Chapter 7 Flashcards
Define 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.
Name types of benefit policies
Personal accident, sickness, critical illness, payment protection indemnity, hospital cash plans, permanent health and travel insurance.
What is a benefit policy?
When a price cannot be placed on the loss, therefore the principle of indemnity cannot apply. In the event of a claim, a defined amount or benefit will be claimed.
Name the options of indemnity
Cash payment, repair, replacement, reinstatement
Why are there different options for indemnity?
It is so that insurer can find the most economical way o providing indemnity.
What happens if the insurer offers replacement but the insured wants cash?
The insurer will only be required to pay to the insurer the amount they would have paid to the retailer.
Benefits to repairing an item
The insurer has more negotiating power as it is a larger organisation so will get a better rate than if the insured were to try. This too provides the repairer with a flow of business from the insurer.
Benefits of replacement
quicker replacement means further losses are minimised
Benefits of using nominated retailers
- discounts they receive means lower claims costs 2. can prevent fraudulent claims 3. customer experience is improved as insured can have a new appliance delivered to their door and the billwill be paid directly by the insurer
What does reinstatement mean?
Reinstatement means that the insurer agrees to restore a building that has been damaged by an insured peril
Do insurers like reinstatement?
No
Why is reinstatement not popular with insurers?
Because unless the policy specified otherwise they are bound to reinstate the property so that it is largely in the same condition it was before the loss. In any event they are their own insurers of the risk during the period of reinstatement.
Name examples of contracts of indemnity
Property and liability policies
Measuring indemnity: Marine insurance
The insured value is agreed between the insured and the insurer. In an unvalued policy, the value must be calculated using the formula in the Marine Insurance Act 1906 (MIA 1906).
When is the insurable value identified?
It is effective from the start period of insurance (policy inception) and in unaffected by subsequent market price variation.