Insurance fundamentals in english

1. 1. Chp theo slide Wd8042

2. 2. Chp theo slide Wd8042Chapter 1: Overview of
insurance.......................................................................................3 1.1.Risk and
insurance.....................................................................................................3 1.1.1.Concept of
risk....................................................................................................3 * Definition of
risk.................................................................................................3 * 2 elements of
risk................................................................................................3 * The types of risk (4 methods
to classify risk).....................................................3 1.1.2.Concept of risk
management..............................................................................3 * The process of risk
management: 3 steps...........................................................3 * The methods to treat the
risk...............................................................................3 1.1.3.Concept of
insurance...........................................................................................4 * Definition of
insurance ..................................................................................4 1.1.4.Insurance
contracts..............................................................................................4 1.2.Principles of
insurance (nguyn tc)..........................................................................4 1.3.Insurance
market........................................................................................................4 1.3.1.The buyers of
insurance......................................................................................4 1.3.2.The intermediaries
(trung gian)..........................................................................4 1.3.3.The
sellers...........................................................................................................5 1.3.4.Other
insurance related professions and bodies..................................................5Chapter 2: General
insurance...............................................................................................5 2.1.Overview of general
insurance..................................................................................5 2.1.1.Concept of general
insurance..............................................................................5 2.1.2.General insurance devision
(Cc nghip v BHPNT)........................................5 2.2.Commercial general
insurance...................................................................................5 2.2.1.Marine insurance (BH
hng hi).........................................................................5 2.2.2.Oil and gas insurance (BH ga
du).....................................................................6 2.2.3.Non-marine general insurance (BHPNT
ngoi BH hng hi)............................6 * Property insurance (BH ti
sn)..........................................................................6 * Business interruption insurance (BH gin
on kd)...........................................6 * Motor vehicle insurance (Automobile or motor
insurance)................................6 * Construction and Erection insurances (BH xy dng v lp
t).......................6 * Liability
insurance..............................................................................................7 * Aviation insurance (BH
hng khng).................................................................7 2.3.Personal general insurance (BH con
ngi PNT)......................................................7Chapter 3: Life
insurance.....................................................................................................7 3.1.Definition
oflifeinsurance..........................................................................................7 3.2.The basic types of
life insurance................................................................................7 3.2.1.TermTemporary term
insurance (BH t vong c thi hn)...............................7 3.2.2.Whole life insurance (BH trn i)
...................................................................8 3.2.3.Pure endowment insurance (BH sinh k thun
ty)...........................................8 3.2.4.Annuities insurance (BH nin kim hoc tr
cp)................................................8 3.2.5.Endowment insurance (BH hn hp hoc sinh
k)............................................8 3.2.6.Other types of life insurance
polocies.................................................................8Chapter 4:
Reinsurance........................................................................................................8

3. 3. Chp theo slide Wd8042

4.1.Overview....................................................................................................................8
4.1.1.Concept...............................................................................................................8 * The
definition stresses 2 important facts..............................................................8 * The nature of
insurance.........................................................................................9 * Particular elements of
reinsurance........................................................................9 * Other
definition.....................................................................................................9 * Other
concept........................................................................................................9Chapter 1: Overview
of insurance1.1.Risk and insurance1.1.1.Concept of risk * Definition of risk Risk is the
probability of something happening that will have an unfavorable (btli) outcome (hu qu) or
an unpredictable (khng mong i) result. * 2 elements of risk - The likelihood (kh nng) of
something happening (xy ra s c) is uncertain(khng chc chn) - The consequence (hu
qu) if it happen is not favorable (mong i) * The types of risk (4 methods to classify risk) Speculative/Dynamic risk (ri ro u c) Pure/Static risk (ri ro thun ty) - Particular risk (ri ro
ring bit) Fundamental risk (ri ro c bn) - Financial risk Non financial risk - Insurable risk
Non insurable risk1.1.2.Concept of risk management * The process of risk management: 3
steps - Identify risks or identify of the risks - Evaluate the risks - Decide treatment to the risks *
The methods to treat the risk - Avoidance (trnh n ri ro)
4. 4. Chp theo slide Wd8042 - Control (kim sot ri ro) - Retention (chp nhn) - Transfer + Non
insurance transfer of risk (chuyn giao ri ro khng s dng BH) + Insurance1.1.3.Concept of
insurance * Definition of insurance Insurance is a contract between to parties whereby one party
(insurer) agrees toundertake the risks of another (insured) in exchange for consideration
known aspremium and promises to pay a fixed sum of money to the other party on the
happeningof uncertain event or after the expiry of a certain period in case of life insurance or
toindemnify other parties on the happening of an uncertain event in case of generalinsurance *
Benefits of insurance (li ch) - Provide financial stability - Taking peace of mind (mang li s an
tm) - Stimulate business enterprise (kch thch hot ng kinh doanh) - Encourages loss
control (tng cng phng trnh ri ro) - Encourages investment (tng cng u
t)1.1.4.Insurance contracts - The decleration page (bn k khai thng tin) - Policy wording
(HBH tm tt) - The insuring agreement or general insurance or conditions & exclusion
(iukhon chung) - Extensions & modifications (iu khon b sung)1.2.Principles of
insurance (nguyn tc) * Insurable interest (quyn li c th c BH) * Utmost good faith
(trung thc, tin tng) * Indemnify (bi thng) * Subrogation (th quyn) * Contribution (ng
gp bi thng hay chia s trch nhim trong trng hp BHtrng)1.3.Insurance
market1.3.1.The buyers of insurance - Individuals - Commercial enterprises Government1.3.2.The intermediaries (trung gian)
5. 5. Chp theo slide Wd8042 - Insurance agents (i l BH) - Insurance brokers (mi gii
BH)1.3.3.The sellers - Direct insurers (ngi Bh trc tip) - Reinsurers (DN ti BH) - Protection
and indemnify clubs (t chc bo tr v bi thng) - Co operatives (hp tc x) or Mutual (c
phn) insurance companies (cng tyBH tng h)1.3.4.Other insurance related professions and
bodies - Actuaries (chuyn gia, chuyn vin tnh ph) - Loss adjusters (chuyn vin tnh ton tn
tht)Chapter 2: General insurance2.1.Overview of general insurance2.1.1.Concept of general
insurance General insurance comprises any insurance that is not determind to be
lifeinsurance2.1.2.General insurance devision (Cc nghip v BHPNT) * In USA - Property
insurance (BH ti sn) - Casualty insurance (BH trch nhim) * In UK - Personal lines (Cc
nghip v BH c nhn) - Commercial lines (Cc nghip v BH thng mi) - London market * In
many DIM development insurance market - Commercial general insurance - Personal general
insurance2.2.Commercial general insurance2.2.1.Marine insurance (BH hng hi) * Several

specific types of losses (nhng tn tht ring bit) - Total los (tn tht ton b) - Particular
average ( (tn tht ring, tn tht b phn) - General average (tn tht chung) * Types of marine
property insurance
6. 6. Chp theo slide Wd8042 - Cargo insurance (BH hng ha) - Hull and machinery insurance
(BH thn v my mc thit b tu) - Loss of income (BH tn tht thu nhp) * Types of marine
liability insurance (Cc loi trch nhim) - Collision liability nurance (trch nhim BH m va) Protection and indemnity nurance (trch nhim BH ca hi) - Other liability insurances (trch
nhim BH khc)2.2.2.Oil and gas insurance (BH ga du) - Property damage insurance (BH thit
hi ti sn) - Hull and carro insurance (BH tu v hng ha ch trn tu) - Liability insurance
(BH trch nhim)2.2.3.Non-marine general insurance (BHPNT ngoi BH hnghi) * Property
insurance (BH ti sn) - Fire and special peril policy (BH ha hon v cc trng hp c bit) Industrial all risks policy (BH mi ri ro cng nghip) - Home insurance (BH nh) * Business
interruption insurance (BH gin on kd) - Tradition gross profit wordings (n BH li nhun gp
truyn thng) - Gross revenue of fees wordings (n BH thu nhp gp hoc ph) - Gross rentals
wordings (n BH cho thu) * Motor vehicle insurance (Automobile or motor insurance) BH xe
c gii - Motor vehicle physical damage insurance BH thit hi vt cht xe c gii - Motor
vehicle owners third party liability insurance (liability to third party) BH trch nhim ca ch xe
c gii vi ngi th 3 - Motor vehicle owners civil liability to the passenger BH trch nhim dn
s ca ch xe c gii i vi hnh khch - Motor vehicle owners civil liability to good in transit
BH trch nhim dn s ca ch xe i vi hng ha vn chuyn - Personal accident of driver,
assistant driver and passenger (Applied to non-passenger service car) BH li, ph xe v hnh
khch trn xe, p dng vi xe khng vn chuyn hnhkhch * Construction and Erection
insurances (BH xy dng v lpt) - Construction all risks insurance (BH mi ri ro xd)
7. 7. Chp theo slide Wd8042 - Erection all risks insurance (BH mi ri ro lp t) * Liability
insurance - General liability insurance (BH trch nhim tng hp) - Directors and Officers
liability insurance (BH trch nhim cho nhng ngi chcht) - Employer liability insurance (BH
trch nhim ca ngi ch sd vi ngi l) - Professional liability insurance (BH trch nhim
ngh nghip) - Public liability insurance (BH trch nhim chung) - Product liability insurance (BH
trch nhim sn phm) * Aviation insurance (BH hng khng) - Hull all risks (BH mi ri ro cho
thn my bay) - Spares insurance (BH thit b ph tng thay th) - Hull war risks (BH mi ri ro
chin tranh cho thn my bay) - Hull total loss only cover (BH tn tht ton b thn tu) Liability insurance + Liability insurance respect of passenger, baggage, cargo, mail carried on
theaircraft ( + Aircraft third party liability (BH trch nhim dn s vi ngi th ba)2.3.Personal
general insurance (BH con ngi PNT) - Personal accident insurance (Bh tai nn c nhn) Medical and health insurance (BH chi ph y t v sc khe) - Worker compensation insurance
(BH gim mt thu nhp cho ngi l) - Consumer credit insurance (BH tn dng tiu
dng)Chapter 3: Life insurance3.1.Definition oflifeinsurance Life insurance is a contrast between
the policy owner and the insurer, where theinsurer agrees to pay a sum of money upon the
occurrence of the insured individuals orindividuls death or other event, such as terminal illness
(bnh giai on cui) or criticalillness (bnh him ngho), and in return the policy owner (ch
hp ng) agrees to pay astipulated amount of premium at regulary (khong thi gian nh
nhau) intervals (un) or in lump sum (ph tr 1 ln)3.2.The basic types of life
insurance3.2.1.TermTemporary term insurance (BH t vong c thihn) - Level tm insurance
(BH t k c nh tc STBH khng i) - Renewed term insurance (BH t k c th ti tc)
8. 8. Chp theo slide Wd8042 - Convertible term insurance (BH t k c th chuyn i) Decreasing term insurance (BH t k gim dn) - Increasing term insurance (BH t k tng
dn)3.2.2.Whole life insurance (BH trn i) - Non profit whole life insurance (BH trn i
khng chia li) - With profit whole life insurance (BH trn i c chia li)3.2.3.Pure endowment

