized and enforced bylaw, and protected under the Constitution.

Property has a unique status, second in importance only

to liberty.

No person shall be deprived of life, liberty or property,without due process of law ...and just compensation.


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The earths crust and allthings firmly attached.

Immovable

Includes subsurface rights,

i.e., minerals Includes rights above land,

i.e., radio towers

Trees, shrubs, perennialvegetation

Fixtures - Can it be removedw/o material damage? Whatis the partys intent; the

purpose of the item?


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Acquired and transferred easily.

Intangible - Intellectual property (patents, copyrights);stock;

commercial paper (notes)

Tangible - Anything that has a physical existence, generally

moveable, cars, computers, books, animals, severed trees,

crops that must be planted each year, i.e., corn, oats, potatoes


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Buy it (Sale of Goods)

Create it (knit a sweater)

Take it (capture a deer)

Trade it

Inherit it

Receive it as a gift

Find it (abandoned or lost property)

By accession By divorce

By Confusion


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Voluntary transfer without consideration,

3 elements are needed:

Donors present intent to give a gift Donor must make delivery of the gift

constructive delivery

Acceptance

Inter vivos Irrevocable

Causa mortis

Contingent upon death

Must die as anticipated Revocable


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Lost -unintentionally left. Finder is entitled to the

property against everyone except the true owner.

Exception for lost property found in the ground.

Estray statutes

Mislaid- Intentionally placed somewhere and accidentally

left with no intent to relinquish ownership. Finder acquires

no rights. Owner of premises, not finder, has first claim.

Abandoned - Intentionally left. Intent to relinquish

ownership. First finder entitled to the property.

Unclaimed Property escheats to the state


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The mixing or putting together of property so that it

becomes difficult to distinguish who is the owner of their

own individual property

Co-mingling of fungible goods (oil, grain) Accident, Mistake, Agreement, each owner will bear the

loss in proportion to his share

By willful or wrongful act, he may lose his interest.


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INSURABLE INTREST

In nutshell if property is the subject matter of

insurance then the subject matter of insurance

contract is the insureds pecuniary interest in

that property.

LEGAL RIGHT TO INSURE IS THE

INSURABLE INTEREST. Insurable Interest isrequired to support the contract of Insurance in

order to make it legal, other wise the contract is

null and void.


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Insurable interest - A person has an insurable interest if the

insured will derive an economic benefit or advantage from

its preservation, or will suffer economic loss or damage

from destruction. Must exist when the loss occurs but not necessarily at

the time the policy is issued

Acquired when goods are identified.

Persons other than owners can have an insurable interest,i.e, lessees, secured creditors, grantors liable for a

mortgage


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HOW INSURABLE INTEREST ARISES:

1. By ownership

2. By Law3. By Contract

4. By Legal liability

5. Interest of a Person in Life


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WARRANTY:

means an assurance by the assured, that hewill not do some particular things or will

fulfill any conditions that are laid in

advance.

WARRANTIES are further classified as

express or implied.


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ASSIGNMENT

Assignment means transfer of rights and

liabilities of an insured to another person whohad acquired insurable interest in the property

insured.

Fire policies have to be assigned with the

consent of the insurers, where as Marine cargo

policies can be freely assigned without the

knowledge or consent of the insurer. This isbecause the ultimate buyer is not known at the

time of taking the cover.


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Entitles the insurer, to the extent it has paid for a loss, to anyrights of its policy holder to recover from any third party.

If a loss is covered by the insureds own negligence,

subrogation does not apply.

Not applicable to life insurance and rarely to health insurance

Subrogation precludes double recovery for the same loss


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Methods of indemnification:

1. Cash payment

2. Repair

3. Replacement4. Reinstatement.


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Mode of indemnity:

Buildings:

the cost of reinstating or repairing the

damaged portion, is assessed, and fromthat an appropriate allowance is made

towards depreciation, depending on the

age and condition of the building.

Allowances are made for improvement

due to repairs.


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Household goods:

Consideration similar to those applicablefor machines.

Stocks:In case of wholesalers or retailers, the

measure of indemnity is the price at

which he will be able to replace his

goods. The element of profit will not betaken care of.


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Motor:

If the vehicle is a total loss, the sum insuredor the value of the vehicle, which ever is

less is paid.

