INSURANCE AND RISK

MANAGEMENT
Examples of principles in various kinds of insurance
 . 

FIRE INSURANCE
.
INSURABLE INTEREST

It is necessary for the policyholder to have an insurable interest

in the subject-matter for which he/she has purchased the fire
insurance policy. It means, the insured may suffer loss at the
time of damage to the item or gain from its protection.
However, insurable interest should be present both at the time
of buying the policy and filing a claim.

For example . Monica and chandler after seeing phoebes and

rachels apartment on fire thought to buy insurance for their
own house .
.
,

But at the end of the show they moved to a new house so they do not have
any insurable interest in their purple apartment where we saw all out
beautiful 10 season ..so they must tell this to the insurer also if for example
ross stares living in that house monica and chandler wont hold any
insurable interest in that
INDEMNITY

says that the purpose of insurance should be to compensate

the policyholder for loss or damage and the compensation
should be such that it places him/her in nearly the same
position after the loss as he/she was before the loss. It means,
the policyholder will not get anything more than the losses.

Case – pheobe and rachel have a fire insurance policy.fire

erupted at their apartment due to a hairstarightner .and
damaged content worth Rs 2 lakh.they approached the
insurene company since he damage caused was of 2 lakh they
will only be compensated for 2 lakhs.
GOOD FAITH

The contract of insurance relies on the principle of trust. It
means, at the time of buying the policy, the policyholder
should disclose all the material facts and do not lie. On the
other hand, the insurance company should give correct
information about the policy and there should be no hidden
clause.

Case – monica and chandeler called up the insurance

company to buy a fire insurance for her house house. Now,
its their duty to give correct details about the items which he
wants to cover in the policy without hiding any material fact.
Similarly, the insurance company should also state all the
policy conditions clearly without hiding any clause.
CONTRIBUTION
 the principle of contribution is implemented when
multiple insurance policies are covering the same
property or loss, the total payment for actual loss is
proportionally divided among all insurance companies.
.
 Now we know rachel is a waitress and pheobe is a
masseus they don’t earn much money however they have
insurance from two companies .so bought of them
thought .we will get insurance from both companies and
earn profit.
 But this cannot happen this violates the principle of
indemnity therefore now both the insurance companies
will contribute according to the amount
.
PROXIMATE CAUSE
A fire insurance policy offers coverage against loss or destruction due to fire,
however, some perils are expressly not covered. The insurer’s liability arises even if
the loss is due to uninsured peril followed by an insured peril. Note, the proximate
clause is only the nearest clause and not the remote clause.

Case – A fire at a nearby construction site caused a slight explosion at T.J Paper
Mills, which damaged its plant & machinery. Luckily, T.J Paper Mills had a fire
insurance policy. The insurer found that the proximate cause of the loss/damage was
fire and therefore, covered the loss or damages caused to machinery. In this case, the
fire insurance specifically mentioned that loss/damage due to the explosion of any
kind will not be covered, however, as the proximate cause was fire, the insurer
covered it.

The insurer found that the proximate cause of the loss/damage was fire and therefore,
covered the loss or damages caused to propery. In this case, the fire insurance
specifically mentioned that loss/damage due to the explosion of any kind will not be
covered, however, as the proximate cause was fire, the insurer covered
SUBROGATION

 It says that the policyholder can only realise the actual value of
the loss or damage and in case the damaged product has any
value left or there is any right against a third-party regarding
that, it should also be passed on to the insurance company.
 Case – A fire erupted at the workshop of Jeevan Sharma and
engulfed timber worth Rs 5 lakh which was kept there for
building furniture. Jeevan Sharma approached his fire insurance
company who settled his claim, except deductible. However,
any right over the burnt timber should now be transferred to the
insurance company who can now convert it into coal and sell it
to earn profits
 .

HEALTH INSURANCE
PRINCIPLE OF INSURABLE INTEREST.

 insurance on the health of the other there must be

actual dependence on the person whose life is
insured i.e. there must be a reasonable expectation
of benefit from the continued existence of such
person healthy and in such case there will be
insurable interest.
 The employer has insurable interest in the health
status of his employees. There are statutory
responsibilities on the employer to provide health
care services to his employees. 
 The insurable interest is very important at the time of
accepting proposal for health insurance. It guides us
who can pay the premium for that particular policy.
.
 A husband will take insurable interest for her wife and
vice versa because if anything happens to them it will
cause them emotional and financial loss. This is
applicabe only when there is an actual dependence on the
health of the person who is insured.
PRINCIPLE OF UTMOST GOOD FAITH

 
 Factors relating to the health, habits, personal history, family history, occupation and
so on which form the basis of health insurance contract, are known only to the
proposer. If the proposer does not disclose them, the insurer can’t know them. A
medical examination also can’t bring out all facts and is not fool proof. The blood
pressure and diabetes, post illness, injuries and operations can be suppressed. These
are material for the underwriter who assesses risk. Declaration in the every proposal
– particulars are correct- misstatements and suppression – cancel the policy contract
– premiums paid are forfeited. Thus the principle operates through this declaration.

 The duty of disclosure extends up to the date of acce

ptance. The proposer should bring to the notice of the insurer, if there are any changes
in health, occupation of the proposer, between the date of proposal and the date of
its acceptance. The duty of disclosure ends when the proposal is accepted.

 The insurer or his agents should not make untrue statements regarding the health
insurance product during the selling or the benefits there under. The wrong doings of
an agent and its consequences are big debatable issues; we can arrive at conclusion
on such issues based on previous statutory forum judgement. It is the duty of insurer
to disclose all coverage and exclusion details to insured.
 kareena kapoor took a health insurance worth
10,00,000.But she didn’t disclose to the insurer that she
. smokes. Therefore , if anything happens to kareena the
insured cannot make any claim as she didn’t follow the
principle of utmost good faith.There should be
transparency between the insured and insurer.
INDEMNITY

 Does principle of indemnity apply to health insurance? Yes it

applies to health insurance up to some extent.In case of any
person falls sick and hospitalized, the personal inconvenience,
mental distress, pain/suffering can’t be compensated as the
same can’t be measurable in terms of money, moreover these
are not insurable interest. Only the pecuniary loss due to
hospitalization is payable to insurer as per the principle of
indemnity. Now a days there are optional critical illness riders
available along with some health insurance policies, where the
principle of indemnity is not applicable, as on detection of
critical illness and as per policy T&C, if the case is
admissible, the insurer will pay the critical illness sum
assured.
subrogation
.
 This can be applied in personal injury claims.The vast majority of
personal injury claimants are not aware that when they make a
recovery they are usually required to reimburse their health insurer.
Normally clients do not read their health insurance policies in detail.
 The most common examples of personal injury accidents for which
the insurer can recover health care and treatment costs by this
principle are:
 slip and falls

 boating, air and rail accidents

 product liability or manufacturing defects

 medical malpractice or professional negligence

 dog bites

 municipal liability

 assaults

 some motor vehicle accidents

 
SUBROGATION
 A health insurance policy holder is injured in a car
accident and the insurer pays Rs.10,00,000 to cover
medical bills ,the insurance company is allowed to
collect 10,00,000 from the at-fault party to reimburse the
payment.
,
.

Thank you