insurance (BH sinh k thun ty)3.2.4.Annuities insurance (BH nin kim hoc tr cp) Immediate annuity (Nin kim tr ngay) - Deferred annuity (Nin kim tr sau) - Temporary annuity
(Nin kim tm thi) - Guaranteed annuity (Nin kim m bo) - Increasing annuity (Nin kim
tng dn)3.2.5.Endowment insurance (BH hn hp hoc sinh k) - Non profit endowment With profit endowment3.2.6.Other types of life insurance polocies - Unit linking (BH lin kt n
v) - Investment linked insurance (BH klieen kt u t) - Universal life policies (BH ph cp
hoc lin kt chung) - Contigent policies (n BH c iu kin) - Bolt - on policies (Cc n BH
b sung)Chapter 4: Reinsurance4.1.Overview4.1.1.Concept Reinsurance is an arrangement in
which a company, the reinsurer (ngi nhnti), agrees to indemnify an insurance company, the
ceding company (cng ty nhngti), against all or a portion of the primary insurance risks
underwritten by the cedingcompany under one or more insurance contracts Reinsurance is the
insurance of the risk assumred by the insurer* The definition stresses 2 important facts - There
is a new contract the reinsurance contract which does not modify (sai) the insurance
contract in anyway
9. 9. Chp theo slide Wd8042 - The reinsurance contract does not establish any kind of legal link
between theinsured and the reinsurer for this reason, the insured can take no legal action
against thereinsurer* The nature of insurance Reinsurance is always a contract of indemnity,
even in life and accidentinsurance, because it protect the insurer from diminution (s gim) of
his property,caused by insurance policy obligations (ngha v, trch nhim)* Particular elements
of reinsurance - Reinsurance is a distinct and separate (ring bit) contract from the
originalinsurance and itself takes the form of a contract of insurance - Reinsurance need not
cover the insureds entire obligation under the originalcontract of insurance, either in terms of
the sums payable or in terms of the perils covered - The insurance contract must cover the
same risk as the original insurance - The insurance contract and the reinsurance contract must
exist at the same timewith the insurance contract proceding the reinsurance contract* Other
definition - Ceding company (cedant, insured, reassured): the insurer which cedes all or partof
insurance risk written to another - The reinsurer: the insurance company that accepts the
transference - Cession (phn nhng ti): the amount of insurance risk transferred to a
newreinsurer by a ceding company* Other concept - Retrocession (s nhng li): a insurance
transaction (s giao dch) whereby areinsurer the retrocedent cedes all or part of insurance
risk to another reinsurer retrocessionaire - Retrocessionaire: the reinsurer of reinsurance
company - Retrcedent: a insurance company that buys reinsurance A -> B -> C => B:
retrocedent; C: retrocessionaire - Retentionans (deductible, franchise, ceding companys net
liability, retainedline): is the part of the risk that is not ceded and is kept for own account of the
insurer - The retention: can be given either as a percentage or an amount of the suminsured Ex:
a company retains 30% of all sum insured in the plate glass branch, anamount of 100.000 of
particularly well constructed private house fire policies - Priority: is the maximum part of the loss
incurred which is covered by theinsurer - Profit commission (hoa hng theo li): is a
contractually agreed commission(hoa hng tha thun theo H) paid by the reinsurer to the
insurer in poportion (t l) toreinsurer profits in the given reinsurance business
10. 10. Chp theo slide Wd8042 - Commission: is a remuneration paid by the reinsurer to the
insurer for insurerscosts related to the reinsurance business (H KD TBH)4.2.Function of
Reinsurance - Risk transfer - Income smoothing - Reinsurer expertise - Creating a manageable
and profitable portfolio of insured risks - Surplus relief and Managing cost of capital for an
insurance company

Insurance textbook
1. 1. Insurance Dundamental in English Fix mc lcWd8042 1
2. 2. Insurance Dundamental in English Fix mc lcWd8042CHAPTER
1.........................................................................................................................................3OVER
VIEW OF INSURANCE...........................................................................................................3 1.1
Risks and insurance..................................................................................................................3
1.1.1 Concept of risk...................................................................................................................3
1.1.2 Concept of Risk Management ..........................................................................................6
1.1.3 Concept of Insurance.........................................................................................................8
1.1.4 Insurance Contracts.........................................................................................................11

1.2 Principles of
insurance............................................................................................................13 1.2.1 Insurable
interest (quyn li c th c BH).................................................................13 1.2.2 Utmost
Good Faith (trung thc tin tng tuyt i) .....................................................15 1.2.3 Principle of
Indemnity......................................................................................................16 1.2.4
Subrogation......................................................................................................................17 1.2.5
Contribution / Double insurance......................................................................................18 1.2.6
Proximate cause...............................................................................................................19 1.3
Insurance market......................................................................................................................21
1.3.1 The buyers of insurance .................................................................................................21
1.3.2 The intermediaries............................................................................................................21
1.3.3 The sellers .......................................................................................................................24
1.3.4 Other insurance related professions and
bodies...............................................................27CHAPTER
2.......................................................................................................................................29GENE
RAL INSURANCE..................................................................................................................29
2.1 Overview of general
insurance................................................................................................29 2.2 Commercial
general insurance.................................................................................................30 2.2.1 Marine
Insurance and Oil & Gas Insurance....................................................................30 2.2.1.1 Marine
Insurance.....................................................................................................30 2.2.1.2 Oil & Gas
Insurance ................................................................................................34 2.2.2 Non - marine
General Insurance......................................................................................35 2.2.2.1 Property
Insurance/fire insurance.............................................................................35 2.2.2.2 Business
interruption Insurance ..............................................................................38 2.2.2.3 Motor Vehicle
Insurance..........................................................................................38 2.2.2.4 Construction and
Erection Insurance........................................................................40 2.2.2.5 Liability
Insurance....................................................................................................42 2.2.2.6 Aviation
Insurance....................................................................................................44 2.3 Personal
general insurance.......................................................................................................46 2.3.1
Personal accident insurance.............................................................................................46 2.3.2
Medical and health insurance .........................................................................................47 2.3.3
Workers compensation insurance....................................................................................47 2.3.4
Consumer credit
insurance...............................................................................................49CHAPTER
3.......................................................................................................................................50LIFE
INSURANCE............................................................................................................................50
3.1
Overview..................................................................................................................................50
3.2. Term/Temporary Term
Insurance...........................................................................................51 3.2.1
Concept............................................................................................................................51 3.2.2
Annual renewable term....................................................................................................51 3.2.3
Level Term Life Insurance..............................................................................................52 1
3. 3. Insurance Dundamental in English Fix mc lcWd8042 3.3 Permanent life
insurance .........................................................................................................52 3.3.1
Concept............................................................................................................................52 3.3.2
Whole life insurance........................................................................................................53 3.3.3

Universal life insurance...................................................................................................55 3.3.4

Variable universal life insurance......................................................................................56 3.4
Endowment Insurance and Pure endowment..........................................................................58
3.4.1 Endowment Insurance....................................................................................................58
3.4.2 Pure endowment.............................................................................................................60
3.5 Income stream
products.........................................................................................................60 3.6 Group life
insurance policies..................................................................................................62CHAPTER
4.......................................................................................................................................64REINS
URANCE................................................................................................................................64
4.1
Overview..................................................................................................................................64
4.1.1 The Concept.....................................................................................................................64
4.1.2 Functions of Reinsurance.................................................................................................64
4.2 Methods of
reinsurance............................................................................................................67 4.2.1
Facultative Reinsurance ..................................................................................................67 4.2.2
Treaty Reinsurance ..........................................................................................................68 4.2.3
Facultative/ Obligatory Treaty ........................................................................................69 4.3
Types of Reinsurance...............................................................................................................70
4.3.1 Proportional Reinsurance.................................................................................................70
4.3.1.1 Quota Share .............................................................................................................70
4.3.1.2 Surplus Reinsurance.................................................................................................71
4.3.2 Non Proportional Reinsurance......................................................................................73
4.3.2.1 Excess of Loss reinsurance.......................................................................................73
4.3.2.2 Stop Loss .................................................................................................................75 4.4
Non - Traditional Reinsurance.................................................................................................75
4.4.1 The Concept.....................................................................................................................76
4.4.2 Types of Financial Reinsurance
Contract........................................................................77CHAPTER
5.......................................................................................................................................79Financ
e and Accounting in insurance.................................................................................................79
5.1 Implementing the IASs/IFRS in the insurance industry ........................................................80
5.1.1 Overview..........................................................................................................................80
5.1.2 Financial statements of insurance companies in accordance with IAS/IFRS..................86
5.1.2.1 Financial Statements Key Points...........................................................................86
5.1.2.2 Financial statements in accordance with the IAS / IFRS........................................88 5.2
Assessing Financial Strength of insurance companies............................................................90
5.2.1 Financial strength ratings methodologies of rating agencies...........................................91
5.2.2 Capital adequacy and solvency of insurance companies.................................................94
5.2.3 Ratios used in assessing insurance companys financial condition.................................96
5.2.3 Roles of Actuaries, independent Auditors, internal audit and internal control in the financial
management ..............................................................................................................99CHAPTE
R
6.....................................................................................................................................102LEGAL
ASPECTS of INSURANCE...............................................................................................102 6.1
Overview ...............................................................................................................................102
6.2 Legal aspects of insurance

