insurance as a risk man tool
TRANSCRIPT
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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