Professional Documents
Culture Documents
9) Explain the following doctrines:Misrepresentation: a false and misleading statement that if intentional and material can allow
the insurer to void the insurance contract.
- Misrepresentation Concealment: a willful act of withholding information that may be pertinent to the issuance of
- Concealment an insurance policy even though the insured was not asked about that particular subject.
- Warranty Warranty: a promise by the insured party that statements affecting the validity of the contract
are true.
10) Analyze the principle of subrogation? Why is subrogation used? Give example?
- Transfer of rights and remedies from the insured to the insurer who has indemnified the insured in
respect of the loss.
- Subrogation means substitution of the insurer in place of the insured for the purpose of claiming
indemnity from a third person for a loss recovered by insurance.
- Subrogation is used because:
+ The insured, sometimes, find it hard to make claims against a third party for a compensation by
himself. Therefore, he needs a help from a more professional party in insurance field.
+ Reduce insurance premium: insurer may get the differences from subrogation, which helps to
reduce the amount he has to pay insured in case of loss or damage, therefore, he may reduce the
premium.
+ Reduce the number of lawsuit: insured, after get compensation from insurer may not want to
make claims against third party anymore, because if he receive compensation from third party, he has
to pay back insurer.
- Example: a negligent motorist fails to stop at a red light and smashes in to Mergan”s car, causing
damage in the amount of $5000. If she has collision insurance on her car, her company will pay the
physical damage loss to the car and then attempt to collect from the negligent motorist who caused
accident.
Alternatively, Mergan could attempt to collect directly from the negligent motorist for the damage to
her car.
- Applicability:
+ When the losses suffered by the insured can be measured in terms of money
+ It is practicable to place the insured in the same financial position which he occupied before the
loss
- Example:
12) How is actual cash value calculated? How does the concept of actual cash value support the principle of
indemnity?
- Replacement cost less depreciation:
+ Replacement cost is the current cost of restoring the damage property with new materials of like kind and
quality
+ Depreciation is a deduction for physical wear and tear, age, and economic obsolescence.
+ A sofa, which was bought 5 years ago, has been burnt in a fire. It is 50% depreciated, and a similar sofa today
would cost $1,000.
Replacement cost = $1,000
Depreciation = $500
Actual cash value = Replacement cost - Depreciation = $500
- Fair market value: is the price a willing buyer would pay a willing seller in a free market
- Broad evidence rule: the determination of actual cash value should include all relevant factors an
expert would use to determine the value of the property. (actual cash value, fair market value, present
value of expected income from property,…)
⇨ The concept of actual cash value support the principle of indemnity: Because the insurer agrees to
pay no more than the actual amount of the loss => + prevent insured from making profit from
insurance.
+ reduce moral hazard
13) Analyze the principle of insurable interest? Why is an insurable interest required in every insurance
policy?
- The legal right enjoyed by the owner of a property to insure is called ‘Insurable Interest’. The
insurance will become null and void, without the insurable interest.
- The insured must be in a position to loose financially if a covered loss occurs.
- Insurable interest is where you have a valid reason to insure and stand to suffer a direct financial loss
if the event insured against occurs.
- Insurable interest exists when an insured derives a financial or other benefit from the continuous
existence of an insured object
- Purposes of insurable interest:
+ To prevent gambling (gambling contract)
+ To reduce moral hazard
+ To measure the amount of the insured’s loss in property insurance
- Examples: Export the goods under CIF term:
+ Seller buy insurance for the goods => seller has insurable interest until he transfers the ownership
and insurance policy to buyer through endorsement
+ If any loss or damage happens before endorsement, buyer cannot make claims
+ If any loss or damage happens after endorsement, seller cannot make claims
14) Analyze the principle of “Insurance is a repayment of a random loss”? Give example?
- The timing or occurrence of the loss must be uncertain.
- For example, you can't know your house is going to be destroyed in three weeks by a demolition team
and still get home owner's insurance.
- To be able to fully service major claims, small claims are not covered. This is what the deductible is
for. Only damage or loss over the amount of the deductible is covered by the insurance policy.
must be the result of an event where the insured only lose, not gain.
