insurance

1. The loss must be accidental and outside the control of the insured.

The loss must be definite and measurable.

The loss must be financially significant enough to justify the cost of insurance.

The risk must not be so great as to make the cost of insurance prohibitive.

There are many types of insurance, including life insurance, health insurance, property and casualty insurance, liability insurance, and disability insurance. Each type of insurance is designed to provide coverage for a specific type of risk.

2. In recent years, there has been a growing trend toward self-insurance and risk retention, particularly among large corporations. Self-insurance involves setting aside funds to cover potential losses, rather than purchasing insurance from a third-party insurer. This approach can be cost-effective for companies with the financial resources to handle potential losses on their own. However, it also exposes them to greater financial risk if losses exceed their reserves.

3. The possible loss must be definite and measurable. This means that the potential loss must be capable of being quantified in monetary terms, and there must be a clear way of determining whether the loss has occurred or not.

4. The possible loss must be significant enough to justify the cost of insurance. Insurance is designed to protect against major losses that would be financially devastating to the insured. If the potential loss is minor, it may not be cost-effective to purchase insurance.

5. The risk must not be too great. Insurance companies use actuarial tables and other statistical tools to assess the risk of insuring a particular object or event. If the risk is deemed too great, the insurance company may decline to offer coverage or charge prohibitively high premiums.

6. Overall, the insurance industry plays an important role in managing risk and promoting economic stability. By providing a means of transferring risk from individuals and businesses to insurance companies, insurance helps to ensure that losses are distributed more evenly and that individuals and businesses can recover from unexpected events.

7. It is also important to note that insurance is not a guarantee against loss, but rather a means of transferring risk. Insurance policies often include deductibles and limits on coverage, and may exclude certain types of losses or events. Insured individuals and businesses still face the possibility of loss, but are protected against catastrophic financial consequences.

Insurance companies use a variety of tools to assess risk and set premiums, including actuarial analysis, statistical modeling, and underwriting guidelines. Premiums are typically based on the probability of loss, the severity of potential losses, and the insurer’s administrative and operating costs. Insurance companies also invest premiums to generate income and offset potential losses.

Overall, insurance plays an important role in promoting economic stability and managing risk. By providing a means of transferring risk from individuals and businesses to insurance companies, insurance helps to ensure that losses are distributed more evenly and that individuals and businesses can recover from unexpected events.

Kinds of insurance

Property insurance

Commercial property insurance

Commercial property insurance is designed to cover businesses and other commercial enterprises against loss of property through perils such as fire, theft, and natural disasters. The policies generally cover buildings, equipment, furniture, inventory, and other property that is used in a business or trade.

Perils insured

Commercial property insurance policies may be either all-risk or named-peril policies. All-risk policies offer coverage for any peril except those that are specifically excluded in the policy. Named-peril policies offer coverage only for perils that are specifically listed in the policy. Commercial property insurance policies may also include coverage for business interruption, which provides reimbursement for lost profits and expenses if a business is forced to close temporarily due to a covered loss.

Property covered

Commercial property insurance policies may cover a wide range of property, including buildings, equipment, inventory, and other property used in a business or trade. Coverage may also be extended to include property that is in transit or temporarily located away from the business premises.

Limitations on amount recoverable

Recovery under commercial property insurance policies is generally subject to a coinsurance clause, which requires the insured to carry a minimum level of insurance relative to the value of the property insured. If the insured carries less insurance than the required minimum, the insured may be subject to a penalty and may not recover the full amount of the loss.

In addition to the coinsurance clause, commercial property insurance policies may also include deductibles, which require the insured to pay a portion of the loss before the insurance policy pays any benefits. The amount of the deductible can vary depending on the policy and the insured's needs.

Like homeowner's insurance, recovery under commercial property insurance policies may also be subject to limits on the amount recoverable if more than one policy applies to the loss, or if the insured has only a partial interest in the property.

