Legal Concepts Of Liability Insurance 2010Annette Ardler
THis course addresses liability insurance and the legal concepts associated with it. During the course, students will gain an understanding of the following concepts: Four Types of Exposures: Test for Negligence; Defense and Conditions for Negligence; Duty to Defend; Claims Settlement and Payments by Policy Structure
Insurance is a social device for spreading the chance of financial loss among
a large number of people. Insurance protects against pure risk.
Risk is the possibility of losing economic security.
Risk can be of two kinds: speculative or pure And only pure risks are insurable
Pure risk involves only two possible outcomes:
loss or no loss, with no possibility of gain or profit
Speculative Risk
involves three possible outcomes: loss, no loss or profit
The Law of Large Numbers:
The average of the results obtained from a large number of trials should
be close to the expected value.
Underwriting:
The process of selecting certain types of risks that have historically
produced a profit.
Peril:
A potential cause of loss. Accident, fire, and theft are common perils.
Hazard:
Anything that increases the seriousness of a loss or increases
the likelihood that a loss will occur.
Adverse Selection:
Is the tendency of person with a higher than average chance
of loss to seek insurance at the average state, which if not
Controlled by underwriting, result in higher than expected
Loss levels.
Insurance is not same as gambling. Gambling is creat a new
speculative risk and socially is unproductive but insurance
Deals with pure risk and socially is productive.
Insurance is not same as hedging. Insurance involves the
Transfer of pure risk and reduce objective risk but hedging
Involves just the transfer of speculative risk not risk
Reduduction.
Types of Insurance:
Private insurance, consist of health insurance, property and
liabilty insurance.
Government Insurance, cnosist of social insurance and other
Government insurance programs.
How does insurance work?
You pay a fee called a premium, and in exchange,
the insurance company agrees to pay you a certain
amount of money
-Basic Characteristics Of Insurance
Pooling of losses
Payment of fortuitous losses
Risk transfer
Indemnification
-Pooling of losses
Spreading of losses incurred by the few over the entire group.
• Key mechanism is “law of large number”.
• Future losses are predicted based on law of large number.
Note
• Pooling of loss is the spreading of losses incurred by the few over the
entire group so that in the process average loss is substituted for actual loss.
• The primary purpose of pooling is to reduce the variation in possible
Outcomes , which reduces risk.
-Payment of fortuitous losses
A fortuitous loss is one that is unforeseen and
unexpected and occurs as a result of chance.
Insurance policies do not cover intentional losses
-Risk Transfer
Risk transfer means that a pure risk is transferred from
the insured to the insurer,who typically is in a stronger
Financial position to pay the loss than the insured.
-Indemnification
Means that the insured is restored to his or her approximate
financial position prior to the occurrence of the loss.
- Insurable Risk
Insurer normally insure only pure risk.
Define insurance.
Differentiate between compulsory and non-compulsory insurance
Why would businesses need insurance
Difference between insurance and assurance
principles of insurance
Concepts in insurance
Grade 12 subject content
Legal Concepts Of Liability Insurance 2010Annette Ardler
THis course addresses liability insurance and the legal concepts associated with it. During the course, students will gain an understanding of the following concepts: Four Types of Exposures: Test for Negligence; Defense and Conditions for Negligence; Duty to Defend; Claims Settlement and Payments by Policy Structure
Insurance is a social device for spreading the chance of financial loss among
a large number of people. Insurance protects against pure risk.
Risk is the possibility of losing economic security.
Risk can be of two kinds: speculative or pure And only pure risks are insurable
Pure risk involves only two possible outcomes:
loss or no loss, with no possibility of gain or profit
Speculative Risk
involves three possible outcomes: loss, no loss or profit
The Law of Large Numbers:
The average of the results obtained from a large number of trials should
be close to the expected value.
Underwriting:
The process of selecting certain types of risks that have historically
produced a profit.
