Forms of insurance Flashcards
What does the form of insurance affect?
The contract used
What is the form of insurance
Deals with the relationship of damage and compensation
What is the formula for intensity of insurance
Compensations/Loss
i<1
Under coverage
i=1
Full insurance
i>1
Over insurance - usually reduced to i=1
What are the 2 main groups of insurance?
Sum insured and damage insured
Sum insured
The insurer and the prospective policyholder agree on a sum insured if the loss event occurs regardless of the extent
Principal of abstract coverage
Full amount is paid out if event occurs, there is not in between value - eg. life insurance
Damage insurance
Indemnity is paid out with respect to the amount of damage that happened
Principal of concrete coverage
There is a definite value attached to the loss
Subforms of Damage insurance
Unlimited damage insurance
First loss insurance
Full value insurance
Unlimited damage insurance
Covers all losses
Intensity in unlimited damage insurance
i=1
Describe the indemnity function for unlimited damage insurance
Straight-line where loss and compensation are always equal
Example of unlimited damage insurance
Glass insurance, vehicle insurance in some countries
First loss insurance
The insurer covers all losses up to a limit (sum insured) anything over this will not be paid out
Describe indemnity function for first loss insurance
c=l until s(sum insured) is reached
Describe the intensity function of first loss insurance
i=1 until s where it falls down (half u shaped)
Full value insurance
The insurer covers all losses in the proportions of the sum insured to the value insured
Value insured
This is the value of the object has in reality
What happens if the value insured is wrong
If there is under insurance then there (s
What does the indemnity function look like in the event of the value indicated being smaller
Tilted down stoping at the sum insured
What is the intensity in full value insurance
s/v
Partial value insurenace
When you assume a certain proportion of the loss
What are the three variables in partial value insurance
The value indicated, value insured, sum insured
Value indicated (partial value insurance)
The value of the item in the contract
What does the insurer cover in partial value insurance
value indicated/value insured to the sum insured
What happens with a lower sum insured
Insured retains more of the risk
Sum insured (partial value insurance)
A fraction of the value indicated
Formula for compensation in partial value insurance
C=L*vind /Vins
What is the intensity of the value indicated is correct and lower than is correct
1, if incorrect then the intensity drops. Intensity always reduces as the loss passes the sum insured
Full insurance refers to what
Intensity
Full value insurance refers to
A subform of damage insurance
Deductible
An amount of damage/loss the insurer does not compensate for
Invoulentery deductibles
unintentional under insurnace
Voulentery dedeuctibles
Agreed upon before
What are the functions of deductibles
- Prevent morale hazard moral hazard
- Avoids the admin costs of small claims
- Allows the insured to save on premiums
Morale hazard
Carlesness
Moral hazard
Intention loss/fraud
What are the 3 types of deductibles
Absolute, relative, past a point
Absolute deductible
A deductible is a fixed amount at the start
What is the intensity function of an absolute deductible like?
pushed out from the start point
What is the intensity function of an absolute deductible like?
half n shape that approaches but never touches 1
Where are absolute deductibles seen
Car insurance, house insurance …
Relative deductible
The insurer deducts a percentage
Indemnity function of a relative/co-insurance deductible
pivots down
When are relative deductibles used
Hospital expenses, storm insurance…
Past a point deductibles
Pays out in full if the damage reaches a certain level
When are past a point deductibles used?
Marine cargo insurance