contract.......................................................................................102 6.2.1 Concept of insurance

contract........................................................................................102 6.2.2 Essentials of a Valid
Insurance Contract .....................................................................103 6.2.3 Content of an
insurance contract....................................................................................104 6.2.4 Entering into
contracts of insurance .............................................................................105 6.2.5 Cancellation
of insurance contract.................................................................................109 6.3 Insurance
Regulation and supervision...................................................................................110 2
4. 4. Insurance Dundamental in English Fix mc lcWd8042 6.3.1 Objectives of Insurance
Regulation and supervision..................................................110 6.3.2 Prudential supervision of
insurance company solvency................................................112 6.3.2.1 Supervision based on
solvency margin requirement .............................................112 6.3.2.2 Supervision based on
Risk Based Capital system..................................................114 6.3.3 Globalisation of the
regulatory framework....................................................................117 6.3.3.1 Introduction of the
IAIS........................................................................................117 6.3.3.2 The Insurance core
principles and methodology (October 2003, modified 7 March
2007)...................................................................................................................................119
CHAPTER 1 OVERVIEW OF INSURANCE1.1 Risks and insurance1.1.1 Concept of riskDefinition of riskIn general, risk is defined as:The probability of something happening that will
have an adverse (xu) impact(nh hng) uponpeople, plant, equipment, financials, property or
the environment and the severity (mc ) of theimpact.Basically, the concept of risk has three
elements: - The perception (kh nng) that something could happen - The likelihood (kh nng
xy ra) of something happening - The consequences (hu qu) if it happensRisk implies (m
ch) some form of uncertainty about an outcome (hu qu) in a given situation andthe outcome
is not favorable.In the insurance area, as a basic insurance term, risk may be definned as the
chance of somethinghappening that may have an unfavorable financial impact upon subject
matter of insurance (itng ca BH). However, the term Risk is also used in various senses
( ngha), notably: - The subject matter of insurance; - Uncertainty as to the outcome of an
event; - Probability (kh nng) of loss; 3
5. 5. Insurance Dundamental in English Fix mc lcWd8042 - The peril (s e da) insured
against; - Danger; - A particular (c nhn) unfavorable outcome such as fire damage or a
broken armThe term risk can be used as a noun as in the above examples or as a verb in
which the usualmeaning is to take a chance on something. For example a mountain climber
risks a broken armand even risks death if he were to fall.- Types of risksRisk takes many forms,
normally being classified into two main types being: Speculative (or Dynamic) Risk and Pure
(or Static) Risk (rr u c v rr thun ty)Speculative (dynamic) risk is a situation in which either
gain (li ch) or loss is possible. Examplesof speculative risks are betting on a horse race,
investing in stocks/, bonds and real estate. In thesesituations, both gains and losses are
possible. In the daily conduct (qun l) of its affairs (s vic),every business establishment
faces (i mt) decisions that entail (dn n) elements of risk. Thedecision to venture (mo
hiemr) into a new market, borrow additional capital, etc., carry risksinherent (c hu) to the
business. The outcome of such speculative risk is either beneficial( sinhli) (profitable) or loss.In
contrast to speculative risk, a pure risks involves possibility of loss only or at best (may mn
lm)a no gain situation. The only outcome of pure risks are adverse (c hi) (in a loss
situation) orneutral (khong hi khng li) (with no loss), never beneficial. A pure risk does not
include thepossibility of gain.Examples of pure risks are premature death, occupational
disability, catastrophic medical expenses,damage to property and the loss ability to generate
revenue from the asset which has been lost ordamaged.It is important to distinguish between
pure and speculative risks for three reasons: - First, through the use of general insurance

policies, insurance companies generally insure only pure risks. Speculative risks are not
considered insurable, with some exceptions (loi tr). - Second, the law of large numbers can
be applied more easily to pure risks than to speculative risks. The law of large numbers is
important in insurance because it enables (cho php) insurers to predict loss figures in advance.
- Finally, society as a whole benefits from speculative risk even though a losses sometimes
occurs, but is only harmed by pure risk. This is to say, society would not benefit when 4
6. 6. Insurance Dundamental in English Fix mc lcWd8042 pure risks such as earthquakes occur
but benefits from speculative risks taken by entrepreneurs since jobs and wealth are created by
them in the process. Particular (ring bit) risk and Fundamental (c bn) riskParticular risks
are risks that affect only a single or relatively (tng i) few individuals, not theentire
communnity. Examples of particular risks are burglary, theft, auto accident and dwellingfires. In
contrast to particular risks, fundamental risks affect the entire economy or large numbers
ofpeople or groups within the community. Examples of fundamental risks are high
inflation,unemployment, war and natural disasters such as earthquakes, hurricanes and floods,
etc.The distinction (s khc bit) between a fundamental and a particular risk is important,
sincegovernment assistance (s gip ) may be necessary in order to insure fundamental
risks. Socialinsurance, government insurance programs, and government guarantees and
subsidies are used tomeet certain fundamental risks which are not insurable by private
insurance companies. Financial risk and Non - financial riskA financial risk is the situation in
which the outcome must be capable of measurement in monetaryterms. Example of financial
risk: damage to the hull and machinery of a vessel. The financial valueof the risk is the cost of
repairing or replacing the different portions of the vesselIn contrast to financial risk, non financial risk is the situation in which the outcome is notmeasurable in monetary terms.
Examples of non financial risks are choosing a spouse or decidingwhether to leave ones
hometown to live. Each of the above situations will involve a degree ofuncertainty or risk and the
result may be satisfactory or disappointing.It is important to distinguish between a financial risk
and a non - financial risk. For a risk to beinsurable, the outcome must be capable of
measurement in monetary terms. Non financial risks arenot insurable. Insurable and NonInsurable RisksFor a risk to be insurable it must meets certain conditions as follows: - There
must be an insurable interest in the object or person being insured. - There must be a large
number of similar risks being insured. - Any losses occurring must be accidental - It must be
possible to calculate the risk of a loss occurring.Further, for an efficient (hiu qu) insurance
system to exist, an insurable risk must meets the idealcriteria (tiu chun) as follows: - The
insurer must be able to charge a premium high enough to cover not only claims (khiu ni, bi
thng) expenses, but also to cover the insurers expenses. 5
7. 7. Insurance Dundamental in English Fix mc lcWd8042 - The nature of the loss must be
definite (xc nh) and financially measurable. That is, there should not be room for argument as
to whether or not payment is due, nor as to what amount the payment should be. (khng nn
s h cho vic tr hay khng tr, v cng khng nn phi bn bc v lng phi tr) - The loss
should be random in nature.Also, risks that are not measurable, can not be rated properly. The
insurer will need to charge aconservatively (thn trng) high premium in order to mitigate (gim
nh) the risk of paying toolarge a claim. The premium will thus be higher than ideal (suy ngh),
and inefficient. (khng hiuqu)1.1.2 Concept of Risk ManagementRisk Management involves
the understanding and identification of a broad spectrum (p dng rngri) of risks faced by
individuals and businesses together with the ability to make decisions withrespect (chi tit) to
methods to avoid, reduce and control risk to the extent possible and to thenmake decisions with
respect to determining the most efficient (c hiu qu) way to treat theremaining risk which
includes firstly to determine the amount of risk that the organization has theability to absorb

financially and then to plan for either insurance or other contractual transfer of theremaining risk.
Risk includes the full range of unfavorable outcomes that may result from a chainof events
involving hazards and perils all leading to any one of the many possible unfavorableoutcomes.
Individual risks can be studied and analyzed with the purpose to reduce its probabilityand its
effect. With respect to all individual risks there are chains of events that can lead to the
riskoccurrence. It is important to understand these chains so that risk can be most
appropriatelyunderstood and managed.All risk chains include hazards and perils. It is important
to understand the distinction amonghazard, peril and risk as many people are confused by
these terms but in fact the succinctmeaning of each is very different. Hazards are states or
conditions that increase the possibility ofa peril from happening. A peril is an risk event
possibility that may lead to any particularunfavorable final outcome. If a peril is incurred the risk
of a particular negative outcome isincreased. For example a wet floor is a hazard that may
lead to the peril of a fall which maylead to the ultimate risk of a broken arm. A wet floor does
not always lead to a fall and a fall doesnot always lead to a broken arm however where hazards
exist then perils are more likely to occurand where perils occur then particular ultimate risk (a
type of loss event) such as the risk of abroken arm in this case is increased. Thus by
understanding this chain it is possible to manage orcontrol the hazard and to make perils that
occur less likely to occur which in turn will decrease thechance of suffering the ultimate
particular risk (in this case is a broken arm). Poor housekeeping is 6
8. 8. Insurance Dundamental in English Fix mc lcWd8042an example of a hazard that may lead
to the peril of fire. Fire may lead to complete destruction of abuilding. However by ensuring good
housekeeping the peril of fire is reduced. But if the peril offire is incurred then if there is a proper
loss reduction system in place such as a sprinkler systemthen the severity of the loss by fire will
likely be decreased or minimised.The process of risk management is a systematic plan to
identify risks, evaluate the risks and todecide ultimately how to treat the risk. Risk should be
identified by formal methods such as riskquestionnaires which ask basic information about the
risk such as size of risk, amount of value atrisk, type of structure, previous claim information etc.
In addition physical inspection can be madeby a risk assessor who can look at housekeeping,
maintenance logs, physical condition ofequipment especially boilers etc. Lastly review of the
operations process should be made to identifywhere any specific problems could occur in the
event of an interruption. Once risk is adequatelyidentified the process of determining appropriate
treatment begins.People, organizations and society usually try to avoid risk but where not
avoidable, then best tomanage it. There are 5 major methods of handling risk: avoidance, loss
control, retention,noninsurance transfers, and insurance.- AvoidanceAvoidance involves not
participating in certain activities that involve risk. For examples, the risk ofa loss of investing in
the stock market can be avoided by not buying but the fact remains that not allrisks can be
avoided, and even where they can be avoided, it is often not desirable. Avoiding riskmay be
avoiding certain pleasures of life, or the potential profits that result from taking risks. Thosewho
minimize risks by avoiding activities are usually bored with their life and dont make muchmoney.
Where avoidance is not possible or desirable, loss control is the next best thing.- ControlLoss
control works by both loss prevention, which involves reducing the probability of risk such
askeeping a manufacturing facility clean and orderly, or loss reduction, which minimizes the
lossshould the loss occur such as the use of a sprinkler system.Losses can be prevented by
identifying the factors that increase the likelihood of a loss, then eithereliminating the factor or
minimizing its effect. Most businesses actively control risk because it is acost-effective way to
prevent losses from accidents and damage to property, and generally becomesmore effective
the longer the business has been operating.- Retention Active retention (Risk assumption) 7