Peril:
A potential cause of loss. Accident, fire, and theft are common perils.
Hazard:
Anything that increases the seriousness of a loss or increases
the likelihood that a loss will occur.
Adverse Selection:
Is the tendency of person with a higher than average chance
of loss to seek insurance at the average state, which if not
Controlled by underwriting, result in higher than expected
Loss levels.
Insurance is not same as gambling. Gambling is creat a new
speculative risk and socially is unproductive but insurance
Deals with pure risk and socially is productive.
Insurance is not same as hedging. Insurance involves the
Transfer of pure risk and reduce objective risk but hedging
Involves just the transfer of speculative risk not risk
Reduduction.
Types of Insurance:
Private insurance, consist of health insurance, property and
liabilty insurance.
Government Insurance, cnosist of social insurance and other
Government insurance programs.
How does insurance work?
You pay a fee called a premium, and in exchange,
the insurance company agrees to pay you a certain
amount of money
-Basic Characteristics Of Insurance
Pooling of losses
Payment of fortuitous losses
Risk transfer
Indemnification
-Pooling of losses
Spreading of losses incurred by the few over the entire group.
• Key mechanism is “law of large number”.
• Future losses are predicted based on law of large number.
Note
• Pooling of loss is the spreading of losses incurred by the few over the
entire group so that in the process average loss is substituted for actual loss.
• The primary purpose of pooling is to reduce the variation in possible
Outcomes , which reduces risk.
-Payment of fortuitous losses
A fortuitous loss is one that is unforeseen and
unexpected and occurs as a result of chance.
Insurance policies do not cover intentional losses
-Risk Transfer
Risk transfer means that a pure risk is transferred from
the insured to the insurer,who typically is in a stronger
Financial position to pay the loss than the insured.
-Indemnification
Means that the insured is restored to his or her approximate
financial position prior to the occurrence of the loss.
- Insurable Risk
Insurer normally insure only pure risk.
Define insurance.
Differentiate between compulsory and non-compulsory insurance
Why would businesses need insurance
Difference between insurance and assurance
principles of insurance
Concepts in insurance
Grade 12 subject content
While insuretech has become a major area of interest among VCs, we recognize that few investors in the space have comprehensive knowledge of the industry. To better understand the complexities and opportunities in the space, we have compiled the research report posted below. The report provides an overview of the auto, homeowners, life, and health insurance sectors. We hope you find the presentation insightful and welcome comments and questions.
While insuretech has become a major area of interest among VCs, we recognize that few investors in the space have comprehensive knowledge of the industry. To better understand the complexities and opportunities in the space, we have compiled the research report posted below. The report provides an overview of the auto, homeowners, life, and health insurance sectors. We hope you find the presentation insightful and welcome comments and questions.
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1-INSURANCE COMPANY OPERATIONS
The most important insurance company operations consist of the following:
Ratemaking
Underwriting
Production
Claim settlement
Reinsurance
Insurers also engage in other operations, such as accounting, legal services, loss control, and information systems.
2-RATING AND RATEMAKING
Ratemaking refers to the pricing of insurance and the calculation of insurance premiums .
A rate is the price per unit of insurance.
An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.
The person who determines rates and premiums is known as an actuary . An actuary is a highly skilled mathematician who is involved in all phases of insurance company operations, including planning, pricing, and research.
3-UNDERWRITING
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance . The underwriter is the person who decides to accept or reject an application.
Statement of Underwriting Policy:Underwriting starts with a clear statement of underwriting policy.
An insurer must establish an underwriting policy that is consistent with company objectives.
4-PRODUCTION
The term production refers to the sales and marketing activities of insurers. Agents who sell insurance are frequently referred to as producers .
Life insurers have an agency or sales department. This department is responsible for recruiting and training new agents and for the supervision of general agents, branch office managers, and local agents.
Property and casualty insurers have marketing departments. To assist agents in the field, special agents may also be appointed.