15) What is marine insurance? Different types of marine insurance?
- Def: Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or
property by which cargo is transferred, acquired, or held between the points of origin and final
destination.
- Needs for marine insurance:
+ Exporters and importers face all the time uncertainties of loss of their goods.
+ Insurance is used to protect their financial interests against such risks and actual losses.
+ Without adequate insurance and protection of the interests of those with goods in transit,
international trade would be negatively affected.
+ Liability of carriers to the goods is very limited
- Classification:
+ Marine cargo insurance: covers export- import goods carriage by sea and related- reasonable
costs
+ Hull insurance: covers material loss of or damage to hull and machinery, a portion of costs for
collision liability, and other reasonable costs.
+ Protection and indemnity insurance: provide cover to ship owners against third- parties liabilities
in connection with the operation of vessels
16) State different types of risks in marine insurance? State relatively excepted risks and absolutely excepted
risks in marine insurance?
Def of risk: Probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external
or internal vulnerabilities, and which may be neutralized through pre-mediated action.
⮚ Base on the causes extreme weather phenomenon or natural occurrences
- Acts of God: vile weather, thunderstorm and lightening, tsunami, earthquake, flood, volcanic eruption, etc.
- Perils of the sea: ship striking upon the rocks, ship sinking, ship collision, colliding with iceberg or other
objects commonly encountered incidents or phenomenon during sea voyage
- Risks caused by Social- political actions: war, SRCC (strikes, riots, civil, commotions)
- Risks caused by particular actions of people: thieve, robber
- Risks caused by other sources
⮚ Base on the insurance technique
a) Insured common perils: the risks that are normal insured in original insurance clauses:
• Main risks:
- Stranding: a vessel is stranded when, in consequence of some accidental or unusual occurrence, she comes
in contact with the ground or other obstruction, and remains hard and fast upon it. The vessel needs an
external force in order to getting off the stranding.
6 - Sinking
- Fire or explosion
- Collision
- Jettison: To throw part of the cargo or gear of the vessel overboard to lighten the load and save the vessel.
The owner of the jettisoned goods is entitled to a "general average," i.e., the loss is shared by the owners of
the vessel and the owners of the cargo which was not thrown away.
- Missing: British law: 3 times of ship’s itinerary in normal conditions (no longer than 6 months, no shorter
than 3 months)
* Auxiliary risks: theft, rain, leakage, breakage, dampness, heating, hooking
b) Relatively Excluded Perils: risks that are not included in standard insurance clauses: War, SRCC
c) Absolutely Excluded Perils: risks that are not insured in any circumstances:
• loss damage or expense attributable to wilful misconduct of the Assured
• ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject- matter insured
• loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured
7
• loss damage or expense caused by inherent vice or nature of the subject-matter insured • loss damage or expense
proximately caused by delay, even though the delay be caused by a risk insured against
• loss damage or expense arising from insolvency or financial default of the owners managers, charterers or operators of
the vessel the loss results from a speculative or business risk
• loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or
other like reaction or radioactive force or matter.
- Essential features:
+ The loss must be voluntary
+ It must be properly made (hàng dễ vứt phải được vứt trước)
+ It must be extraordinary in its nature (due to extreme conditions, not normal conditions)
+ The object of the sacrifice or expenditure must be nothing other or less than the common safety of ship and
cargo
+ There must be imminent danger, and the object must be the attainment of safety (emergency)
+ The loss must be the direct result or reasonably the consequence of the act causing it
23) What is marine cargo insurance? What is the necessity of marine cargo insurance?
- Marine cargo insurance provides insurance cover in respect of loss of or damage to goods during transit by
rail, road, sea, or air => it should cover from seller’s premise to buyer’s premise (optional) or at least from
port to port.
- Cargo needs to be insured because:
+ High probability of risk occurring in voyage
+ Carrier’s liability is very limited
+ Marine cargo insurance is a custom in international trade
25) Present legal issues related marine cargo insurance in England and in Vietnam?
