PECUINARY INSURANCE Flashcards
What is Pecuniary Insurance concerned with
It is concerned with intangibles, like income/revenue/value
Why is the indemnity definition different for business interruption compared to property insurance
The intention for BI is not to establish a value representing what is lost but forward looking to reflect the trading position the insured would have been in had the losses not occurred
What is the basic purpose for legal expenses insurance
The main purpose is to provide indemnity for cost arising out of the need to seek legal advise/defend/pursue a civil action
What does it mean when you say civil action
These are those action not prosecuted by the criminal courts.These actions relate to situations where one party is seeking legal redress(compensation) or different remedy
Originally legal expense insurance was provided to
It was originally provided to individuals, who would be relived on the costs involving consumer/domestic dispute, but now they are more available to companies/groups/corporate bodies
What is the standard policy cover for legal expenses insurance
There are two main types of policy cover
- Group Legal Benefit polices
- Commercial Legal protection policies
The legal expenses insurance cover is limited to
Cover is limited to an amount per claim though there is no overall limit per policy period
How is the Group Legal Benefit Policy designed
These policies are designed to operate on behalf of a group of people, like company employees and the immediate family of each member.The cover is arranged by an employer, in the manner of an employee benefit
There are four sections of group legal benefit polices which are
- Employment Cover
- Personal Cover
- Motor Cover
- Conveyancing cover
The employment cover of group legal benefit polices entails
Defense of any claim/legal proceedings bought against a member arising out of or in the course of their employment.
Defense and compensation award as a result of actions bought under specified legislation
costs of claiming for compensation arising out of the member’s employment such as sexual or racial misconduct/injury arising out of employment
The personal cover of group legal benefit polices entails
Covers the cost of pursuing personal rights/defending a personal action against the member
The Motor cover of group legal benefit polices entails
The cost of defending claims arising out of the ownership/use of a motor vehicle
The Conveyancing cover of group legal benefit polices entails
Covers the legal cost involved in buying/selling one’s house common limit 1000 pounds
Commercial Legal Protection policies entails
These polices are designed to cover firms/companies in their capacity as employers/manufacturers/property owners/traders where their b’ness activities may expose them to litigation
Which costs do the Commercial Legal Protection policies
The cost of needing to take action in the court/defending an action brought against the insured. The cost of the insured’s/employees time spent in court
How many sections does the Commercial Legal protection policy have
This policy has five main section
- employments Cover
- Criminal prosecution defense Cover
- Property disputes cover
- Motor cover
- Patients/registered design/copyright and trademark cover
What does the employment cover of the Commercial Legal protection policy entail
The cost of defending an action by an employee against the firm for unfair dissmal/racial/sexual discrimination, and award made against the company if the defense is unsuccessful
What does criminal prosecution defense cover of the Commercial Legal protection policy entail
Covers cost of defending action bought against the company(under health and safety).The cost include cost incurred by an employee appearing in court, but not the fines as they will be against public policy
What does the property dispute cover of the Commercial Legal protection policy entail
This covers cost incurred in disputes between e.g landlord and tenant involving the possession of freehold/leasehold of b’ness premises
What does the Motor cover of the Commercial Legal protection policy entail
It Covers;
- pursuing uninsured loss recoveries after motor accident
- pursuing/defending actions brought in connection with sale/lease/hire/test of vehicle where dispute has rose
- pursing damages after a road accident
- defending motoring persecution
What does the patent,registered design,copyright and trademark cover of the Commercial Legal protection policy entail
Covers costs incurred in pursuing action against any person guilty of infringing the insure’s interest in patent,registered design
What are the optional extensions for legal expense insurance
The cost of
- defending libel and slander charges
- involvement in public enquirers
- investigation by professional bodies
- taxation prcoeeding
What are the limitation for commercial legal protection insurance
- It does not cover legal action for which indemnity in respect of its cost is recoverable elsewhere like employers/public/product liability
- Cover is not provided where legal action is pursued by the insured against the advice of the insurer’s nominated solicitor.
- Losses incurred prior to written acceptance or the claim by the insurer to be excluded
What are the mian subject of Business interruption insurance
Time Loss
Consequential loss
Loss of profits
What does Business Interruption Policy cover
It covers the actual/potential loss of earnings and additional expenses incurred
What are the two dimension of Business interruption cover
The monetary amount that needs to be insured
The time that the interruption will affect the business.