A special agent is a highly specialized technician who provides local agents in the field with technical help and assistance with their marketing problems.
5-CLAIMS SETTLEMENT
Every insurance company has a claims division or department for adjusting claims. This section of the chapter examines the basic objectives in adjusting claims, the different types of claim adjustors, and the various steps in the claim-settlement process.
Basic Objectives in Claims Settlement:
Verification of a covered loss
Fair and prompt payment of claims
Personal assistance to the insured
6-REINSURANCE
Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance .
The primary insurer that initially writes the insurance is called the ceding company .
The insurer that acceptspart or all of the insurance from the ceding com pany is called the reinsurer .
The amount of insurance retained by the ceding company for its own account is called the retention limit or net retention .
The amount of insurance ceded to the reinsurer is known as the cession
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2. PURPOSE AND NEED OF INSURANCE
Assets may be destroyed or made non functional due to an
accidental occurrence. Such possible occurrences are
called perils. Fire, floods, breakdowns, earthquakes, road
accidents etc are perils.
Loss : is an unplanned decrease in a property (or other)
value which can be measured in rupee terms.
Actual Total / Partial
Constructive Total
Sentimental Losses
Losses inherent to trade - seepage through bags,
evaporation of liquid cargoes, natural weight loss
through drying out of seeds, grain etc.
3. LOSSES DEFINED
PROPERTY LOSSES : (FIXED / MOVABLE ASSETS)
•PHYSICAL DAMAGE
•LOSS OF USE OF PROPERTY
•CRIMINAL ACTIVITY
•EXTRA EXPENSES : an additional cost beyond normal
business expenses, made necessary because of a loss.
LIABILITY LOSSES : Legal responsibility to pay others
for losses or injuries they have suffered. NEGLIGENCE :
failure to exercise the necessary care under the circumstances,
to protect others from unreasonable risk of harm growing out of
one’s actions or failure to act.
•Liability to General Public
•Liability to Employees
•Directors & Officers Liability
4. LOSSES DEFINED
Business interruption loss : the temporary shutdown of a
firm
Actual / Anticipated (ALOP)
Loss of Revenue
Extra Expenses
Loss of / to Persons : (Key persons – an officer, employee or
other person in a firm who possesses skills, knowledge, or other
qualities difficult to replace – key employees – key owners)
Accidental Death / PTD / PPD/ TTD
Illness / Sickness
Key Person Losses
Unemployment
Dependent old age
5. LOSSES DEFINED
Pecuniary Losses : (Due to failure of another person
to meet an obligation)
•Loss due to Infidelity of Employees
•Court Bonds
•Government Bonds
6. PURPOSE AND NEED OF INSURANCE
Risk is the possibility of a peril giving risk to a
loss.
Risk is only a possibility of loss or damage, it may or may not
happen. Therefore, there is an uncertainty about the risk.
INSURANCE IS RELEVANT ONLY IF THERE IS AN UNCERTAINTY.
Insurance is done against the contingency that the risk may
happen. If there is no uncertainty about the occurrence of an
event, it cannot be insured.
It is essential in insurance that
A risk can be assessed
Insurance does not avoid risks rather it covers it.
THE PURPOSE OF INSURANCE IS TO GIVE THE ASSET OWNER
THE FINANCIAL SECURITY FROM THE RISK OF LOSS DUE TO THE
OPERATION OF A PERIL.
7. Insurable / Non-Insurable Risks
Financial (insurable) / Non Financial Risks (not
insurable)
Dynamic (changes in price level, consumer tastes, income and
output and technology – Non predictable – not insurable) and Static
(perils of nature, fraud, dishonesty – predictable – insurable) Physical hazard
Pure (chance of loss or no loss – insurable) Speculative
(where there is possibility of gain – not insurable)
8. The business of insurance is related to the
protection of the economic value of assets,
belonging to an individual or concern. There is a
normally expected life time for the asset. If
however it gets lost, destroyed or made non-
functional because of an accident or unfortunate
event before its expected life time, the owner of
those deriving benefit from the asset suffer loss.