Institute Cargo Clauses- ICC: issued by Technical and Clauses Committee of Institute of London Underwriters (ILU)
- ICC 1963:
+ FPA- Free from Particular Average
+ WA- With Particular Average
+ AR- All Risks
+ WR- War Risks
+ SRCC- Strike, Riot, and Civil Commotion
- ICC 1982:
(official clauses)
+C
+B
+A
(special clauses)
+ WR
+ SRCC
⇨ When second version was issued, the first version was invalid
Cargo Clauses of Vietnam: based on ICC, issued by Ministry of Finance
- QTC 1965: FPA, WA, AR
- QTC 1990: C, B, A
⇨ Can still buy insurance WR and SRCC risk beside A, B, C
32) Analyze “Such proportion of losses sustained by ship owners as is to be reimbursed by the cargo owners
under the contract of affreightment “Both to blame Collision” clause”? Give example? Vẽ hình
34) What is marine hull insurance? Subject/matter insured in marine hull insurance?
- Hull insurance: covers material loss of or damage to hull and machinery, a portion of costs for collision
liability, and other reasonable costs.
- Subject- matter insured:
+ Hull and machinery insurance is to protect the ship owner’s investment in the ship. It is basically a property
insurance which covers the ship itself, the machinery and equipment. The owner will be protected for losses
caused by loss of or damage to the ship and its equipment.
+ Furthermore, the insurance covers some liabilities, normally collision liability with another ship (known as
RDC – “Running Down Clause”) and sometimes also liability for colliding with other objects than another
ship (known as FFO - “Fixed and Floating Objects).
+ The third part of the insurance is cover for salvage and general average contributions.
42) How does rate making, or the pricing of insurance, differ from the pricing of other products?
Rate making refers to the pricing of the insurance and the calculation of insurance premiums.
Insurance pricing differs considerably from the pricing of other products.
- When other products are sold, the company generally knows in advance the costs of producing the product, so
that the prices can be established to cover all costs and yield a profit.
- However, the insurance company does not know in advance what its actual costs are going to be. The total
premiums charged for a given line of insurance may be inadequate for paying all claims and expenses during
the policy period. It is only after the period of protection has expired that an insurer can determine its actual
losses and expenses.
48) Explain the objectives of risk management both before and after a loss occurs.
Pre-loss objectives:
- Economy: the firm should prepare for potential losses in the most economical way (analysis of the
cost of safety programs, insurance premium paid, the cost associated with the different techniques for
handling losses)
- Reduction of anxiety: certain loss exposure can cause greater worry and fear for the risk manager
and key executives When risk is controlled and financed, a firm has more confidence with its operation
- Meeting legal obligations: i.e. government regulations may require a firm to install safety devices to
protect worker from harm, to dispose of hazardous waste materials properly
Post- loss objectives: Most states and nations require firms to manage specific risks.
- Survival of the firm: after loss occurs, the firm can resume at least partial operations within some
reasonable time period
- Continue operating: the ability to continue operating after a loss is very important, otherwise,
business will be lost to competitors
- Stability of earnings: earning per share can be maintained if the firm continue to operate
- Continued growth of the firm Managed risks will have minimal effects on growth of firm
Social Responsibility - Minimize the effects that a loss will have on other persons and on society
Risks can lead to negative externalities. Manage such risks to protect surrounding communities
49) Describe the steps in the risk management process.
- Identify loss exposures: This step is to identify all major and minor loss exposures, it involves a
painstaking analysis of all potential losses (classify into types).
- Measure and analyze the loss exposures: This step involves an estimation of the frequency and
severity of loss. Loss frequency refers to the probable number of losses that may occur during some
given time period. Loss severity refers to the probable size of the losses that may occur.
- Select the appropriate combination techniques for treating loss exposures:
+ Risk control: Avoidance, Loss prevention, Loss reduction, duplication, separation, diversification
+ Risk financing: Retention, Non-insurance transfers, Commercial insurance
- Implement and monitor the risk management program
Announce policy, integrate into various departments and periodic review
50) Identify the sources of information that a risk manager can use to identify loss exposures?