9. 9. Insurance Dundamental in English Fix mc lcWd8042Risk retention, as active retention or

risk assumption, is handling the unavoidable or unavoided riskinternally, either because
insurance cannot be purchased for the risk, because it costs too much, orbecause it is much
more cost-effective. Usually, retained risks occur with greater frequency, buthave a low severity.
An insurance deductible is a common example of risk retention to save money,since a
deductible is a limited risk that can save money on insurance premiums for larger risks.
Passive risk retentionPassive risk retention is retaining risk where the risk is unknown or
improperly understood.- Transfer Non-insurance transfers of riskRisk can also be managed by
noninsurance transfers of risk. The 3 major forms of noninsurance risktransfer is by contract,
hedging, and, for business risks, by incorporating. A common way totransfer risk by contract is
by purchasing the warranty extension that many retailers sell for theitems that they sell. The
warranty itself transfers the risk of manufacturing defects from the buyer tothe manufacturer.
Transfers of risk through contract is often accomplished or prevented by a hold-harmless clause
and other forms of indemnity agreements which may limit liability for the party towhich the
clause applies.Hedging is a method of reducing portfolio risk and some business risks involving
futuretransactions. A Stockholders can reduce his risks by buying put options. A business can
hedge aforeign exchange transaction by purchasing a forward contract that guarantees the
exchange rate fora future date. Airlines will typically hedge fuel prices by buying forward
contracts also known asfutures to guaranty a maximum price for up to a certain future
period.Investors can reduce their liability risk in a business by forming a corporation or a limited
liabilitycompany. This prevents the extension of the companys liabilities to its investors.
InsuranceInsurance is one major method that most people, businesses, and other organizations
can use totransfer certain risks. By using the law of large numbers, an insurance company can
estimate fairlyreliably the amount of loss for a given number of customers within a specific time.
An insurancecompany can pay for losses because it pools and invests the premiums of many
subscribers(customers) to pay the few who will have significant losses.1.1.3 Concept of
InsuranceGenerally, insurance is the means whereby the losses of a few are transferred to
many. Insuranceworks on the basic principle of risk-sharing. While community grain pools have
probably existed 8
10. 10. Insurance Dundamental in English Fix mc lcWd8042for thousands of years, modern
organized risk sharing began in the coffee houses of London a fewhundred years ago where
ship owners would meet and agree to share losses with each other. A greatadvantage of
insurance is that it spreads the risk of a few people over a large group of peopleexposed to risk
of similar type.Insurance provides financial protection against a loss arising out of happening of
an uncertain event.A person can avail this protection by paying a fee known as premium (or
contribution) to aninsurance company. A pool is created through contributions (premiums) made
by persons seekingto protect themselves from common risk. Premium is collected by insurance
companies which alsoact as trustee to the pool. Any loss to the insured in case of happening of
an uncertain event is paidout of this pool.In a legal respect, insurance is defined as: a contract
between two parties whereby one party(insurer) agrees to undertake the risk of another
(insured) in exchange for consideration knownas premium and promises to pay a fixed sum of
money to the other party on the happening of anuncertain event or after the expiry of a certain
period in case of life insurance or to indemnify otherparties on the happening of an uncertain
event in case of general insurance.- Benefits of insuranceInsurance brings many benefits to
individuals and to society as a whole. Provides financial stabilityWith insurance, even when
losses occur, peoples have the assurance that their assets can be restoredafter suffering
losses. So, however unfortunate events such as these may be, their finances will notbe drained,
and they and their familys financial stability will not be undermined. They will be ableto keep

their present lifestyle and their future plans. With respect to commercial business
operationsinsurance allows for normal operations of the business to continue to function
normally after losseshave occurred. Provides peace of mind and Stimulates business
enterpriseBy knowing that insurance exists to meet the financial consequences of certain risks
provides peaceof mind for an individual. Anxiety is also reduced when insured persons knows
that insurance isavailable to indemnify them when loss occurs.The indemnity function of
insurance also relieves businesses from the worry of anxiety they mayhave about how they
would meet the cost of risk. In the case of businesses, this is a positivestimulus to their activities
and allows them to get on with their own business in the knowledge thatthey are financially
protected against many forms of risk. 9
11. 11. Insurance Dundamental in English Fix mc lcWd8042 Business people will be more
inclined to risk their money by building factories, making goods,sailing ships, flying planes, etc,
with the knowledge that they will not lose everything should theyfall victim to risk. This is an
extremely important benefit which insurance brings not only to theindividual insuring but to the
whole country as stimulating businesses makes for a healthyeconomy and allows for
additional employment.The need for businesses to retain large sums of money to pay for
potential losses largely disappears.This helps the business cash flow and financial planning as
money does not need to be kept inreserve for losses which may occur. Instead, there is known
cost the premium. The availability ofinsurance, therefore stimulates enterprises as it makes it
easier for existing businesses to invest andexpand.. Encourages loss control Insurance also
can help in actually reducing losses. Insurers have an interest in reducing thefrequency and
severity of losses, and insurance companies have a great deal of experience in risksof all kinds
and, over many years, they have found ways in which certain risks can be reduced.They employ
surveyors who go out and look at premises which people may want to insure. Theycan, from
that experience, often suggest ways in which the likelihood of some risk occurring maybe
reduced. They might see some hazard which could injure employees, or a host of other
problems.The advice and the recommendations they make on behalf of insurance companies
reduces thelikelihood of many of the losses from ever occurring. An example would be for a
surveyor to pointout that flammable liquids must be stored in proper containers and only in
proper locations. Youwould expect that the last place that a flammable storage container should
be stored is in a stairwell.Correct? Remember this the next time you see motorcycles being
stored in the stairwell of aresidential building! In fact there is a flammable liquids storage
container in every motorcycle andso keeping motorcycles at the bottom of a stairwell is
extremely dangerous not only because itblocks exit from the building but that because in a fire
situation the gasoline containers in themotorcycles will explode creating heat and smoke in the
stairwell. Insurance companies will helpthe insured facilities identify these risks and make
recommendations to reduce or even eliminatecertain aspects of risk. Encourages investment
One further benefit derived from the transaction of insurance is the use to which the
insurancecompany puts the money it holds in the common pool. Insurers have, at their disposal,
large sums ofmoney. This arises from the fact that there is the gap between the receipt of a
premium and the 10
12. 12. Insurance Dundamental in English Fix mc lcWd8042payment of a claims. The insurer can
invest this money in a wide range of investments which all gotowards aiding government,
industry, commerce and consequently the whole of society. Enhance provision of credit
facilitiesBankers and other financial institutions require the security of insurance in financing
properties andoverseas trade. In this case, insurance enhances borrowers credit because it
helps to guaranty thevalue of the borrowers collateral, or gives greater assurance that the loan
will be repaid.We could go on with the benefits of insurance, but those listed above are enough

to show that theinsurance industry has a major importance to the society. In the act of creating
the common pool,security and peace of mind are provided, the likelihood or severity of losses
may even be reduced,vast funds of money are invested for the prosperity of the economy, the
country is relieved fromwhat it may look upon as a financial burden to compensate the victims of
loss and, finally, societygains large amounts of money from the payment of premiums from
overseas. Insurance companiescontribute to the efficiency of the economy.1.1.4 Insurance
ContractsThis section is intended to provide an overview of the structure of the insurance
contract. But first itis noted that Insurance contracts are normally governed by the common law
of contracts namelythat any contract whether the subject of insurance or any other matter
require certain elements tobecome enforceable. Section 6 will provide additional detail however
simply said, the law ofcontracts require that there be a meeting of the minds between
competent parties with respect tolegal subject matter which is to say that the parties entering
the contractual agreement besufficiently competent to understand the terms of the contract, that
there must be consideration,that the subject of the contract be of a legal nature nature etc.
With respect to competent parties,each side must normally be of a legal age to enter contracts
and be sane of mind to becomeenforceable. Thus a contract entered into by an adult and a child
or between a sane person and onewho is insane is not enforceable except in certain rare
circumstances. Each side must agree toexchange something of value as consideration. A
simple unilateral promise to give someonemoney or anything else is not enforceable in the
absence of the agreement of the other person toprovide something of value in return. Regarding
the legality of the subject matter a contract to buyand sell illegal drugs would not be
enforceable. Insurance contracts are again just like any anothercontract however as previously
noted there is a special duty to make each side aware of materialinformation so that there is
indeed a proper understanding or meeting of the minds before thecontract is undertaken. 11
13. 13. Insurance Dundamental in English Fix mc lcWd8042Insurance contracts have three main
sections being the declarations page, the main body of thepolicy, and a set of extensions. The
following describes these sections of the insurance contract in abit more detail.- The
declarations page (bn k khai thng tin)The declarations page which can also be known as a
cover schedule includes basic summaryinformation including the type of insurance, name and
addresses of the insurer and the insured, thesubject matter and the location of the risk, the
jurisdiction (thm quyn) of the risk, the effectiveperiod of the insurance, and a policy number.Policy wording (HBH tm tt)The policy wording is the full set of contractual wordings which
normally include a printed set ofcommon wordings used by the insurer on all risks of a similar
nature together with the wordings ofany particular extensions or other modifications to the main
wordings. The wordings are normallyprepared by the insurer or broker with the insurers final
agreement. This distinction is importantsince the courts normally provide that any vagaries in
the contract will be viewed in favor of theparty which did not prepare the wording. The Insuring
Agreement, general wording, conditions and exclusions (iu khon chung)The main wording
normally starts with a short sentence called the insurance agreement. Thisprovides for the main
essence of the insurance contract. Nearly everything else in the contract ismodifying the main
insurance agreement . For example the insuring agreement found in anIndustrial All Risk
property policy will typically state something like, In consideration of thepayment of premium
this policy covers all risks of loss or damage. All the remaining wordingprovides the framework
of the risk by explaining that which is required to effect the coverage, thatwhich is required to
keep the coverage in place etc. The policy will then specify certain conditionswhich must be met
such as proper maintenance of equipment, the perils which are excluded, thetype of property
which is excluded etc. Extensions and Modifications (iu khon b sung)Some of the perils
(mi e da) or types of property that are excluded under the basic policy may becovered or