INSURANCE IS A MECHANISM THAT HELPS TO
REDUCE THE ADVERSE CONSEQUENCES OF
SUCH A LOSS.
9. Insurance does not protect the asset. It does not
prevent its loss due to the perils of fire, earthquake,
flood, theft, breakdown, etc. These perils cannot be
avoided through insurance. Insurance only compensates
the loss, if not fully but at least to a great extent.
INSURANCE COMPENSATES ONLY ECONOMIC OR
FINANCIAL LOSSES.
It is not the house, ship, machinery, potential liability or
life that is insured but it is the financial interest of the
insured in that house, ship, machinery etc which is
insured. It is an economical method by which the losses
of the unfortunate few is shared by those fortunate
many who did not suffer losses.
10. MECHANISM OF INSURANCE
Many persons seeking protection from similar perils contribute
small amounts to a common pool. Their contribution to the pool is
in proportion to the extent of their exposure to the peril and to the
quantum of loss they are seeking protection against. THIS POOL
IS MANAGED BY THE INSURED AND THE PERSONS SEEKING
PROTECTION ARE THE INSURED. The unfortunate few insured
persons who suffer loss in the event of the operation of the peril,
are compensated from this pool.
The loss of a few persons is spread among the community of the
insured persons. The big loss of a few persons is reduced in small
manageable portions. The INSURERS collect the contributions
(premium) in advance to create a fund from which the losses can
be paid.
Insurance covers tangible (physically visible) properties like
house, car, belongings, shop, human body etc as well as
intangibles (physically not visible) like loss due to negligence,
error, legal liability etc.
11. NATURE OF INSURANCE CONTRACT
It is an agreement between the insurer and
insured.
The insurer having received premium undertakes
to make good the loss suffered by the insured.
The loss is made good subject to :
The loss resulting from the insured risk/peril
The property damaged / person died/injured /
liability incurred is covered under the policy
The loss has occurred during the policy period
12. NATURE OF INSURANCE CONTRACT
Offer and acceptance
Proposal
Acceptance and their communication
Parties to the contract and their capacity to contract
Indian Majority Act
Minor’s contracts – void – by a guardian for the benefit
of the minor will be valid.
Sound Mind
Married Women : Pardanashin lady
Corporations / Government Agencies
13. NATURE OF INSURANCE CONTRACT
Lawful consideration and Lawful Object
Acts forbidden by Law
Agreements defeating the provisions of any law
Fraudulent
When it involves injury to the person or property of
another
When it is immoral or opposed to public policy –
Trading with enemy, Interference with course of justice,
sale of public offices, restraint of trade
14. NATURE OF INSURANCE CONTRACT
Consensus ad idem (There mjust be free consent
of the parties concerned)
Coercion
Undue influence
Fraud
Misrepresentation
Mistake : as to the person with whom the contract is
made, as to the subject matter of the contract, mistake
of law
15. NATURE OF INSURANCE CONTRACT
The agreement is not declared to be void under
the Act :
Agreements in restraint of legal proceedings
Agreements contingent on events – insurance –
condition precedent – subsequent
Agreements to do an act impossible in itself.
Agreement to do an act which subsequently becomes
impossible or unlawful
To do illegal things
Assignment (a) the policy itself (b) the subject matter
of insurance, or ( c) the proceeds of the policy
Transfer by Operation of Law
16. NATURE OF INSURANCE CONTRACT
Consideration :
Premium – 64VB
Promise to pay,
compensate or indemnify
17. BASIC PRINCIPLES
INSURABLE INTEREST
SUBJECT MATTER OF INSURANCE – WHAT IS INSURED IN A FIRE POLICY ? NOT
THE BRICKS AND MATERIALS USED IN THE BUILDING THE HOUSE BUT THE
INTEREST OF THE INSURED IN THE SUBJECT MATTER OF INSURANCE.