A risk manager has several sources of information that he can use to identify the preceding loss exposures:
- Risk analysis questionnaires: risk manager has to answer numerous question that identify major and
minor loss exposures
- Physical inspection: a physical inspection of company plants and operations can identify major loss
exposures
- Flowcharts: show the flow of production and delivery that can reveal production bottlenecks where a
loss can have severe financial consequences for the firm
- Financial statement: identify major assets that must be protected, loss of income exposures, and key
customers and suppliers
- Historical loss data: historical and departmental loss data over time can be invaluable in identifying
major loss exposures
51) What is the difference between the maximum possible loss and maximum probable loss? Give examples?
“worst case scenario” - The maximum possible loss is the worst loss that could happen to the firm during its lifetime.
- The maximum probable loss is the worst loss that is likely to happen.
the most pessimistic view
- For example, if a plant is totally destroyed by a flood, the risk manager estimate that replacement
cost, demolition cost and other costs will total $50 million => the maximum loss is $50 million. The
risk manager also estimates that a flood causing more than $40 million of damage to the plant is so
unlikely that such a flood would not occur more than once in 100 years. The risk manager may
choose to ignore events that occur so infrequently => for this risk manager, the maximum probable
loss is $40 million.
53) Explain the following risk- control techniques and give examples:
a. Avoidance: a certain loss exposure is never acquired, or an existing loss exposure is abandoned => the
firm may not be able to avoid all losses, it may not feasible or practical to avoid the exposure
- Example: Business firm can avoid the risk of being sued for a defective product by not producing it.
b. Loss prevention: refers to measures that reduce the frequency of a particular loss
- Example: Auto accidents can be reduced if motorists take a safe-driving course and drive defensively
c. Loss reduction: refers to measures that reduce the severity of a loss after is occurs
- Example: A department store can install a sprinkler system so that a fire will be promptly
extinguished, thereby reducing the severity of loss.
54) Explain the following risk- control techniques and give examples:
a. Duplication: refers to having back-up or copies of important documents or property available in case
a loss occurs.
- Example: Back-up copies of key business records are available in case the original records are lost or
destroyed.
b. Separation: dividing the assets exposed to loss to minimize the harm from single event.
- Example: A manufacturer may store finished goods in two warehouses in different countries. If one
warehouse is destroyed by a fire, the finished goods in the other warehouse are unharmed.
c. Diversification: refers to reducing the chance of loss by spreading the loss exposure across different
parties (customers and suppliers), securities (stock and bonds), or transactions
- Example: If a firm only has domestic customers, sales will be reduced by a domestic recession.
Otherwise, if there are foreign customers as well, this risk is reduced.
- Noninsurance transfers: are methods other than insurance by which a pure risk and its potential
financial consequences are transferred to another party.
Example of noninsurance transfers include
+ Contracts: a company’s contract with a construction firm to build a new plant can specify that the
construction firm is responsible for any damages to the plant while it is being built.
+ Lease (cho thuê)
+ Hold-harmless agreement: a publishing firm may insert a hold-harmless clause in a contract, by
which the author, not the publisher, is held legally liable if the publisher is sued for plagiarism.
+ Incorporation of business: a business may incorporate to provide limited liability for the owners of
the business.
- Insurance: is appropriate for loss exposures that have a low probability of loss but the severity of
loss is high.
+ Selection of insurance coverage:
● Select the insurance coverage needed: appropriate for insuring the major loss exposures
identified in step 1
● Combine insurance and retention via the use of a deductible- is a provision by which a
specified amount is subtracted from the loss payment otherwise payable to the insured.
=> To eliminate small claims and the administrative expense of adjusting these claims
+ Selection of insurer: must consider:
● Financial strength of insurer
● Risk management services provided by the insurer
● Cost and terms of protection
+ Negotiation of terms
+ Dissemination of information concerning insurance coverage: Information concerning insurance
coverage must be disseminated to others in the firm
+ Periodic review of the program: It is important when a firm has a change in business operations or
is involved in a merger or acquisition of another firm.
Example: Ship owner buy hull insurance
57) What conditions should be fulfilled before retention in used in a risk management program? Explain?
- No other method of treatment is available: Insurers may be unwilling to write a certain type of
coverage, or the coverage may be too expensive. Also, noninsurance transfers may not be available.
Or although loss prevention can reduce the frequency, all losses cannot be eliminated. Therefore,
retention is a residual method.