To summarize, some of the excluded perils in homeowner's insurance policies include loss due to freezing when the dwelling is vacant, loss from weight of ice or snow to property such as fences or swimming pools, theft loss when the building is under construction, vandalism loss when the dwelling is vacant beyond 30 days, damage from gradual water leakage, termite damage, loss from rust, mold, dry rot, contamination, smog, settling and cracking, loss from animals or insects, loss from earth movement, flood, war, or spoilage, loss from neglect of the insured to protect the property following a loss, and losses arising out of business pursuits. Named-peril forms only cover losses from the perils named in the policy. Earthquake and flood losses are typically excluded from basic homeowner's forms but may be covered by endorsement.

Conditions

Yes, that is correct. Renter's insurance is a form of insurance that provides coverage for personal property owned by a tenant. It may also provide liability coverage in case the tenant is found responsible for damage to the rental property or if someone is injured while on the rented premises.

Business property insurance

The BPP form typically provides coverage on an “all risks” basis, which means that losses are covered unless they are specifically excluded. The policy will also specify the types of losses that are covered, such as fire, lightning, windstorm, theft, and vandalism. As with homeowner’s insurance, there may be exclusions for certain perils or conditions, such as flood or earthquake.

In addition to the BPP form, there are other forms of business property insurance that may be more specialized. For example, a “boiler and machinery” policy provides coverage for losses due to damage to boilers, machinery, and equipment, as well as for any resulting business interruption. A “glass” policy provides coverage for damage to glass, such as windows and doors. A “crime” policy provides coverage for losses due to theft, embezzlement, forgery, and other criminal acts.

As with homeowner’s insurance, there may be conditions that apply to business property insurance. Business owners may be required to give immediate notice of loss, provide proof of loss, cooperate with the insurer in settling a claim, pay premiums in advance, and maintain certain security measures to prevent losses. The insurer may also have a right of subrogation to recover losses from liable third parties.

Direct losses

That's correct! A reporting form is a type of policy for business personal property that allows the insured to report the values of their property on a regular basis, typically monthly, and pay premiums based on those values. This way, the insurance coverage can be adjusted to match the changing value of the property over time. It is often used for businesses with fluctuating inventory levels or other property values, such as retail stores or manufacturers.

Indirect losses

That is correct. Indirect insurance policies are designed to protect businesses from losses that are not directly related to property damage or loss. Business income insurance is a type of indirect insurance that provides coverage for lost profits or fixed charges incurred as a result of direct damage. Other forms of indirect insurance include contingent business income insurance, extra expense insurance, and rent and rental value insurance.

Marine insurance

Marine insurance provides coverage for goods, ships, and other vessels while they are in transit over water. It also covers risks associated with the transport of goods by sea, such as damage to cargo due to bad weather or accidents, piracy, and theft. Marine insurance can be purchased by the owners of the goods or by the carriers of the goods, such as shipping companies.

Inland marine insurance, on the other hand, covers goods in transit over land or while stored at a fixed location, such as a warehouse. This type of insurance can also cover goods in transit by air or other modes of transportation. Inland marine insurance is commonly used to cover high-value items, such as artwork, jewelry, and computer equipment, while they are being transported or stored.

Ocean marine insurance

The perils clause: The perils clause lists the specific risks that the insurer will cover, such as fire, theft, and piracy. If a loss occurs due to a peril not listed in the policy, the insurer is not obligated to pay.

The “running down” clause (RDC): The RDC applies when a vessel collides with another vessel or object, resulting in damage or loss. The RDC requires the insurer of the vessel at fault to pay for the damages or losses caused to the other vessel or object.

The “free of particular average” (FPA) clause: The FPA clause means that the insurer is not responsible for partial losses or damage to the cargo unless it is caused by a specific peril listed in the policy, such as sinking or collision.

The general average clause: The general average clause applies when cargo is deliberately jettisoned (thrown overboard) to save the ship or other cargo. In such a situation, the cost of the lost cargo is shared by all parties with an interest in the voyage, including the cargo owners and the ship owners.