SUBJECT MATTER OF THE CONTRACT
THERE MUST BE SOME PROPERTY, RIGHT, INTEREST, LIFE OR
POTENTIAL LIABILITY CAPABLE OF BEING INSURED
IT IS THIS PROPERTY, RIGHT, INTEREST WHICH MUST BE THE SUBJECT
MATTER OF INSURANCE
BENEFITS FROM SAFETY, FREEDOM FROM LIABILITY
RELATIONSHIP BETWEEN INSURED AND SUBJECT MATTER MUST BE
RECOGNIZED AT LAW
CREATION OF INSURABLE INTEREST : BY COMMON LAW, BY CONTRACT, BY
STATUE
APPLICATION : PART OR JT VENTURES / MORTGAGEES AND MORTGAGORS /
EXECUTORS AND TRUSTEES / BAILEES / AGENTS / HUSBAND AND WIFE
LIFE – AT INCEPTION
PROPERTY –AT INCEPTION / TIME OF LOSS
MARINE – TIME OF LOSS
18. BASIC PRINCIPLES
INSURABLE INTEREST
LEGALLY ENFORCEABLE
POSSESSION
CRIMINAL ACTS
FINANCIAL VALUE
ASSIGNMENT
OPERATION OF LAW – DEATH / INSOLVENCY
MARINE POLICIES
ABSOLUTE ASSIGNMENT
CONDITIONS ASSIGNMENT
ASSIGNMENT OF POLICY PROCEEDS
19. BASIC PRINCIPLES
INDEMNITY
LINK WITH INSURABLE INTEREST
HOW INDEMNITY IS PROVIDED
CASH PAYMENT
REPAIR
REPLACEMENT
REINSTATEMENT
MEASUREMENT OF INDEMNITY
MARINE
PROPERTY – BUILDINGS – MACHINE
AND CONTENTS OTHER THAN STOCKS –
MANUFACTURERS’ STOCK IN TRADE –
WHOLESALERS’ AND RETAILERS’ STOCK
IN TRADE – HOUSEHOLD GOODS –
PECUNIARY INSURANCES
LIABILITY INSURANCES
SALVAGE
ABANDONMENT – MARINE ONLY
INDEMNITY
FACTORS LIMITING THE PAYMENT
AVERAGE
EXCESS –
COMPULSORY/VOLUNTARY
LIMITS – 5% OF TOTAL SUM
INSURED ON CONTENTS UNLESS
OTHERWISE DECLARED
DEDUCTIBLE (VERY LARGE EXCESS)
EXTENSION IN THE OPERATION OF
INDEMNITY :
REINSTATEMENT : (A) INDEMNITY
(B) WEAR, TEAR AND DEPRECIATION
(C) EFFECT OF INFLATION BETWEEN
THE DATE OF LOSS AND EVENTUAL
DATE OF REPLACEMENT
AGREED ADDITIONAL COSTS
VALUED POLICIES
20. BASIC PRINCIPLES
SUBROGATION – MEANING,
WHEN
CONTRIBUTION –
TWO OR MORE POLICIES OF INDEMNITY
MUST EXIST
POLICIES MUST COVER COMMON
INTEREST
POLICIES MUST COVER A COMMON
PERIL WHICH GIVES RISE TO THE LOSS
COMMON SUBJECT MATTER
EACH POLICY MUST BE LIABLE FOR
LOSS.
PROXIMATE CAUSE
THE ACTIVE EFFICIENT CAUSE THAT
SETS IN MOTION A TRAIN OF EVENTS
WHICH BRING ABOUT A RESULT,
WITHOUT THE INTERVENTION OF ANY
FORCE STARTED AND WORKING
ACTIVELY FROM A NEW AND
INDEPENDENT SOURCE.
