Chapter 7

Question 1

What is the definition of Indemnity?

Answer 1

Is the financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred.

Question 2

What are two types of insurance that are benefits policies and no policies of indemnity?

Answer 2

Life
Personal accident/sickness.

Question 3

Who can a loss of limb not be covered by an indemnity policy?

Answer 3

Indemnity policies but you back in the same position you were before the incident, there is no way of doing that when you have lost a limb.

Question 4

Following a successful claim the insurer will provide the insured with the necessary indemnity. What settlement options does the insurer have?

Answer 4

Cash Payment
Repair
Replacement
Reinstatement

Question 5

If the insurer can replace a TV for £800 but the cost for the insured to replace it is £1000 directly, the insurer would offer to replace it. IF the policy holder wants to get the cash for it rather than the replacement - how much would the insurer pay out?

Answer 5

£800

Question 6

What types of insurance are always settled with a cash payment?

Answer 6

money insurance,
fidelity guarantee,
business interruption,
loss of rent
and liability policies

Question 7

What is the most common type of claim that would be settled with a repair?

Answer 7

Motor accident claims - through network/approved repairers

Question 8

What is the most common type of insurance that is settled with a “replacement”?

Answer 8

Glass Insurance

Question 9

What benefits are there to the insurer when using nominated retails for replacing things?

Answer 9

Discounts meaning lower claim costs
Prevent/minimize fraudulent claims

Question 10

Why is reinstatement not a popular option for settlement for insurers?

Answer 10

In a property claim for example, once they choose to reinstate it - they lose the certainty that the sum insured will be the maximum they will pay out as they will not be able to stop the reinstatement once the sum insured has been reached and leave it partially reinstated.

Question 11

What is the distinction between repair and reinstatement?

Answer 11

Reinstatement applies to buildings and machinery only, and puts it back into the pre-loss condition.
Repair does not carry the same level of project management.

Question 12

What would the indemnity be on a property policy covering buildings?

Answer 12

Replacement cost minus wear and tear

Question 13

On what basis are most buildings insured under a property policy?

Answer 13

Reinstatement basis (new for old)

Question 14

What type of liability insurance has an unlimited claim value?

Answer 14

Motor Insurance Liability causing injury or death

Question 15

Roy takes out two personal accident policies.
The first policy provides £25,000 cover for loss of limb.
The second policy provides £30,000 cover for loss of limb.

What is the total amount that Roy will receive in the event of a valid loss of limb claim?

Answer 15

£55,000

Question 16

What are the two ways indemnity is measured on a Marine Policy?Valued/unvalued

Answer 16

Valued policy (or agreed value policy) - paid as agreed at inception/on docs
Unvalued policy as per MIA 1906 formula.

Question 17

What does day one reinstatement eliminate in comparison to reinstatement memorandum?

Answer 17

the 15 % margin of error as there was a 50% day one uplift to allow for inflation.

Question 18

What does the 85% condition of average mean?

Answer 18

The sum insurer which should be for 100% must be at least 85% of the law of average will be applied.

Question 19

What is a typical indemnity for manufacturers’ stock in trade under a property policy?

Answer 19

Cost of raw materials plus labour costs incurred to date

Question 20

What is a typical valuation of indemnity for wholesalers’ and retailers’ stock in trade policy?

Answer 20

Cost of replacing stock including transport costs

Question 21

What is the typical measurement of indemnity on a household policy?

Answer 21

New for old

Question 22

What is the typical measurement of indemnity for farming stock?

Answer 22

Local Market price

Question 23

What is the typical measurement of indemnity on a liability insurance policy?

Answer 23

Compensation plus legal costs and expenses subject to a policy limit

Question 24

Identify three ways insurance policies modify the principle of indemnity?

Answer 24

Agreed Value
First loss policies
New for old/Reinstatement

Question 25

What act gives policyholder the legal right to claim damages in the event of a late payment?

Answer 25

Enterprise act 2016

Question 26

Identify 5 ways indemnity may be limited under a policy?

Answer 26

Sum insured not adequate
Limit of policy not adequate
Sum limit applies
Average applies
Deductible/excess applies

Question 27

Mr Smith’s garage buildings are valued at £200,000 and insured for £150,000 under a policy which is subject to average. If he suffers a £50,000 insured loss, how much will his insurers pay?

Answer 27

£37,500

Question 28

An insured has a fire policy covering stock in warehouses A, B and C for a total value of
£250,000 and another separate insurance for stock in warehouse B of £50,000.
A loss occurs and at that time the total value of the stock is £280,000. When settling the
loss under the floating policy, the figure of £50,000 is deducted from the total value. This
leaves £230,000.

Would the average be applied?

Answer 28

no

Question 29

The average condition that applies when an insured has taken out two policies covering the same stock is known as?

Answer 29

Two conditions of average

Question 30

What is the deductible also known as?

Answer 30

Excess

Question 31

If a loss is £30,000 and there is a deductible of £5,000 each claim, how much do insurers pay to the insured?

Answer 31

£25,000