bought back by way of an extension. There may be other modifications to theoriginal wording
which restrict (hn ch) the coverage being provided under the basic form. Forexample the main
policy form may exclude losses occurring as a result of the risk of faultydesign. This particular
exclusion is commonly bought back which is to say for some additional 12
14. 14. Insurance Dundamental in English Fix mc lcWd8042premium the insurer will agree to
cancel the exclusion. Other modifications may be made on anindividual basis. For example the
insurer may be aware that a fire sprinkler system is inoperable.The insurer may put some
restrictions to the coverage amount while the sprinkler system isinoperable.A proper review of
any insurance contact begins with a review of the insuring agreement, then areview of the
assets items subject to insurance to be sure that they are covered by the policy, then areview of
the perils covered or not covered, then lastly and assuming the property is found to be
thesubject of the policy and that the peril causing the loss is also covered or not excluded then a
reviewof the policy conditions is made to ensure that all conditions have been met. If there is a
loss forexample there is a sequence of items to review in order to determine whether the loss is
covered ornot. The sequence shown above would be typical of that done by loss adjusters to
determinewhether the coverage is applicable. Once there is a determination that coverage is
applicable thenthe adjuster will determine the quantum of the loss and settle the claim.1.2
Principles of insuranceInsurance is based on certain principles which form the foundation of an
insurance policy... Thebasic and general principles of insurance are: - Insurable Interest Utmost Good Faith - Indemnity - Subrogation - Contribution - Proximate Cause1.2.1 Insurable
interest (quyn li c th c BH)- ConceptInsurable interest is a fundamental principle of
insurance. It means that the person wishing to takeout (nhn c) insurance must be legally
entitled to insure the article, or the event, or the life. Inother words, the happening of the event
insured against, or the death of the life insured must causethe policyholder/insured financial
loss. The policyholder/insured must stand to lose financially if aloss occursAn insurable interest
in the life of another requires that the continued life of the insured be of realinterest to the
insuring party. The connection may be financial (as when a creditor insures the life ofhis
debtor ), or it may consist of familial or other ties of affection. 13
15. 15. Insurance Dundamental in English Fix mc lcWd8042The principle of insurable interest
demonstrates the difference between insurance and a wager orbet.- Purpose of the insurable
interest requirement is - To prevent gambling - To reduce moral hazard (gim ri ro v o c)
- To be able to measure the amount of loss- Existence of insurable interest Non - life
insuranceInsurable interest varies (bin i) according to the type of insurance policy. These
relationshipsgive rise to (th hin tt) insurable interest: - owner of the property; - vendor and
vendee (ngi bn v ngi mua); - bailee and bailor (ngi nhn v ngi y thc); - life
estates; - mortgagee and mortgagor (ch n v ngi cm c); - creditor of an insured has an
insurable interest in property pledged (vt th chp) as security. Life insurance - Each
individual has an unlimited insurable interest in his or her own life, and therefore can select
anyone (bt c ai)as a beneficiary (ngi th hng). - Parent and child, husband and wife,
brother and sister have an insurable interest in each other because of blood or marriage. Creditor-debtor relationships give rise to an insurable interest. - Business relationships give rise
to an insurable interest.- When must insurable interest exist? Non - life insuranceInsurable
interest has to exist both at the inception (lc bt u) of the contract and at the time of aloss.
For instance (v d), an insured can purchase a homeowners policy because of
insurableinterest in a home. Upon (lc) selling it, the insured no longer has an insurable interest
becausethere is no expectation of a monetary loss should the home burn down. 14
16. 16. Insurance Dundamental in English Fix mc lcWd8042Note that in certain types of
insurances such as marine cargo insurance, the insureds relationshipwith a thing that supports

issuance may exist at the time of loss only, not necessarily at theinception of the contract. Life
insuranceInsurable interest must exist at the inception of the contract, not necessarily at the
time of loss. Forexample, because a woman has an insurable interest in the life of her fianc,
she purchases aninsurance policy on his life. Even if the relationship is terminated, as long as
she continues to paythe premiums she will be able to collect the death benefit under the
policy.1.2.2 Utmost Good Faith (trung thc tin tng tuyt i)- ConceptOne of the important
basic principles of insurance is known as utmost good faith. The duty ofutmost good faith is
central to the buying and selling of insurance - both the insured and the insurerare expected to
disclose any information, important to the contract. This means that the insurer andthe insured
have a duty to deal honestly and openly with each other in the negotiations which leadup to the
formation of the contract. This duty continues whilst the contract is in force. If one party isin
breach of this duty, the other party usually has the right to avoid the contract entirely.- Duty of
Disclosure (trch nhim khai bo) Insureds Duty of DisclosureThe insured is legally obliged to
disclose all information that would influence the insurers decisionto accept the risk. Very often,
the insurer has to rely only on the description and details filled in theproposal form. In the
absence of a formal verification through third party surveyors, the Insurer hasno way of verifying
these details. After an insured peril has operated, the subject matter of theinsurance may very
well have gone up in smoke or washed away. It is therefore an impliedcondition or principle of
insurance that the insured be required to make a full disclosure of allmaterial particulars within
his knowledge about his risk. After taking out an insurance policy, ifthere are any alterations or
changes to the business or risk which increases the risk, the insured mustinform the
insurer.Normally, a breach of the principle of utmost good faith arises when insured, whether
deliberatelyor accidentally, fails to divulge these important facts. There are two kinds of nondisclosure: - Innocent non-disclosure or misrepresentation; - Deliberate non-disclosure providing incorrect material information intentionally.In the case of an innocent breach that is
irrelevant to the risk, the insurer may decide to ignore thebreach as if it had never occurred but if
the insurer considers the breach as innocent but significant 15
17. 17. Insurance Dundamental in English Fix mc lcWd8042to the risk, it may choose to collect
additional premiums to reflect that which would have beencharged if the risk was properly
known in the first place. In certain cases of misrepresentation,where the effect may only have
been increased premium, it is possible that the insurer may partlypay the a claim on a
proportional basis to the premium originally paid vs. the correct premium onthe true risk.In the
case of a deliberate material breach, the insurer would be entitled to avoid any payment
ofclaims or monies under the Policy. Insurers Duty of DisclosureThe insurer also has a duty of
disclosure to the insured. In order to fulfill this duty, the insurer mustalso exercise utmost good
faith, notably by : - notifying an insured of a possible entitlement to a premium discount resulting
from a good previous insurance history; - only taking on risks which the insurer is registered to
accept, i.e. avoid unenforceable contracts; - ensuring that statements made are true since
misleading an insured about policy cover is a breach of utmost good faith.In respect of utmost
good faith, besides duty of disclosure there are many others duties imposing onthe parties of a
insurance contract. These issues will be dealt with in the Chapter 6.1.2.3 Principle of IndemnityConceptIndemnity is arguably the most fundamental principle of insurance. The term indemnity
meansthe protection of or security against damarge or loss. Therefore, when an insurance
policy is said tobe a contract of indemnity, it is intended to provide financial compensation for
loss which theinsured has suffered and put the insured back in the same position that the
insured had enjoyedimmediately before the loss.One of the basic tenets of insurance is that the
insured should not profit from a loss or damage butshould be returned (as near as possible) to
the same financial position that existed before the loss ordamage occurred. In other words, the

insured cannot recover more than his or her actual loss fromthe insurer.- Purpose - To prevent
the insured from profiting from a loss 16
18. 18. Insurance Dundamental in English Fix mc lcWd8042 - To reduce the moral hazard of an
insured intentionally creating a loss in order to take advantage of the insurance- Application of
indemnityThis principle requires the insurer to pay an amount, not more than the actual loss
suffered.This principle plays a critical role in general insurance. Indemnity is easily applied to
losses that arequantifiable. There are, however, certain exceptions to this rule, such as personal
accident and lifeinsurance policies where the policy amount is paid on occurrence of accident or
death and thequestion of profit does not arise. Life insurance and personal accident policy are
therefore notcontracts of indemnity. A life insurance contract is a valued policy that pays a stated
sum to thebeneficiary upon the insureds death. Some marine insurance policies also constitute
an exceptionbecause the settlement of a total loss is based on a sum agreed upon at the time
the insurance policywas written. There are also some exceptions in the case of property
insurance where the subject ofthe insurance is a unique property such as a painting or other
artwork. In these cases the insurancewill be based on an agreed amount in advance.The aim of
the indemnity provision is to provide a claim amount that will help the claimant regainthe lost
financial position. In some indemnity contracts, the amount payable by the insurancecompany is
subject to the amount of actual loss. Some indemnity contracts also have a provision forthe
claim to be paid only if the actual loss exceeds a certain amount.In property insurance,
indemnification is based on the actual cash value of the property at the dateand place of loss.
There are three main methods to determine actual cash value: - Replacement cost less
depreciation - Fair market value is the price a willing buyer would pay a willing seller in a free
market - Broad evidence rule means that the determination of actual cash value should include
all relevant factors an expert would use to determine the value of the propertyIn liability
insurance, the indemnity under a liability insurance policy is the amount of damagesawarded by
the court. In actual practice, mosst liability claims do not go to court. They are usuallysettled by
negotiation between the insurers and the third - party on the basis of what a court wouldaward if
tha the case had come before it.1.2.4 Subrogation- ConceptSubrogation is a legal principle
under which an insured party surrenders its rights against a thirdparty to the insurer after
claiming and receiving a compensation for an insured loss. 17
19. 19. Insurance Dundamental in English Fix mc lcWd8042The principle of subrogation enables
the insured to claim the amount from the third partyresponsible for the loss. It allows the insurer
to pursue legal methods to recover the amount of loss,which the company has paid the insured
via the insurance claim.- Purpose - To prevent the insured from collecting twice for the same
loss - To hold the negligent person responsible for the loss - To hold down insurance rates by
allowing the insurer to recover the loss from the responsible party- Application of
subrogationThe principle of subrogation can operate in two ways. First, the insured may have
actuallysucceeded in recovering for the same loss twice, i.e. collected a claim payment from his
insurerand recovered compensation from another source for the same loss. Second, where the
insured hasnot received compensation from another source, insurers who have indemnified the
insured inrespect of the loss may themselves bring an action against the third party who is
legallyresponsible for it.There are four notable aspects of the principle of subrogation: - The
insurer is entitled only to the amount it has paid under the policy - The insured cannot impair the
insurers subrogation rights - Subrogation does not apply to life insurance and to most individual
health insurance contracts - The insurer cannot subrogate against its own insuredsFurther, note
that there are some legal requirements of application of subrogation, for example: theinsurer
shall not be entitled to exercise rights of subrogation against a member of the household ofthe
policyholder or insured, a person being in an equivalent social relationship to the policyholderor