SINGLE CAUSE
CONCURRENT CAUSE
DIRECT CHAIN OF EVENTS-
UNBROKEN SEQUENCE (SUCCESSIVE
CAUSE) – BOMB – FIRE (WAR – FIRE
NOT PAYABLE)
INTERRUPTED CHAIN OF EVENTS –
BROKEN SEQUENCE – ACCIDENT,
HOSPITAL, INFECTION FROM NEXT
BED PATIENT, NOT PAYABLE
21. Insurance of Property :
Fire
Burglary
Cash
Engineering
Motor
Marine (Transit
Insurance of Liability :
Employer’s Liability (WC)
Product Liability
Public Liability
Public Liability Insurance
Act
Insurance of Persons :
Personal Accident
Mediclaim
Universal Health Insurance
Overseas Mediclaim
Insurance of Pecuniary Losses :
Fidelity Guarantee
Loss of Profits – Fire, MBD
Advance Loss of Profit
22. THE PROPOSAL FORM
FOR PERSONAL INSURANCES :
Name, Address, Occupation, Age
Past Insurance / Claims history
Basis upon which the premium will be calculated
FOR BUSINESS INSURANCES :
Name of the Proposer – Corporate/Business name
Business Address + various locations
Trade, business or profession
Past Insurance / Claims history
Basis upon which the premium will be calculated
23. THE POLICY
HEADING
PREAMBLE
THE SIGNATURE
OPERATIVE CLAUSE
EXCEPTIONS
DEFINITIONS
CONDITIONS – EXPRESS – IMPLIED – CONDITIONS
PRECEDENT TO THE CONTRACT – CONDITIONS SUBSEQUENT
TO THE CONTRACT – CONDITIONS PRECEDENT TO THE
LIABILITY
24. OTHER RISK COVERING DOCUMENTS
COVER NOTES
RENEWALS
NON PAYMENT OF PREMIUMS
LONG TERM AGREEMENTS
DECLARATIONS
25. Checklist for Sum Insured
Buildings
Land value : should be excluded
Foundation/Plinth : can be excluded
Underground Assets : may be included
Assets embedded in walls & roofs: should be included
Road & Pavement : should be included
Boundary Walls & Fences : should be included
Utility Buildings : should be included
Basis of Valuation
Original Cost
Book Value
Market Value
Reinstatement Value : Value of Similar New Property
26. Plant and Machinery
All Plants and Machinery including Electrical Items to be
included
Standby Machinery (not in use at the moment)
Tools and Spares
Transformers and Distribution Systems
Basis of Valuation
Original Cost
Book Value
Market Value
Reinstatement Value : Value of Similar New Property
Contd………………Next Page
Checklist for Sum Insured
27. Stocks and Stock in Process
Raw Materials
In Godowns In Open On the Shop Floor In Bonded Warehouse
Finished Goods
In Factory In Finishing/Packing Department In Godowns
In Open In Bonded Warehouse
Stocks in Process (Care may be taken to estimate maximum value at
each location)
Wastes
Basis of Valuation
Original Cost
Book Value
Market Value
Reinstatement Value : Value of Similar New Property
Checklist for Sum Insured
28. Marine : Agreed Value Contracts
Cost
Cost + Insurance
Cost + Insurance + Freight
Cost + Insurance + Freight + Custom Duty
Profit Margin say +10%
Checklist for Sum Insured
29. PERSONAL ACCIDENT :
DEATH : 120 MONTHS
TABLE II : 60/72 MONTHS
TABLE III : 1% OF CSI MAX RS. 5,000 PER WEEK.-mthly
income to justify
Checklist for Sum Insured
Never, never allow a person to be more
worth dead than alive to family or business
LIABILITY
LIMIT ANY ONE EVENT / LOSS
LIMIT ANY ONE YEAR
30. THEORY OF RATING
DETERMINATION OF PREMIUM RATES :
BROADLY A PREMIUM RATE HAS TO PROVIDE
FOR:
1. Loss Cost i.e., amount required to pay claims
(pure cost)
2. Administrative Expenses
3. Provision of Profit
4. Margin for contingencies / catastrophic losses
31. THEORY OF RATING
UNDERWRITING POLICY :
Whether each product should stand alone on its own or
cross-subsidy among products sold to one client will be
applicable.
