Chapter 7 Flashcards
What is the definition of Indemnity?
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.
What are two types of insurance that are benefits policies and no policies of indemnity?
Life
Personal accident/sickness.
Who can a loss of limb not be covered by an indemnity policy?
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.
Following a successful claim the insurer will provide the insured with the necessary indemnity. What settlement options does the insurer have?
Cash Payment
Repair
Replacement
Reinstatement
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?
£800
What types of insurance are always settled with a cash payment?
money insurance,
fidelity guarantee,
business interruption,
loss of rent
and liability policies
What is the most common type of claim that would be settled with a repair?
Motor accident claims - through network/approved repairers
What is the most common type of insurance that is settled with a “replacement”?
Glass Insurance
What benefits are there to the insurer when using nominated retails for replacing things?
Discounts meaning lower claim costs
Prevent/minimize fraudulent claims
Why is reinstatement not a popular option for settlement for insurers?
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.
What is the distinction between repair and reinstatement?
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.
What would the indemnity be on a property policy covering buildings?
Replacement cost minus wear and tear
On what basis are most buildings insured under a property policy?
Reinstatement basis (new for old)
What type of liability insurance has an unlimited claim value?
Motor Insurance Liability causing injury or death
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?
£55,000
What are the two ways indemnity is measured on a Marine Policy?Valued/unvalued
Valued policy (or agreed value policy) - paid as agreed at inception/on docs
Unvalued policy as per MIA 1906 formula.
What does day one reinstatement eliminate in comparison to reinstatement memorandum?
the 15 % margin of error as there was a 50% day one uplift to allow for inflation.
What does the 85% condition of average mean?
The sum insurer which should be for 100% must be at least 85% of the law of average will be applied.
What is a typical indemnity for manufacturers’ stock in trade under a property policy?
Cost of raw materials plus labour costs incurred to date
What is a typical valuation of indemnity for wholesalers’ and retailers’ stock in trade policy?
Cost of replacing stock including transport costs
What is the typical measurement of indemnity on a household policy?
New for old
What is the typical measurement of indemnity for farming stock?
Local Market price
What is the typical measurement of indemnity on a liability insurance policy?
Compensation plus legal costs and expenses subject to a policy limit
Identify three ways insurance policies modify the principle of indemnity?
Agreed Value
First loss policies
New for old/Reinstatement
What act gives policyholder the legal right to claim damages in the event of a late payment?
Enterprise act 2016
Identify 5 ways indemnity may be limited under a policy?
Sum insured not adequate
Limit of policy not adequate
Sum limit applies
Average applies
Deductible/excess applies
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?
£37,500
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?
no
The average condition that applies when an insured has taken out two policies covering the same stock is known as?
Two conditions of average
What is the deductible also known as?
Excess
If a loss is £30,000 and there is a deductible of £5,000 each claim, how much do insurers pay to the insured?
£25,000