Both of these are defined in the policy
The time that the interruption will affect the business is known as
The Indemnity period, which is described as the period beginning with the occurrence and ending no later than the maximum indemnity period thereafter,during which time the business is affected by the interruption occasioned by the damage
The length of the maximum indemnity period is chosen by who
It is chosen by the insured and defined in the policy in terms of months/years. 12 months is the most common
An insured will choose maximum indemnity period depending on
It will depend on the type of business/customer/need of specialist machinery
In Business interruption policy how is turnover broken down
It is broken down to costs that are associated with the business and net profit. And they are divided into those that vary direct proportion to the turnover and those that don’t not vary in this way
Examples of costs that vary in direct proportion to the turnover are
They are raw materials
Examples of costs that don’t vary in direct proportion to the turnover are
rent, which will be payable; regardless whether the business is functioning or not
And so how is turnover categorized in business interruption policy
It is categorized in three categories
- Net profit
- Variable Charges
- Fixed Charges
Which of the categories of turnover are insurable under business interruption
The net profit and fixed charges also known as standing charges. T
Which of the categories of turnover are not insurable under business interruption
he variable charges will not because they will reduce in direct proportion to the turnover, so if turnover reduces the insured doesn’t suffer a loss under this heading
What is the term used for net profit and fixed charges
The term used is gross profit
How does the difference basis of cover work
Instead of the insured listing all the standing charges, what the insurer does is,they deduct the uninsured working expenses(variable charges) from the turnover, and the figures are adjusted for differences between opening and closing stock
What do insurers do for wages and salaries for business interruption policy
Since wages and salaries don’t vary in direct proportion with turnover. Insurers will be prepared to rate these separately from other items of expense. In the UK they are charged at a lower rate
What are the two methods used for fixing sum insured for business interruption policy
- Taking the projected turnover of the firm in the forthcoming years and assuming worst case scenarios in terms of the timing of a future loss
- Declaration linked policy, where the policyholder is only required to estimate the figures in the forthcoming year, then the insurer will apply a 1/3 uplift automatically to take account of any future growth in turnover
How does the insurer operate the first method of projecting of turnover of the near future
This method deals with projection made into near uncertain future, thus how insurers deal with this is, at the end of the insurance period, the actual gross profit is known, thus the insured’s accountant submits the figure to the insurer who will the allow a rebate of premium based upon it.Thus insured presents figure initially and ends up paying premium based upon what actually happens
What are some of the examples of the extra costs that insured will incurr an increase in following loss/damage
New premise may need to be rented
More Staff Employed
Advertising to reassure clients
Work to be subcontracted
Cover for the extra cost risk is known as
Increase in/increased cost of working
Increased in Cost of Working policy states
It states insurers will cover the insured for reasonable charges payable by the insured. This policy doesn’t have a separate sum insured, but some prudent insurers incorporate a suitable limit
What does the Increase in cost of working cover include that is not seen in other classes of b’ness
It allows the preparation of the insured’s claim to form part of the claim itself. As for b’ness interruption claims understanding of the insured’s finances will require the input of the insured’s accountants/auditors
What is a requirement for all b’ness interruption policies
There must be in place a policy which covers the physical damage leading to loss of earning, before the b’ness interruption comes into operation. this is known as Material Damage Warranty
What are the perils business interruption required to have
The perils in the b’ness interruption without exception have a coinciding peril within the material damage cover for claim to be payable
Which policies don’t contain warranty
Engineering business interruption and lesser extent in fire insurance
What are the main reasons of including warranty
- the insurer knows that there are funds available for completing rebuilding, and thus limit the length of the interruption period
- insurer will obtain the benefit of any warranties that may apply to the material damage cover
What are the most common business interruption policies
- Fire and special perils
- All Risks
- Engineering
The Standard Fire and Special Perils Policy (Business Interruption)was issued by
The Association of British Insurers
The perils under business interruption may be divided into which two perils
1.Standard Perils
2.Special Perils
as with material damage wording
The standard peril covered by BI are similar to those of material damage, what are they extended to include
They include explosions by any other boilers or economizers on the premises that is non-domestic boilers, in addition to the domestic boilers covered in the material damage policy
BI policy may extend to include 6 special perils relating to engineering cover, that are usually not capable of being covered under the material damage policy
- explosion and collapse of steam pipes
- explosions of vessels
- explosions and collapse of vessels
- collapse of boilers
- overheating of tubes
- overheating of boilers and economizers
To ensure uniformity of cover under All Risk policy, what do insurers do?
Insurers usually issue combined material damage and business interruption “all risk” policy
What are the common extensions under BI, subject to additional premium but not the material damage warranty
- Specified Suppliers
- Unspecified Suppliers
- specified Customers
- Transit
- Prevention of access/Denial of Access
- Public Utilities
- Notifiable disease/vermin/defective sanitary arrangement/suicide and murder
The Engineering business interruption policy has no standard policy cover, however the perils covered usually fall under on of the following two headings
- Failure of public supply of gas/electricity/water/communication at the supplier’s feed to the premises
- Sudden and unforeseen damage from any accidental cause, not specifically excluded to specified items of machinery and plant
The Engineering business interruption excludes
- Perils covered by the ABI standard Fire and special perils policy
- general market exclusions
- a scheme which rations supplies by a supply authority
- deliberate act of a supply authority