Whether the insurer will underwriting any business on a
planned underwriting loss basis – how the Insurer will control
the effect of such underwriting on the insurer’s solvency
margin and the aggregate exposure to such losses.
The margins that will be built into the rates to cover
acquisition costs, promotional expenses, expenses of
management, catastrophe reserve and profit margin and the
credit that will be taken for investment income.
32. THEORY OF RATING
CLASSIFICATION OF PRODUCTS:
A. CLASS RATES PRODUCTS
(i) Internal tariff rates products – standard
products – can be sold by any office with the
rates, terms and conditions of cover including
choice of deductibles. RULE BASED : variation
from listed rates for factors linked to experience /
hazard features / size of sum insured /
deductible / competition. (ii) Packages or
customized Products: specially designed for an
individual client or class of clients in terms of scope
of cover, basis of insurance, deductibles, rates and
terms and conditions of cover.
33. THEORY OF RATING
CLASSIFICATION OF PRODUCTS:
B. INDIVIDUAL RATES PRODUCTS
(iii) Individual experience rates products : rates,
terms and conditions of cover are determined by reference
to the requirements of and the actual claims experience of
the insured concerned. These will typically be insurances
with a high frequency but low intensity of loss occurrence.
(iv) Exposure rates products : Where the rates,
terms and conditions of cover are determined by evaluation
of the exposure to loss in respect of the risk concerned,
independent of the actual claims experience of that risk.
Where occurrence of loss is an uncomment event or where
there are very few risks of that class to develop a
statistically supported rating basis.
34. THEORY OF RATING
CLASSIFICATION OF PRODUCTS:
B. INDIVIDUAL RATES PRODUCTS
(v) Insurance of large risks : Typical insurances
for individual large clients where the rates, terms
and conditions of cover may be determined by
reference to the international markets. (a) Total
sum insured of Rs. 2500 crores or more at one
location for property insurance, material damage
and business interruption combined.(b) Rs. 100
crore or more per event for liability insurance.
35. THEORY OF RATING
FIRE : %-o per mille
MOTOR : Type of vehicle, type of cover, zone
MARINE : %
BURGLARY & OTHER MISCELLANEOUS : %
CERTAIN POLICIES : ADJUSTABLE – CASH, WC
SHORT PERIOD SCALE – DECLARATION POLICIES
MINIMUM PREMIUM
RETURN OF PREMIUM
FAILURE OF CONSIDERATION
HEALTH INSURANCE SCHEMES : INSTALLMENTS
ENGINEERING +12 MONTHS : INSTALLMENTS
LONG TERM : ADVANCE
36. THEORY OF RATING
HAZARD : a condition that may create or increase the chance
of a loss arising from a given condition.
Physical hazard –
Fire : Construction, height, nature of flooring, occupancy, process
of manufacture, situation
Marine : age and condition of vessel, voyage/journey to be
undertaken, nature of stocks, the method of packing
Motor : age and condition, type of vehicle, use of vehicle
Burglary : nature of stocks, situation, constructional hazard,
openings, security arrangements
PA : Age, occupation, health and physical condition
Moral Hazard – Dishonesty, Carelessness, Industrial
Relations, General Economic conditions
Morale hazard – Difficult insured
37. THEORY OF RATING
Rating of Physical Hazard :
Measures to improve risk
Imposition of warranties
Incorporation of Clauses
Survey before Acceptance
Loading of premium
Restriction of Cover
Imposition of Excess/Franchise
Rating of Physical Hazard : Uninsurable