insured, or an employee of the policyholder or insured, except when it proves that the loss
wascaused by such a person intentionally or recklessly and with knowledge that the loss
wouldprobably result.1.2.5 Contribution / Double insurance- ConceptContribution is concerned
with the sharing of losses between insurers. It comes ito effect when twoor more insurers may
be involved on the same risk. 18
20. 20. Insurance Dundamental in English Fix mc lcWd8042This situation arises when the same
risk is insured by two overlapping but independent insurancepolicies. It is lawful to obtain double
insurance, and the insured can make claim to both insurers inthe event of a loss because both
are liable under their respective polices. The insured, however,cannot profit (recover more than
the loss suffered) from this arrangement because the insurers arelaw bound only to share the
actual loss the principle of contribution has evolved to ensure that allinsurers who are involved
in covering the risk pay an equitable proportion of claim.- Purpose - To prevent the insured from
profiting from a loss - To reduce moral hazard- Application of contributionContributions will arise
only where the following requirements are satisfied: - two or more policies of indemnity must
exit; - the policies must cover a common interest; - the policies must cover a common peril
which gives rise to the loss; - the policies must cover a common subject matter; and - each
policy must be liable for the lossContribution applies only to insurance policies which are
contracts of indemnity.Double insurance causes practical and legal problems and particularly,
where the sums insuredexceed the insurable value in the case of an unvalued policy or the
value fixed by the policy in thecase of a valued policy.Note that certain policies have what is
known as a non contribution clause. The effect of thisclause is that the policy would not
contribute if there was another insurance in force. However, thecourts do not favour such
clauses and in situations where a similar clauses applies to both (or all)policies they are treated
as cancelling each other out. This means that each insurer would contributeits ratable
proportion.1.2.6 Proximate cause- ConceptProximate cause concerns the real reason for the
loss. In the event of a claim the insurers will wantto ascertain if the cause of the loss was an
insured peril. Proximate cause is usually defined as Theactive efficient cause, which sets in
motion a chain of events which brings about a result without theintervention of any force started
and working actively from a new and independent sourceNote two aspects concerning the test
of proximate cause. 19
21. 21. Insurance Dundamental in English Fix mc lcWd8042 - Foreseeability: It determines if the
harm resulting from an action was reasonably able to be predicted. - Direct Causation: The main
thrust of direct causation is that there are no intervening causes between an act and the
resulting harm. An intervening cause has several requirements - it must: be independent of
the original act, be a voluntary human act or an abnormal natural event, and occur at some
time between the original act and the harm- Application of Proximate CauseProximate cause is
the active, efficient cause of loss or damage. For insurance to apply, theproximate cause must
be an insured peril. Establishing that a loss is covered by insurance is usuallystraightforward
because the event that gave rise to the loss is also usually quite clear. However,situations will
arise from time to time where there is more than one cause of damage, or there is aninitial
cause and then a subsequent cause. An example of this would be property damaged
causedduring typhoons. Typical homeowners insurance will provide cover for the peril of
windstorm butnot flood. Often homes most damaged by typhoons lie along coastal regions.
Damage caused bywave action is thus typically not covered. Many people who lost homes
during the famoushurricane Katrina lost those homes when surge waters moved in. The
insurers denied cover basedon the flood peril exclusion. People then sued their insurers
claiming that the homes were firstdestroyed or damaged by wind and demanded
compensation.Once the insurer has established the proximate cause of loss, it must ensure

determine that the perilwhich gave rise to the loss is covered by the policy. Perils can be
classified as follows: - Insured perils - Uninsured or unnamed perils - Excluded perilsThe courts,
when considering cases requiring the determination of proximate cause in concurrentcases,
have decided the following: - Where an insured peril and an uninsured peril operate
concurrently, there is a claim - Where insured peril and excluded peril operate concurrently,
there is no claimIn some loss events, the perils follow each other in sequence. The courts, when
considering casesrequiring the determination of proximate cause in sequential cases, have
decided the following: - Where an uninsured peril is followed by an insured peril, there is a claim
as per the example described above in Hurricane Katrina - Where an insured peril is followed by
an uninsured peril, there is a claim 20
22. 22. Insurance Dundamental in English Fix mc lcWd8042 - Where an insured peril is followed
by an excluded peril, there is a claim - Where an excluded peril is followed by an insured peril,
there is no claimPractically, in many situations, two perils were involved in the widespread
community loss, oneusually covered and one usually excluded. Determining the proximate
cause is not always easy.Indeed in the case of Hurricane Katrina, it was difficult to determine
the amount of windstormdamage that would have been present prior to the amount of wave
action damage in cases where thewave action ultimately obliterated the home leaving no
trace.1.3 Insurance marketBasically, in respect of market structure, the insurance market
comprises: - Buyers; - sellers; and - intermediaries1.3.1 The buyers of insuranceThe buyers of
insurance are known as policy-holders or policy-owners, and they can also be knownas
insureds. For the prospective buyers of insurance, they are known as proposers, prospects
andapplicants.There are generally three groups of buyers, namely, individuals, commercial
enterprises and thegovernment.The insurance types that are purchased by individuals will likely
be personal general insurances orlife insurances.Commercial general insurances are generally
purchased by business enterprises and thegovernment.1.3.2 The intermediariesAn intermediary
is a party who is authorized by a second party, called the principal, to bring thatprincipal into a
contractual relationship with another, called a third-party. The role of anintermediary is to bring
buyers and sellers together.Basically, there are two main types of intermediaries in the general
insurance sector: - insurance agents; - insurance brokers.- Insurance agents 21
23. 23. Insurance Dundamental in English Fix mc lcWd8042Agents arrange insurance policies on
behalf of an insurance company. The agent is appointed byinsurer through a written letter of
appointment or an agency agreement. The agency agreementsprovide for the specific authority
of the agent. The agent has the authority to act for a principal(usually the insurer) with the
objective of bringing the principal into legal relationships with otherpersons. As agent for the
insurer, the agents aim is to represent the insurer in procuring newinsurance customers, and
therefore new insurance policies, thereby increasing the insurerscustomer base and revenue.In
some places only individuals can operate as agents. In others, an agent can be a corporation
butthe corporation normally has to have individuals who act on its behalf.The agents will also
carry out many of the service functions generally performed by the insurer, andthese services
will be in the areas of: - assisting customers with the completion of insurance proposals collection of premiums - assisting customers with general inquiries concerning their insurance
covers - assisting customers with their claimsIn the developed insurance markets there are
many different types of insurance agents. - Sole agents (also known as tied or captive
agents): these agents are tied to one insurance company and must place all of their insurance
business with that company. - First option agents: these agents are sole agents who are able to
place some business outside of their principal insurance company. - Multi agents: these agents
are able to place insurance business with a number of insurance companies. The services
provided by a multi-agent will often be very similar to the services provided by an insurance

broker, given that a multi-agent will also represent a number of insurers. - Sub agents: these
agents normally work part-time and work with a principal full-time agent, sometimes working to
find and/or refer potential clients. They can be paid a fee or a portion of the principal agents
commission. - Underwriting agencies: underwriting agencies act on behalf of insurance
companies providing underwriting management and claims administration.- Insurance
BrokersGenerally speaking a broker is a professional negotiator who attempts to bring two
parties toaccept an agreement by showing the best aspects of any proposal to the respective
parties. Forexample the broker will show the most positive aspects of a proposed agreement
with respect toparty A while doing his or her best to show the most positive aspects of the
same agreement with 22
24. 24. Insurance Dundamental in English Fix mc lcWd8042respect to party B even though the
most positive aspects for party A may be completelydifferent than for party B. Thus brokers
are often thought of as being smooth talkers and inmany cases this is quite true however
despite being skilled in smooth talking professional brokersbe they stock brokers, insurance
brokers or real estate brokers must always remain honest about theway the agreement is
portrayed to each party. Insurance brokers find sources for contracts ofinsurance on behalf of
their customers. Insurance brokers can be individuals or organisations whoact principally for the
client and not the insurance company.A broking operation is a business of one or more brokers
that arranges and manages contracts ofinsurance for clients. Broking operations manage the
services they provide to clients, along with theday-to-day running of their business.As agent for
the insured (the client), the brokers aim is to save the client time, money and worry.The brokers
role is to negotiate competitive premiums and the best insurance coverage. They dothis through
their knowledge of the various insurance cover benefits and exclusions, as well as thecosts of
competing policies in the market. Brokers deal with a range of insurers and have access tomany
different policy types.Brokers act in the clients best interest and provide advice and guidance so
that clients can makeinformed decisions about their risk exposures and insurance protection.
They also ensure theirclients receive prompt and fair settlement of claims.The brokers first duty
is to that of their principal, the client, for whom they are acting. Brokersgenerally work for
insureds but are sometimes hired directly by the insurer.Except as is required under duty of
disclosure requirements, brokers are not responsible to theinsurer with whom he/she might
place the insurance covers on behalf of its clients but there is anexception to the general rule
which exists where a broker is acting under a binder agreement grantedto the broker by the
insurer. Brokers may enter into a binding authority with an insurer whereby thebroker is given an
authority by the insurer to enter into contracts of insurance on the insurersbehalf.In developed
insurance markets, the services that can be offered to a broking client have grown toinclude
much more than negotiation services and include: - regular meetings with the client for the
purpose of updating risk and or claim information - collection of information for underwriting
purposes - broking to prospective insurers - policy placement - claims management - providing
for midterm amendments to policies/new policies - claims recording and analysis 23
25. 25. Insurance Dundamental in English Fix mc lcWd8042 - self insurance management handling of losses below deductibles - risk management advice - loss control advice - technical
advice (policy coverage/legislation etc). - advice on the most appropriate manner in which to
structure the clients insurance program, - access to a broad range of insurance companies and,
therefore a broader range of insurance policies/cover that it markets - advice on the general
financial security of insurers who might be considered as underwriters for the various parts of
the clients insurance program - access to insurance markets in other countries, particularly for
specialist classes of insurance - and other services the broker may provideAlthough insurance
buyers may deal directly with insurers, the vast majority of commercialinsurance business (i.e.

