UNIVERSITY OF TECHNOLOGY, JAMAICA SCHOOL OF BUSINESS ADMINISTRATION RISK MANAGEMENT TUTORIAL QUESTIONS SUBJECT: GROUPS: DATE: Insurability of Risk,

Contractual Provisions, and Legal Doctrines BBA3 & BBA4 January, 2011.

Question 1:

It has been suggested that the following risks are uninsurable. For each risk indicate whether you agree or disagree and why?

a) Risk of punitive damage awarded to punish and deter the wrong doer from repeating actions that cause a loss. b) Risk of loss through an economic depression c) Risk that trade secrets of a firm might be stolen thus causing the firm the loss of potential profits after the loss d) Risk from loss of a market that is captured by a competitor with a better product. e) Risk that a shift of population will reduce the value of a location owned by a firm for marketing purposes. Question 2 a) Explain the meaning of insurable interest. b) Why is an insurable interest required in every insurance contract.

Question 3: a) Explain the principle of subrogation.

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b) Why is subrogation used?

Question 4 Explain why a business property insurance policy may have an exclusion for damages due to a nuclear accident. Question 5 A seafood restaurant offers medical costs coverage for its employees. Its probability distribution for medical costs for the coming year is as follows: $ $ $ $ $ $ 0 2,000 5,000 10,000 50,000 500,000 with probability of 0.9335 with probability of 0.0500 with probability of 0.0100 with probability of 0.0050 with probability of 0.0010 with probability of 0.00050

Determine the expected claim costs for each of the following policies: a) Full insurance
b) $5,000 deductible and a $200,000 limit

c) 20 percent coinsurance and a $200,000 limit d) $5,000 deductible, 20 percent coinsurance, and a $200,000 limit

Question 6 Explain how the amount on insurance coverage purchased by a risk-averse person is likely to change the response to each of the following: a) The legal costs associated with processing claims increase. b) Regulatory compliance costs decrease. c) The tax on insurer investment earnings increases.
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d) The variability of claims costs increases. e) The criminal penalties for fraud increase.

Question 7 A friend says Insurance policies are a rip-off; they always have provisions that limit how much you can be compensated. You enlighten your friend by saying.....

Question 8 a) Explain the meaning of insurable interest. b) Why is an insurable interest required in every insurance contract. Question 9: c) Explain the principle of subrogation. d) Why is subrogation used? Question 10: Explain the following legal doctrines: Misrepresentations Concealment Warranty