- The worst possible loss is not serious: For example, physical damage losses to a large firm’s fleet of
vehicles will not bankrupt the firm if the vehicles are not likely to be simultaneously damaged.
- Loss is fairly predictable: Based on past experience, the risk manager can estimate a probable range
of frequency and severity of actual losses. If most losses fall within that range, they can be paid out of
the firm’s income.
58) Explain the advantages and disadvantages of using insurance in a risk management program?
Advantages:
- The firm will be indemnified after a loss occurred.
- Uncertainty is reduce, which permit the firm to lengthen its planning horizon. Worry and fear are
reduced for managers and employees, which should improve performance and productivity.
- Insurers can provide valuable risk management services, such as risk control services, loss exposure
analysis,…
- Insurance premiums are income tax deductible as a business expense.
Disadvantages:
- The payment is a major cost. There is also an opportunity cost. Under retention technique, premium
could be used in the business until needed to pay claims. While under insurance technique, premium
must be paid in advance, and the opportunity to use the fund is forgone.
- Considerable time and effort must be spent in negotiating the insurance coverage.
- The risk manager may have less incentive to implement loss control measures because the insurer
will pay the claim if a loss occurs.
59) Explain the advantages and disadvantages of using retention in a risk management program?
Advantages:
- Save on lost costs: The firm can save money in the long run if its actual losses are less than the loss
component in a private insurer’s premium.
- Save on expenses: Some expenses may be reduced, such as loss adjustment expenses, commissions
and brokerage fees and insurer’s profit.
- Encourage loss prevention: Because the exposure is retained, there may be a greater incentive for loss
prevention.
- Increase cash flow: Because the firm can use some of the funds that normally would be paid to the
insurer in advance as a premium
Disadvantages:
- Possible higher loss: The losses retained by the firm may be greater than the loss allowance in the
insurance premium that is saved by not buying insurance.
- Possible higher expenses: Expenses to hire outside experts such as safety engineers and claims
administrators may be higher. While insurer may be able to provide such services at a lower cost.
- Possible higher taxes: Income tax may be higher while using insurance, the premium paid to insurer
is immediately income tax deductible.
60) Explain the advantages and disadvantages of using non-insurance transfer in a risk management
program?
Advantages:
- The risk management can transfer some potential losses that are not commercially insurable
- Noninsurance transfers often cost less than insurance
- The potential loss may be shifted to someone whose is in a better position to exercise loss control
Disadvantages:
- The transfer of potential loss may fail because the contract language is ambiguous. There may be no
court precedents for the interpretation of a contract tailor- made to fit the situation
- If the party to whom potential loss is transferred is unable to pay the loss, the firm is still responsible
for the claim.
- An insurer may not give credit for the transfers, and insurance costs may not be reduced. (same
premium even if risks are reduced)
62) What are major advantage and disadvantage of using the technique of avoidance in a risk management
program?
Advantages:
- The chance of loss is reduced to zero if loss exposure is never acquired.
- If an existing exposure is abandoned, the chance of loss is reduced or eliminated because the activity
or product that could produce a loss has been abandoned.
Disadvantages:
- The firm may not be able to avoid all losses (for example, a company cannot avoid the premature
death of a key executive).
- It may not be feasible or practical to avoid the exposure (for example, a paint factory can avoid losses
arising from the production of paint. However, without paint production, the firm will not be in
business).
63) Describe different types of pure risk/loss exposures? Give examples? Page 26
Property loss exposures
Liability loss exposures
Business income loss exposures
Human resources loss exposures
Crime loss exposures
Employee benefits loss exposures
Foreign loss exposures
Market reputation and public image of the company
Failure to comply with government laws and regulations
Insurance Questionnaire
1. Insurance? State nature of Insurance?
a. Insurance is a contract, whereby in return for a premium paid by the insured, the insurer promises to pay for the
financial loss of the insured caused by the occurrence of an unforeseen event
b. Nature of Insurance:
- Insurance provides financial protection against a loss arising out of the occurrence of an uncertain event. A person can
avail this protection by paying a premium to an insurer.