The sue and labour clause: The sue and labour clause requires the insured to take reasonable steps to prevent or minimize a loss, and the insurer will reimburse the insured for the reasonable expenses incurred in doing so.

The abandonment clause: The abandonment clause allows the insured to abandon a damaged vessel or cargo to the insurer in exchange for a payment of the insured value.

Coinsurance: Coinsurance requires the insured to maintain coverage equal to a certain percentage of the value of the insured property. If the insured fails to maintain this level of coverage, the insurer will only pay a proportionate share of any loss.

Express and implied warranties: Warranties are promises made by the insured about the condition of the property or the manner in which it will be used. If a warranty is breached, the insurer may be relieved of its obligation to pay for any loss.

Perils clause

It's worth noting that the information in the passage is a bit outdated. Since 1978, the marine insurance industry has evolved and many insurers have adopted new and updated clauses and policy forms. Additionally, the passage does not cover some newer types of marine insurance, such as protection and indemnity (P&I) insurance which covers legal liabilities and liabilities arising from pollution and environmental damage.

Nonetheless, the passage provides a historical perspective on the development of marine insurance and the significance of the perils clause in marine insurance policies.

RDC clause

That is correct! The P and I clause provides coverage for legal liability for claims arising from bodily injury, illness, or death of passengers or crew members, as well as damage to property other than cargo. The P and I coverage is usually purchased in addition to the hull and cargo coverage. It is important to note that the RDC and P and I clauses only cover legal liability for negligence and do not cover intentional acts or contractual liability.

FPA clause

To clarify, the FPA, or "free of particular average," clause only provides coverage for partial losses to the cargo or hull that result from specific perils, such as stranding, sinking, burning, or collision. However, it excludes coverage for partial losses that do not result from these specific perils.

For example, if a cargo of electronics is damaged by water during a voyage, but the damage is not caused by any of the specific perils covered under the FPA clause, then the insurer would not be responsible for paying the claim.

Additionally, the FPA clause may include a percentage deductible, which means that the insurer is only responsible for paying claims that exceed a certain percentage of the cargo's value. This is intended to limit the insurer's exposure to relatively small losses. The percentage deductible varies depending on the type of cargo and the level of risk involved.

General average clause

The sue and labour clause obligates the insured to take reasonable steps to protect the vessel and cargo from loss or damage that may arise from a covered peril. If such steps are taken and they result in a successful outcome, any expenses incurred are recoverable under the policy. For example, if a ship is grounded on a reef and the captain orders tugs to come to the vessel’s aid, the expenses for the tugs are recoverable under the sue and labour clause. Without such a clause, the insured would be reluctant to incur these expenses and the vessel and its cargo would be exposed to greater risk of damage or loss.

The abandonment clause allows the insured to surrender to the insurer all rights to damaged property in exchange for a claim for a total loss. The insured may invoke the clause if the cost of salvage or recovery exceeds the value of the property. The abandonment clause helps to settle claims quickly and easily, and it allows the insurer to take over the property and try to recover some of the loss through salvage or sale.

Coinsurance requires the insured to maintain insurance on the property at a specified percentage of its value. If the property is insured for less than the required percentage, the insured becomes a coinsurer of the property, meaning that the insurer will pay only its proportionate share of any loss. For example, if the required coinsurance percentage is 80 percent and the insured carries insurance for only 60 percent of the value, the insured will be responsible for 25 percent of any loss, and the insurer will pay only 75 percent. The purpose of coinsurance is to encourage the insured to carry adequate insurance on the property to avoid underinsuring and to share in the risk of loss.