If the vehicle is damaged the cost of repairs

is paid, if parts are replaced the cost of newpart will be subjected to depreciation.

In all the cases age and general maintenance

of the vehicle are considered.


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Under insurance: Property insurances are generally

subject to the condition of average, and if there has

been under insurance, only that portion of the loss is

payable.

Ex. value of property : $20,000

Sum insured : $15,000

Loss assessed : $10,000

Amount payable will then be:

15000 x 10000 = 7500

20000The insured is then considered as his own

insurer for the difference of the liability.


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EXCESS OR FRANCHISE

In some policies an EXCESS or

FRANCHISE is incorporated, which means

that under certain circumstances a part of theloss may have to be borne by the insured.


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SALVAGE

Property which is saved from loss ordamage and still has some commercial

value is called salvage.


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CONTRIBUTION:

An insured may have taken many policies on the same

subject matter.

The principal of contribution would lead to a situation in

which the insured would be able to recover his loss from

any one insurer, who then will have to effect proportionaterecoveries from other insurers concerned.

Normally the insurers seek to control additional insurances

at the proposal stage itself.

Remember at no cost an infringement to the principle ofindemnity is accepted. The principle of contribution does

not apply to personal accident policies.


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PROXIMATE CAUSE

Means the DIRECT, DOMINANT or effective causeof which the loss is the natural consequence. It is the

cause which is most closely connected with the loss,

not necessarily in time but in efficiency.

Although the doctrine is clear in theory, it is difficult

to determine the proximate cause, as a clear

demarcation should be maintained between insuredperil, excepted peril and un insured peril.


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Example:

An insured sustained an accident while hunting. Due

to shock and weakness, he was unable to walk andwhilst lying on wet ground, he contracted cold

which developed into pneumonia causing death

ultimately.

The proximate cause was considered to be the

accident and not the pneumonia, the disease, which

was only a remote cause. The claim was payable

under personal accident policy.


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Exercising the right to rescind, abandon, abrogate or

otherwise terminate a contract of insurance.

The form and the notice of proper cancellation are

determined by provisions in the policy.

Both the insurer and insured can cancel.

Restrictions on cancellation may apply (statutes,

administrative regulations) may require that insurers give

proper reasons for cancellation or nonrenewal.


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Covers direct fire damage, and damage from smoke

chemicals, water

Also, policies usually cover wind, hail, and other forces of

nature (not hurricanes) Pays insured a specified amount for property loss. Does

not indemnify for lost profits, business interruption or

other special matters unless there is a rider attached.

Friendly Fire/Hostile Fire


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Fire insurance policies may be issued on REINSTATEMENTvalue basis.

Although the insured gets new property which is in similarcondition and of same kind,

To protect the basic of idea of indemnity the property will not beof superior nature.

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Protects your

home or personal property from the eleven perils

Provides for Additional Living Expenses

pays for the cost of renting another place to live if your

home is damaged

Provides Liability protection

.


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Insurance companies recommend that you insure your homefor 80 percent of its market value.


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Insure personal property for

Actual cash value

Replacement valuefull cost of repairing orreplacing property


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Deductible

Location

Fire department

Crime

Type of Building

Brick vs. Wood

New vs. Old


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Preventive Measures

Deadbolts

Burglar alarms

Smoke detectors

Fire extinguishers or sprinklers


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Insured can be fully protected up to a percentage (usually

80%) of the value of the property.

Encourages policy holders to insure property for an

amount that is near to its full replacement cost.

The coinsurance requirement applies only to partial losses.Total losses result in recovery of the face amount of the

policy.

Recovery = Face Value of Policy X Loss

FMV of Property X Co-insurance %


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$60,000 (Policy) X $50,000 = 37,500

$100,000 X 80%

Insurer pays $37,500


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Graham is entitled to collect $36,600. Graham should

have carried $96,000 fire insurance if the building was

valued at $120,000 and the policy contained an 80% co-

insurance clause. Since the property is under insured, theamount recoverable is computed by multiplying the

amount of loss ($48,000) by a fraction, the numerator of

which is the amount of the policy and the denominator of

which is the amount the policy should have been

($72,000/$96,000)w

insurance as a risk man tool

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