insurance bought by companies) is transacted through brokers. Thecomplexity of many

commercial risks and the large premiums involved often render a brokersservices invaluable to
the insured.Though agents and brokers handle the majority of business in many insurance
markets, it is possibleto buy insurance directly from an insurance company. Buyers are also
buying through banks, theInternet, and other alternative distribution channels.1.3.3 The sellersDirect InsurersThese are insurance companies who exist primarily to provide insurance
protection to insurancebuyers without the use of intermediaries. All insurance companies are
classified according to themain class of insurance business they underwrite namely general or
life insurance.In the certain insurance markets, some companies write both general and life
insurances and theyare called composite insurers.- ReinsurersThese are companies who act
as insurers to the retail insurance market. They Reinsurers do not dealwith the general public;
instead, they liaise with the direct insurers selling into the retail marketdirectly or through
reinsurance intermediaries (these issues will be examined in the chapter 4) Notethat I change
the word from direct to retail in these two sentences because of the text is 24
26. 26. Insurance Dundamental in English Fix mc lcWd8042discussing the concept of direct
marketing of insurers without intermediaries in the previoussection. The use of the term direct
here with respect to reinsurance will confuse the reader.- Protection & Indemnity Clubs (P&I
Clubs)These clubs are mutual insurance associations formed by ship-owners to provide them
withindemnity against certain losses and liabilities which may arise, and for which cover is
nototherwise generally available in the marine insurance market. These include a wide range of
ShipOwners Liability covers such as Collision Insurance, Crew and Cargo Liabilities and
PollutionLiabilities.The Clubs operate on a non-profit making mutual basis. It means that the
contributions- "mutualpremium" paid by the membership companies in relation to any one year
should be sufficient tomeet all the claims, reinsurance and administrative expenses of the Club
for that year. If there is ashortfall because claims are high, the members may pay a pro rata
"additional call" (additionalpremium). If there is a surplus, a similar proportional return may be
made to the membership, ortransferred to reserve to meet losses on other years.The present
P&I Clubs are the remote descendants of the many small hull insurance Clubs that wereformed
by British ship-owners in the 18th century. Similar clubs exist with respect to the marinehull
market however after the removal in 1824 of the company monopoly in favour of the
RoyalExchange and the London Assurance, the hull Clubs became less necessary and went
into decline.A few exist today, but their share of the total hull market is not very significant.
However, legaldevelopments during the latter half of the 19th Century resulted in a significant
increase in shipowners liabilities to injured crew, passengers and others third parties, and the
first liabilityinsurance Club was founded in 1855.The Clubs started their activities by insuring the
1/4th liability for collisions and liability fordamage to fixed objects which were excluded from the
hull cover. This cover was called"protection" insurance. The introduction of statutory liability for
loss of life and injury topassengers gave rise to a new liability which was covered by the
establishment of "indemnity"mutuals.Legal developments in the late 19th Century resulted in
ship-owners facing an exposure to cargoclaims, and in 1874 the Indemnity Clubs started to
insure liabilities for loss of or damage to cargo.Fusion of the functions of the "Protection" and
"Indemnity" mutual associations gave rise to theProtection & Indemnity Clubs.While all the
original P&I Clubs were based in the United Kingdom, Clubs were subsequentlyestablished and
today flourish in Scandinavia, in the United States and in Japan. Most of the majorClubs now
belong to the International Group for reinsurance and other purposes. Moreover, many 25
27. 27. Insurance Dundamental in English Fix mc lcWd8042Clubs originally based in the UK
have comparatively recently moved their domiciles (place ofregistration) to in such places as
Bermuda and Luxembourg. These unusual insurance associationscreate an essential

component of the international insurance markets.- Captive InsurersCaptive insurance

companies are established with the specific objective of financing risksemanating from their
parent group or groups but they sometimes also insure risks of the groupscustomers as well.
The parent and the related companies first purchase insurance coverage fromtheir own captive
company, which will then transfer part of the risks to insurance companies whichmay be regular
retail or commercial reinsurers.The types of risk that a captive can underwrite for the parent
include property damage, public andproducts liability, professional indemnity, employee
benefits, employers liability, motor andmedical aid expenses.There are several types of
insurance captives, the most common are defined below: - Single Parent Captive: an insurance
or reinsurance company formed primarily to insure the risks of its non-insurance parent or
affiliates. - Association Captive: a company owned by a trade, industry or service group for the
benefit of its members. - Group Captive: a company, jointly owned by a number of companies,
created to provide a vehicle to meet a common insurance need. - Agency Captive: a company
owned by an insurance agency or brokerage firm so they may reinsure a portion of their clients
risks through that company. - Rent-a-Captive: is a company that provides captive facilities to
others for a fee.Captives are becoming an increasingly important component of the risk
management and riskfinancing strategy of their parents. Many captive insurers make their home
"offshore". Bermuda,The Cayman Islands, Luxembourg, Singapore and the British Virgin Islands
are a few examples.Several offshore jurisdictions have lower capitalization requirements. Also,
offshore captiveinsurers will depending upon location of the domicile have lower tax rates on
investment andunderwriting income which reduces expected tax payments relative to domestic
captives. There area number of advantages to using captives to provide a better risk
management than the conventionalinsurance market. The parent and the related companies
can price their risks based on their own lossexperience instead of paying the premium that an
insurance company charges. As such, they canavoid paying for operating expenses and profits
to a direct insurer and thus keep their insurancecosts low. In addition, captive insurers can tap
directly into the reinsurance market without goingthrough the direct insurers. Hence, the parent
and the related companies of a captive insurer have 26
28. 28. Insurance Dundamental in English Fix mc lcWd8042access to much lower costs of
reinsurance. Besides, the premiums paid to the captive company aresometimes deductible as
business expenses and as a result, the parent and the related companies paylesser corporate
taxes.- Co-operatives/ mutual insurance companiesCo-operatives are business organisations
owned by the members who use their services. Themembers of the co-operatives are people,
or groups of people, who need and use the services andproducts a co-operatives
provides.Mutual insurance is a type of insurance where those protected by the insurance
(policyholders) alsohave certain "ownership" rights in the organization. All policyholders of the
insurance co-operative/mutual insurance companies are the members and co-owners of the
company. The"ownership" rights typically consist of the ability to elect the management of the
organization andto participate in a distribution of any net assets or surplus should the
organization cease doingbusiness.Recently, some mutual insurance companies have gone
through demutualization and become publiccompanies in an effort, among other things, to
improve their ability to acquire capital.1.3.4 Other insurance related professions and bodiesActuariesGenerally, an actuary is a business professional who deals with the financial impact of
risk anduncertainty. Actuaries use skills in mathematics, economics, finance, probability and
statistics tohelp businesses assess the risk of certain events occurring, and to formulate policies
that minimizethe cost of that riskActuaries are essential to the insurance and reinsurance
industry, either as staff employees or as consultants. Insurance actuaries can be defined as
qualified professionals concerned with the application of probability and statistical theory to

problems of insurance, investment, financial management and demography.The classical

function of actuaries is to calculate premium rates and reserves for various risks.On the non life side, this analysis often involves quantifying the probability of a loss event, calledthe
frequency, and the size of that loss event, called the severity. Further, the amount of time
thatoccurs before the loss event is also important, as the insurer will not have to pay anything
until afterthe event has occurred.On the life side, the analysis often involves quantifying how
much a potential sum of money or afinancial liability will be worth at different points in the future.
Forecasting interest yields andcurrency movements also plays a role in determining future costs,
especially on the life insurance 27
29. 29. Insurance Dundamental in English Fix mc lcWd8042side. Actuaries also design and
maintain insurance related products and systems. They are involvedin financial reporting of
companies assets and liabilities.- Loss AdjustersLoss Adjusters are independent, professionally
qualified persons who provide expert advice andassistance to insurers and sometimes directly
to the insureds in the settlement of claims.Insurance loss adjusters are responsible for
investigating claims submitted by policy holders as aresult of insured events. They usually
become involved in particularly large or complicated claimsand act as an intermediary between
insurers and claimants.Loss adjusters check that the terms and conditions of the policy cover
each claim by investigatingthe cause of loss or damage. Assuming insurance coverage is found
to be applicable to the loss theadjuster will further determine the quantum of the damage in
financial terms.A loss adjuster presents a report to the insurers who then agree a suitable
settlement with theclaimant. Should either party dispute the findings of the report, negotiations
continue until asettlement is reached.If loss adjusters suspect that a claim is fraudulent, they
may have to carry out more detailedinvestigations. This may require the involvement of police,
private investigators and, possibly,forensic experts.A loss adjuster can act on behalf of an
insured but usually, they are appointed by insurers. However,in both of these cases, the adjuster
might not be aware of the commercial factors regarding therelationship between the insured and
insurer. 28
30. 30. Insurance Dundamental in English Fix mc lcWd8042 CHAPTER 2 GENERAL
INSURANCE2.1 Overview of general insuranceGenerally, there are two main types of
insurance, namely life insurance and non life (or generalinsurance). General insurance
comprises any insurance that is not determined to be life insurance.In the United States general
insurance is also called property and casualty insurance. Propertyinsurance provides protection
against most risks to assets of the party buying the insurance.Casualty insurance covers losses
and liabilities which are a result of unforeseen accidents. Casualtyinsurance is loosely used to
describe an area of insurance not particularly or directly concerned withlife insurance, health
insurance, or property insurance, it is designed for things like burglary,terrorist attacks, and
fraud. It is sometimes equated to liability insurance, and is mainly used todescribe the liability
insurance coverage of an individual or organizations for negligent acts oromissions. However,
the broad term has also been used to describe property insurance for aviationinsurance, boiler
and machinery insurance, glass and crime insurance. It may include marineinsurance for
shipwrecks or losses at sea or fidelity and surety insurance. It may also includeearthquake,
political risk insurance, terrorism insurance, fidelity and surety bonds.Casualty insurance is
typically combined with property insurance and often referred to as propertyand casualty
insurance.In the United Kingdom, there are primarily three areas of general insurance. They are
discussedunder the following heads: - Personal lines: General insurance provided along
personal lines include automobile (xe t), home, pet and creditor insurance. Note that the
overall subject of personal lines includes not only casualty products but various health insurance
and life products. - Commercial lines: General insurance products along commercial lines

