Insurance and Managing Risk

Chapter 13

Business Risks

Loss of property and stock and cash caused by– Fire– Theft– Flooding, etc.

Financial loss caused by a member of the public sueing for compensation for injuries received on the premises or from using the product.

Employees pilfering.

How insurance works.

– Many people with the same risk to insure, contribute to a common fund, which will pay compensation when one of them suffers a loss.

– The actuary assess the risk an looks at the likelihood of a loss occurring and decides on a premium to be paid by each of the insured, to ensure there is enough money to pay compensation and administration costs.

– Insurance companies invest the premiums they collect.

Principles of Insurance

1. Insurable Interest

2. Indemnity

3. Utmost Good faith

4. Subrogation

5. Contribution

1. Principle of Insurable Interest

You must have a financial interest in what you insure, benefit financially from its existence and suffer financially if it is lost.

2. Principle of Indemnity

You cannot make a profit from insurance.

Exceptions are life assurance and personal accident.

3. Principle of Utmost Good Faith

You must disclose all relevant facts on proposal forms.

Proposal forms are applications forms for insurance

4. Principle of Subrogation

When the insured receives full compensation for a loss, the insurance company then takes on the insured’s right to any scrap value and the insured’s right to sue any third party.

5. Principle of Contribution

If property is insured with two insurance companies the any compensation due to be paid will be shared between the two insurance companies.

Over/Under Insurance

Over insurance

If an item is insured for more than its actual value, compensation will only be paid in line with the actual value of the property.

Under insurance

If an item is insured for a fraction of its actual value, the insurer will only pay that fraction of any compensation due.

Types of Insurance

Household Motor (by law if vehicle is owned) PRSI (by law if employed) Property Life Medical Insurance Personal Accident Salary Protection

Business Property Employer’s Liability Public Liability Product Liability Professional Indemnity Plate Glass Insurance Fidelity Guarantee Consequential Loss Key Person Insurance Motor Insurance PRSI

People in Insurance

Acturary: Assesses the risk and calculates the premium to be paid

Loss Assessor : Assesses the damage and calculates the premium

Paperwork in Insurance

Proposal Form(application)

Policy (contract) Certicficate Cover Note Claims Form

Life Assurance

Whole Life

Compensation is paid only on the death of the insured.

Term life assurance

Paid for a specific length of time. E.g. the duration of a mortgage.

Endowment Life AssuranceLife assurance and savings. Compensation is paid on the death of the insured or a lump sum is paid when the insured reaches a certain age or on maturity of the policy.

How to Reduce Risk

Fire alarms Burglar alarms CCTV Strict Quality controls Strict Health and Safety

Standards Adequate training Strict criteria for recruitment

and selection of employees.

The End