- Insurance is the risk transferring from the insured to the insurer. The insurer can bear the risk because they have the
financial capability to do so ( owing to the premium they receive from various insured and/or their original capital fund).
- Insurance works on the principle of risk-sharing: people who may face the same type of risk pay premium into what is
called a "risk pool". Money in this pool is to be used to pay for those who suffer accident. Everyone shares the same risk,
and those lucky enough not to suffer any accident will help pay for the losses of those unlucky. Financial burden is
reduced for everyone. Risk is spread over a large population.
- The business object of insurance is risk
Likelihood of incidence: normally you must pay a higher premium for risks that are more likely than others. For example,
insurance against fire: premium for a house in California will of course be much higher than a house in Wisconsin,
considering how frequent forest fire happens in California. Also, a person who conducted various violation of traffic rules
pay a higher premium for car insurance since they are riskier than other drivers.
Characteristics of subject insured: each subject insured has a set of characteristics that either make it more or less costly to
insure.
Competition from other insurers: insurance company surely wants to make its premium lower than competitors.
8) Explain doctrines
a) Misrepresentation: a false and misleading statement that if intentional and material can allow the insurer to void the
insurance contract.
b. Concealment: a willful act of withholding information that may be pertinent to the issuance of an insurance policy even
though the insured was not asked about that particular subject.
c. Warranty: a promise by the insured party that statements affecting the validity of the contract are true.
9) Principle of Subrogation
a. Subrogation: is the transfer of rights and remedies related to any loss covered by the insurance policy, from the insured
to the insurer who has indemnified the insured in respect of the loss. Insurer now has the right to claim compensation
from the party who causes the loss
b. Purpose: to prevent the insured to claim both the insurance money from the insurance company and the compensation
money from the third party, to hold the negligent party responsible for the loss and to keep the insurance rate down.
Find it hard to claim the 3rd party, Reduce the insurance premium, Reduce number of claims
10) Principle of indemnity? Example?
a. The principle of indemnity states that an insurer has the duty to compensate the covered loss for the insured, so that the
insured is put into the same exact financial position before the loss. The insurer pay no more than the value (either
replacement value or actual cash value) of the subject matter insured.
b. If your car is worth $5000 and you buy insurance, the insurance company will pay you up to $5000 in case the car is
destroyed or lost. No more. Prevent the insured from making profit
Reduce moral hazard
11) Actual cash value Replacement cost is the current cost of restoring the damage property with new
ACV = Replacement Cost - Depreciation materials of like kind and quality
Principle of Indemnity states that the insurer must not pay more than the actual loss the insured suffer. Actual cash value
takes into account the degraded value of subject/matter insured, meaning they are worth less than their original value.
Repayment, therefore, must be corresponding to this fact. Compensation is made for the value at the time of loss, not at
the beginning of the subject insured's lifetime use. The insured do not financially benefit.
Depreciation is a deduction for physical wear and tear, age, and economic obsolescence.
12) Principle of Insurable Interest? Purpose?
Principle of Insurable Interest states that the insured must have a vested interest, a stake in the subject/matter insured, and
will suffer a financial loss in the case that subject/matter insured is lost, damaged, destroyed or harm. For example, you
cannot buy insurance for the house of your neighbor. In most cases you lose nothing if their house is destroyed. You have
no stake or interest in their house. The legal right enjoyed by the owner of a property to insure is called ‘Insurable Interest’.
The insurance will become null and void, without the insurable interest.
The insured must be in a position to loose financially if a covered loss occurs.
Like many other principles, principle of insurable interest is to prevent unjust enrichment, moral hazard, gambling. It is
also to measure the amount of the insured's loss in property insurance.
