Chapter 7 Flashcards
What is an example of a policy that is not one of indemnity?
Policies providing fixed benefits are not policies of indemnity. These policies are benefit policies and mainly cover accident and sickness. There is no way a price can be placed on the loss of a limb or sight, so the principle of indemnity ca not apply. In the event of a claim a defined amount of benefit will be applied.
What is Indemnity?
Indemnity is 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 the options for indemnity contracts?
There are several settlement options for indemnity contracts:
Cash payment
Repair
Replacement
Reinstatement
How is indemnity applied in property insurance?
As a practical example of indemnity cover in respect of property insurance, imagine a fire which destroys a part of a school. Calculating the value of a loss may become problematic since equipment and facilities are likely to be worth less than the original purchase price. Where equipment is destroyed, the measure of indemnity is the replacement cost. In the case where the equipment is partially damaged it will be the repair cost. This is very much theoretical, most policies will incorporate some form of ‘new for old’ cover.
How is indemnity applied in liability insurance?
In liability insurance indemnity is measured as the of any court award plus the expenses arising in connection with the claim. Where the insurer agrees that other expenses can be incurred these are included in the amount payable.
What is new for old cover?
This type of cover usually applies to household contents policies. Commercial property risks that are insured on a reinstatement basis can also be placed in the same category.
How can the insured modify indemnity (to possibly lower premiums)?
Agreed value policies
In agreed value policies the value of the subject matter is agreed at the start of the contract and the sum is fixed accordingly. In the event of a claim, the value need not to be proven at the time of a loss.
First loss policies
There are occasions when the insured believes the full value of the insured property is not at risk, in other a words a total loss seems impossible. In this case, the insurer will ask for an insured value less than the full value.
What is the Enterprise Act 2016?
The enterprise act 2016 was passed on the 4th of May 2016 and gives policyholders a legal right to claim damages in the event of a late payment. Under previous law damages for late payment of claims were not recoverable from insurers. Policyholders could only recover what was owed under an insurance contract but not any additional losses they had suffered due to delay in indemnity payments.
The act also provides that insurers will not be in breach of provisions if refusing to pay a claim all the while a genuine dispute is continuing.
What are the limiting factors of indemnity?
Sum insured
The amount an insurer will pay is always capped off by the sum insured. If the amount needed to provide an indemnity is more than the sum insured full indemnity will not be granted.
Inner limits
There are many policies containing inner limits within the sum insured, this may mean in the event of a loss full indemnity will not be paid.
Average clause
The average clause is a way of insurers paying out less than they need to if a policyholder is paying less than the premium they should be because they have inadequate cover.
Excess and deductible
An excess is an amount that is deducted from each claim and is paid by the insured.
