Insurance
...nies insure against accident liability, which is responsibility for accidents which they may be sued – taken to court for. There are also policies which insure against employees’ stealing from the firm. These are called fidelity bonds and employees handling money, like cashiers, are usually bonded. Some companies insure against themselves making mistakes, where in the professions, doctors, lawyers and accountants can find themselves being held to be liable – responsible – for mistakes they might make concerning their clients. Proposal forms, premiums, and policies In the personal, commercial, and professional insurances there are three stages in completing the contract: proposing insurance; working out a premium; and making out the policy. A proposal form is the document giving details of the insurance. On the case of property, then will be information about its ownership, value and length of time insurance will be for, which is usually one year. When filling out the form, the proposer must consider three important principles of insurance. First, the insurance company expects the proposer to give true information about the value, ownership, and risks. There is a clause which states that the person has a real interest in the insurance of the property or life of the person. For example you cannot insure the Prime Minister’s life, or where she/he lives, but only the property or lives yourself or family. This principle is called uberrima fides which is Latin for utmost good faith and means the insurance company has faith – believes what the proposer tells them. If she/he lies then the insurance company will not pay compensation – money for the loss, and might take to court for fraud – trying to get money by criminal methods. Second, is the principle of indemnity. To indemnify means to put the insured person back to the position that they were in at the time of the loss, and not in better position. So a person who claims for property stolen or destroyed will only get compensation for the value at the time of the loss, and this is often the market price. If they were compensated for the original price of the property they would be in a better position than at the time of the loss. The third principle is subrogation, and refers only to property insurance. Subrogation means that once the insurance company has paid compensation the property belongs to them. For example in 1985 a apace shuttle recovered by a syndicate of Lloyd’s underwriters. The satellites have been recovered and now belong to the underwriters who had paid compensation, and will be sold for re-use. In summary, therefore, when filling out a proposal form, the proposer must give honest answers to the questions, and accept that only the market price will be paid for damage or loss, and that the property will belong to the insurance company once compensation has been paid. Premiums are usually worked out by specialists working for the insurance company called actuaries. They are statisticians who understand all the risks that the property or life will be open to, and of course, how much compensation will cost the company if they have to pay. In life insurance the age of the person, their job, medical history, and many other facts have to be considered to work out a premium. For property the value and condition of the property must be considered as well as the length of time it will be insured for. Some people live in high-risks, near chemical plants or rivers, and some where there is a high level of robberies. Where goods are being transported their value, size, and nature are considered as well as the method of transport. As a rule air transport would be cheaper than sea transport, for although planes can crash, sea transport takes longer so the goods are more open to risk. Premiums particularly for freight, are quoted as pence per cent, for example 35p per cent. This means that for every £100 of insurance, the premium will be 35 pence. So for £500 of cover the premium will be 35p x 5, or £1,75. Once the premium has been worked out, the insurance company will issue the policy. The insurance policy is the contract of insurance and tells the policy-holder what is insured, how much and how long it is insured for, who will get the compensation, and what premiums are to be paid, and when the payments are due. In addition the clauses on the policy explain the conditions of insurance. These have to be read carefully because damage caused by conditions not covered will not be paid for. For example, a house may be insured against flood. However, in a climate where water pipes may burst as icy weather suddenly becomes warmer, the policy holder could find they needed special cover to claim insurance under those conditions. We will see, when we come to the unit on marine insurance, that there is a difference between damage caused by major risks and damage caused by minor risks. Compensation A claims form is issued by the insurance company to a policy-holder who claims for loss or damage. The form will ask for details of the accident and damage and what was done to avoid the accident. In some cases, for example car crashes, a map of the accident has to be drawn to illustrate the details of the crash. Once the insurance company accepts the claim they will assess – estimate how much compensation they are prepared to pay, and may send a surveyor, sometimes called an adjuster to inspect the damage and report on what compensation he thinks would be fair. As we saw earlier, the principle of indemnification will operate, so the policy holder will only get the market value for his/her property. If anyone does not agree with the rate of compensation, they can take legal action against the insurance company after an independent surveyor’s report. In most cases, however if the insured feels that they have a complaint against their company they can go to the insurance companies own association. In UK the British Insurance Association who may help them. For a complain against a broker, the British Insurance Brokers’ Association would give them advice. Life assurance Insurance protects people against things that may happen to them or their property, assurance covers them for things that will happen. We will all get old, and we will all eventually die. Both insurance and assurance can be arranged through...