Purposes:
– To prevent gambling (gambling contract)
13) Principle of random loss? Examples? – To reduce moral hazard
– To measure the amount of the insured’s loss in property insurance
a) This principle is one of the many concepts comprising the concept of "insurability". The principle states that the loss
covered by insurance policy must be outside the control, the knowledge of the insured and it must be the result of an event
where the insured only lose, not gain. The loss is random so the insured cannot financially enrich themselves through
insurance. If the loss is expected or foreseeable, the insured will actively put themselves in insurance contracts to make
money. The timing or occurrence of the loss must be uncertain.
b) Example: there is no insurance for gambling. This is because the insured can actually benefit from gambling if they
gamble right. And you cannot buy home insurance when the area you live in is set to be destroyed by the government to
turn it into public land. You know the timing and the manner of the loss.
a. There are four major types of marine insurance on basis of insured interest:
- Marine Cargo Insurance: cover export-import goods carriage by sea and related reasonable cost
- Hull Insurance: covers material loss of or damage to hull and machinery, a portion of cost for collision liability, and
other reasonable cost
- Protection and Indemnity Insurance (Marine Liability Insurance): covers shipowners against 3rd party liabilities in
connection with the operation of vessels
-Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money
in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance
solves the problem of companies losing money because of a few unprecedented events and accidents occurring.
19) As above. In essence, constructive total loss is just impending actual total loss.
The losses/ damages caused by special expenses and sacrifices that intentionally and reasonably
conducted to save the vessel, cargo and freight from a threat in the common ocean voyage.
20) General Average? Characteristics?
General Average is a legal principle in maritime insurance which states that all parties in a sea venture must share any
losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency
Characteristics: General average must involve a) imminent danger and perils threatening the common safety of ships and
cargo b) General Average Sacrifice: sacrifice that is voluntary, reasonable made, extraordinary in nature, beyond common
routine, for the common safety of the whole, and resulting from actions that cause it c) General Average Expenditure:
consequence cost of GA act or expenditure concerning GA act.
What exactly is loss extraordinary in nature? York-Antwerp Rules dictate as such:
- the jettisoning of part of the cargo (Rule I);
- causing damage to the ship or cargo for the purpose of making a jettison (Rule II);
- pouring water into the holds to extinguish a fire on board a ship and thereby damaging the cargo carried in such holds,
including damage by beaching or scuttling a burning ship (Rule III);
- voluntary stranding (Rule V);
-damage done to machinery or boilers when the ship is aground (Rule VII);
- ship’s materials and stores burnt for fuel for the common safety (Rule IX).
What about general expenditure:
● Additional expenses which would not normally be allowed as general average, but which replace expenses that
would normally be classed as general average (Rule F)
● Expenses incurred in saving the ship and cargo from loss or damage. Classic examples include: the engagement
of salvage services following a stranding; the cost of employing lighters to transfer cargo in order to lighten the
vessel; and the employment of towage services (Rule X)
● Expenses incurred in lightening the ship when ashore (Rule VIII)
● Expenses for wages etc in port of refuge (Rule XI)
● Expenses for temporary repairs either at the port of loading or a port of refuge (Rule XIV)
● Port of refuge expenses. Many expenses that are incidental to port of refuge expenses are expressly provided for
in Rules X and XI of the York-Antwerp Rules.
●
21) Legal system adjusting general average
- York Rules 1864
- York- Antwerp 1924
- York- Antwerp 1950, 1974, 1990, 1994, 2004
-Beijing Rules for East Asia
The adjustment is bound by the law of the port of destination of the vessel and cargo unless the contract of carriage
provides that adjustment is to be made under the York Antwerp Rules. The adjuster may also take into account other
clauses in the contract of carriage such as the New Jason clause which allows a shipowner to claim general average
contributions from a cargo interest despite the vessel being negligently navigated and suffering a casualty, the consequent
repairs being normally allowed as GA. The firm of average adjusters may also be bound by the “Rules of Practice of
Average Adjusters” which lay down accepted procedures. In Europe they have AIDE (International Association of
European Average Adjustment).
22) Content of General Average? Responsibilities of related parties in a general average case?
Responsibility of related parties:
a)Ship-owner's and master's liabilities:
- Form GA notice- notice all parties that an incidence has occurred and put common safety at risk
- Arrange survey service to assess (Ensure that the loss is actually GA sacrifices, assess dâmge)
- Send average bond and average guarantee (Average bond is a form obligating signatories to contribute a percentage of
the value of the cargo saved, signed cargo owners, consignees and shippers)(Average Guarantee is a form signed by the
Marine Insurer to pay the amount according to the General Average Adjustment directly to the community of interest
involved in the GA)
- Arrange GA adjuster (estimate contributions of each party)
- Form Sea Protest (if applicable) (a notarized statement obtained after a ship enters port after a rough voyage. Its purpose
is to protect the ship's charterer or owner from liability for damage to the cargo, the ship or to other ships in a collision,
where this was caused by the perils of the sea (for example, bad weather)).
b) Cargo Owner's liabilities
- Declare value of the goods
- Receive average bond and average guarantee.