include employers liability, public liability, product liability and commercial fleet. - London
Market: The London Market provides general insurance for large commercial risks. 29
31. 31. Insurance Dundamental in English Fix mc lcWd8042In many developed insurance
markets, general insurance is broadly divided into two areas:commercial lines and personal
lines. Personal lines insurance differs from commercial linesinsurance in two important
respects, namely: - The ways in which insurers prefer to distribute the business, and - The
underwriting approach adopted2.2 Commercial general insuranceVarious types of commercial
general insurance exist in the insurance markets. This section providesan overview of the most
common types of commercial general insurance only.2.2.1 Marine Insurance and Oil & Gas
Insurance2.2.1.1 Marine Insurance- OverviewMarine insurance is generally considered to have
been the very first type of insurance. A contract ofmarine insurance is legally defined as a
contract whereby the insurer agrees to indemnify theinsured against: - losses incidental to the
exposure of any ship, goods or other moveable items, earnings or profits to maritime perils liabilities to third parties which may be incurred by reason of maritime perilsMaritime perils
means perils of navigation of the sea. Perils of navigation of the sea is defined asincluding perils
of the seas (which in this context refers only to accidents or casualties of the seas,not to the
ordinary action of the winds and waves), fire, theft, war and piracy.Perils of the seas do not
include every loss that occurs on the sea, but only accidental, unanticipatedlosses occurring
through extraordinary action of the elements at sea, as well as mishaps innavigation such as
collision with another vessel or running aground. Various other perils such asfire, lightning, or
earthquake - are also named in the perils clause. As the insurance needs of ship-owners and
cargo shippers became more complex, new clauses were devised to cover additionalperils such
as bursting of boilers, breakage of shafts, and accidents in loading and unloading.Eventually,
the concept of all-risks policy was introduced, which states that any risk of physicalloss is
covered unless it is specifically excluded. War, capture, seizure, political or labordisturbances,
civil commotion, riot, and similar perils are excluded under basic marine insuranceforms but can
be bought back through an endorsement or by a separate policy. 30
32. 32. Insurance Dundamental in English Fix mc lcWd8042Beside the terms of risks, it is
important to note several clauses describing the specific types oflosses, costs, or expenses in
the maritime insurances such as: total loss, particular average, generalaverage Total LossA
total loss can be either an actual total loss or a constructive total loss. An actual total loss
maytake any of three basic forms: - Physical destruction (e.g. foundering, loss by fire, missing
ship). - Loss of specie. This has been defined as cargo which no longer answers the description
of the interest insured. - Irretrievable deprivation (e.g. capture).Because the interpretation of
constructive total loss by some laws is unacceptable to most insurers,some hull policies usually
contain a provision stating that there will be no recovery for aconstructive total loss unless the
cost of recovering and repairing the vessel would exceed theagreed value of the vessel.
Similarly, cargo policies ordinarily contain a provision stating that therewill be no recovery for a
constructive total loss unless the property is reasonably abandoned inexpectation of its
becoming an actual total loss without expending more than the value of theproperty. The
important concept to grasp for now is that in most marine insurance policies the fullamount of
insurance is payable in the event of either an actual or a constructive total loss. Particular
AverageIn marine insurance, an average is a partial loss of vessel or cargo. A particular
average is apartial loss that is to be borne by only a particular interest (such as the vessel alone
or one of thevarious cargo interests aboard). In contrast, a general average is a partial loss that
must be borneproportionally by all interests in the maritime venture (such as the vessel and all
owners of cargoaboard the vessel on a particular voyage).Damaged property can be considered
general average only if the property was sacrificed in order tosave the entire venture or was

somehow damaged as a result of the sacrifice. If this element islacking, the damage is a
particular average. An example of particular average is fire damage to avessel and cargo
aboard the vessel. General AverageGeneral average originated in ancient times as a way to
apportion fairly among all parties to amaritime venture any losses incurred by some of the
ventures in the interest of preserving the entireventure. Modern hull and cargo policies include a
provision covering the insureds share of generalaverage. 31
33. 33. Insurance Dundamental in English Fix mc lcWd8042- Types of Marine InsuranceMarine
insurance can be broadly classified as either property or liability insurance Types of Marine
Property InsuranceThe principal branches of marine property insurance are - cargo insurance, hull and machinery insurance, and - loss of income insurance. Cargo insuranceCargo
insurance covers the interest of shippers, consignees, distributors, and others in goods
andmerchandise shipped primarily by water or, if in foreign trade, also by air. Most cargo
insuranceinvolves foreign trade across oceans, but the cargo may also be transported within a
nation orbetween nations on inland waterways. Cargo insurance is underwritten on the Institute
CargoClauses, with coverage on an A, B, or C basis, A having the widest cover and C the most
restricted.(A), (B) and (C) clauses. One of these (usually the (A) clauses) is always used in
conjunction withInstitute War Clauses (Cargo) and Institute Strikes Clauses (Cargo). Hull and
Machinery insuranceThis term applies to the insurance of all types of vessels during
construction, in operation or laid up,whether used for commercial work including the carriage of
cargo and passengers or for privatepleasure purposes. Hull and Machinery insurance protects
ship-owners and others with an interest in vessels, and thelike against the expenses that might
be incurred in repairing or replacing such property if it isdamaged, destroyed, or lost due to a
covered peril. Usually, hull insurance on pleasure craft andtugs and barges, is provided as part
of a package policy providing both property and liabilitycoverage. Loss of income
insuranceMarine loss of income insurance covers a ship-owner against loss of business income
resulting fromdamage to or loss of the insured vessel. When written for cargo vessels, whose
income is calledfreight, the coverage is referred to as freight (freight fee income) insurance.
Types of Marine Liability InsuranceLiability insurance can also be divided into three categories: collision liability, - protection and indemnity, and - other liability insurances. 32
34. 34. Insurance Dundamental in English Fix mc lcWd8042 Collision Liability
InsuranceCollision liability insurance is included in most commercial hull insurance policies. Due
to reasonssuch as the size of the Hull and Machinery policy deductible and prompt guarantees
issued by the P& I Underwriters, it is often more prudent and practical to have this aspect of
cover underwrittenunder the P & I policy. It covers the liability of the insured vessel for damage
to another vessel andproperty thereon resulting from collision between the insured vessel and
the other vessel. Protection and Indemnity InsuranceThere are many liabilities and expenses
arising from the owning or chartering of ships or from theoperation of ships as principals such
as: Liabilities in respect of: - collision with another vessel - pollution - towage or other service wreck liabilities - cargo and other property on the vessel - loss or of damage to other property
Protection and indemnity (P&I) insurance is the major form of liability insurance for vessels.
Thisinsurance protects the insured against liability for bodily injury or property damage arising
out ofspecified types of accidents, and certain unexpected vessel-related expenditures.In many
cases, P&I policies are broadened to include coverage for collision liability losses in excessof
the collision liability coverage provided under the hull policy. This optional P&I feature is
mostdesirable and is quite commonly incorporated into the policy because collision liability
coveragewhether underwritten under the Hull and Machinery or the P & I policy is ordinarily
limited to aseparate amount of insurance equal to the agreed value of the vessel, which could
be less thanneeded to pay collision liability claims. Other Liability InsurancesOther liability

policies include the following: - Liability insurance for maritime businesses such as ship
repairers, stevedores, wharfingers, marina operators, boat dealers and terminal operators Charterers liabilities policies - Excess liability policiesIn many insurance markets others types of
specific marine policy types exist such as: 33
35. 35. Insurance Dundamental in English Fix mc lcWd8042 - New building risks: This covers the
risk of damage to the hull whilst it is under construction. - Yacht Insurance: Insurance of
pleasure craft is generally known as yacht insurance and includes liability coverage. Smaller
vessels, such as yachts and fishing vessels are typically underwritten on a binding authority or
line slip basis. - War risks: Usual Hull insurance does not cover the risks of a vessel sailing into
a war zone... War risks cover protects, at an additional premium, against the danger of loss in a
war zone including acts of war. - Increased Value: Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of
the vessel. - Overdue insurance: This is a form of insurance now largely obsolete due to
advances in communications. It was an early form of reinsurance and was bought by an insurer
when a ship was late at arriving at her destination port and there was a risk that she might have
been lost (but, equally, might simply have been delayed).2.2.1.2 Oil & Gas InsuranceOil and
Gas insurance is a sector of the market which covers a wide range of activities pertaining tothe
oil and energy industries.Marine insurance sometimes is defined as an area which includes also
the offshore exposedproperty (oil platforms, pipelines) - offshore assets in the oil and gas
industry are exposed tomaritime perils. However, offshore oil and gas insurance has much that
will be similar to marineinsurance and much that will not.This segment is a brief look at the main
types of oil and gas insurance and focuses on offshore oiland gas insurance related to oil
exploration, offshore construction and the operation of fixed andfloating offshore properties.Property Damage InsuranceThis insurance covers all properties used by oil companies and
drilling contractors duringexploration or production phase, and it is classified into the following
categories: - Industrial All Risk Insurance covers all oil and gas related assets, either in onshore
or offshore locations, such as Refinery Plants, Terminals, Storage Tanks, Platforms, etc. Pipelines All Risk Insurance covers all pipelines used in oil and gas distribution system. - Well
Drilling Tools Floater Insurance insures well drilling, servicing, work over, or special equipment
against physical loss or damage from any external causes. 34