Abandonment clause

That's correct! The sue and labour clause is an important part of ocean marine insurance that requires the ship owner to take prompt and reasonable action to minimize the loss or damage to the vessel and cargo, as well as to third parties. This can include incurring expenses for salvage, towage, repairs, or other measures to mitigate or prevent further loss. The insurer is then responsible for reimbursing the owner for the reasonable costs incurred under the clause, even if the efforts are unsuccessful in saving the property. The purpose of the clause is to encourage proactive risk management and loss prevention, and to protect the interests of all parties involved in the voyage.

Coinsurance

That is correct. In ocean marine insurance, there is no specific coinsurance clause as there is in some other types of insurance policies. However, the principle of coinsurance is still applied in determining the amount of a partial loss that the insurer will pay. This means that if the insured does not insure for the full value of the goods or property, they will be considered a coinsurer and will be responsible for a proportionate share of any loss, even if it is a partial loss. For example, if the insured only insures for 50 percent of the true replacement cost of the goods, they will be responsible for 50 percent of any partial loss that occurs.

Warranties

That's a good summary of the different types of warranties in ocean marine insurance. Just to clarify, the FC&S warranty stands for "Free of Capture and Seizure," and it excludes losses resulting from capture, seizure, or detention by a government or public authority, or from the acts of persons acting maliciously or with political motives. Additionally, the strike, riot, and civil commotion warranty excludes losses resulting from labor disturbances, including strikes, lockouts, labor slowdowns, and riots.

It's important to note that the implied warranties of seaworthiness, deviation, and legality apply regardless of whether they are specifically mentioned in the policy or not. The seaworthiness warranty means that the vessel must be reasonably fit for its intended voyage, and that the cargo must be properly loaded and secured. The deviation warranty means that the vessel must follow its intended course, and any deviation must be reasonable and justified. Finally, the legality warranty means that the voyage must be lawful and not in violation of any laws or regulations.

Inland marine insurance

In addition to named-peril and floater policies, inland marine insurance also includes builder’s risk insurance, which covers the property of a builder during the course of construction, installation, or repair. This type of insurance is particularly important in cases where the builder’s materials, tools, and equipment are at risk of being lost or damaged during the construction process. Other types of inland marine insurance include equipment dealers coverage, which covers the property of dealers who sell, service, or rent heavy equipment such as bulldozers, cranes, and forklifts, and electronic data processing (EDP) coverage, which covers the loss of electronic data processing equipment and data stored on such equipment.

Liability insurance

Additionally, liability insurance contracts may also include exclusions and limitations. Exclusions typically exclude certain types of claims from coverage, such as intentional acts, criminal activity, and contractual liability. Limitations may limit the amount of coverage available for certain types of claims, such as punitive damages or damages resulting from environmental pollution.

Liability insurance policies may be written on either an occurrence or claims-made basis. An occurrence policy covers claims arising from incidents that occur during the policy period, regardless of when the claim is made. A claims-made policy covers claims made during the policy period, regardless of when the incident occurred, but only if the incident occurred after a specified retroactive date and the claim is reported to the insurer within a specified time period. Claims-made policies typically require the purchase of extended reporting period coverage, also known as tail coverage, to provide coverage for claims reported after the policy period ends.

Liability insurance is an important form of insurance for individuals and businesses, as it provides protection against the potentially devastating financial consequences of legal liability. However, it is important to carefully review the terms, exclusions, and limitations of a liability insurance policy to ensure that it provides the desired level of protection.

In addition to the types of liability insurance discussed in the passage, there are other types of liability insurance that may be available, depending on the needs of the insured. For example, directors and officers liability insurance is designed to protect corporate directors and officers from liability arising from their actions or decisions on behalf of the company. Employment practices liability insurance covers employers against claims of discrimination, harassment, wrongful termination, and other employment-related claims. Umbrella liability insurance provides additional liability coverage above and beyond the limits of other liability policies.

It is important for individuals and businesses to carefully review their insurance policies to understand the types of liability covered and the limits of coverage. It is also important to consider additional coverage options, such as umbrella liability insurance, to ensure adequate protection against potential liability claims.