25) Present legal issues related to marine cargo insurance in England and Vietnam?
31) Scope of coverage of War Risk and SRCC risk ICC 1982?
War Risk: loss damaged caused by war, civil war revolution rebellion insurrection, or civil strife arising therefrom, or any
hostile act by or against a belligerent power; capture seizure arrest restraint or detainment (piracy excepted), and the
consequences thereof or any attempt thereat; derelict mines torpedoes bombs or other derelict weapons of war.
SRCC Risk: loss/damage caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or
civil commotions; resulting from strikes, lock-outs, labour disturbances, riots or civil commotions; caused by any terrorist
or any person acting from a political motive.
41) How does rate making, or pricing of insurance, differ from the pricing of other products?
49) Identify the sources of information that a risk manager can use to identify loss exposure?
-Risk Analysis Questionnaire
-Agent's report: the insurance agent or broker normally have a report evaluating the prospective subject matter
-Flow Chart
-Physical inspection: the manager can request a physical inspection of subject matter
-Financial Statements
-Historic loss data
50) Difference between the maximum possible loss and the maximum probable loss? Example?
The terms "Maximum Possible Loss" and "The Maximum Probable Loss are extensively used in property insurance.
Maximum possible loss is the “worst case scenario” and the most pessimistic view – the entire building and everything
inside could be destroyed (such loss could be considered a “shock loss”). Other terms for maximum possible loss are
“amount subject to loss” and “maximum foreseeable loss.”
Maximum probable loss is inversely proportional to the size of a structure and the effectiveness of any protective
safeguards. The larger the building, the less likely the entire property will be destroyed; and the better the fire protection
(sprinklers, alarms and public protection) the more likely a fire will be contained and extinguished before the entire
building is destroyed. The occupancy and contents within the building also affect the amount of damage likely to occur.
Probable maximum loss (PML) is alternative terminology.
41. - Rate making refers to the pricing of insurance and the calculation insurance premiums.
- Insurance pricing differs considerably from the pricing of other products. When other products are sold, the company
generally knows in advance the cost of producing the products, so that price can be established to cover all costs and yield
a profit. However, the insurance company does not know in advance what its actual costs are going to be. The total
premiums charged for a given line of insurance may be inadequate for paying all claims and expenses during the policy
period. It is only after the period of protection has expired that an insurer can determined its actual losses and expenses.
42. - Life insurers have agency or sales department. This department is responsible for recruiting and training new agents
and for the supervision of general agents, branch office managers and local agents.
- Property and casualty insurers have marketing departments. To assist agents in the field, special agents may also be
appointed. Special agent is a highly specialized technician who provides local agents in the field with technical help and
assistance with their marketing problems. For example, a special agent may explain a new policy form or a special rating
plan to agents in the field.
- Besides, an insurance company engages in a wide variety of marketing activities, including development of a marketing
philosophy and the company’s perception of its role in the marketplace; identification of short run and long run
production goals, marketing research, identification of specific markets, and market characteristics, development of new
products to meet the changing need of consumers and business firms; development of new marketing strategies, and
advertising of the insurer’s products.
45.- Information System: extremely important in the daily operations of insurers; depend heavily on computers and new
technology => help to speed up the processing and storage of information and eliminate many routine tasks. Information
can quickly be obtained on premium volume, claims, loss ratios, investments, and underwriting results.
-Accounting: responsible for the financial accounting operations of an insurers: prepare financial statements, develop
budgets, analyze company’s financial operations and keep track of millions of dollars that flow in and out of an insurance
company.
-Legal Service: In life insurance, attorneys are widely used in advanced underwriting and estate planning. They draft legal
language and policy provisions in insurance policies and review all new policies before they are marketed to the public.
Other activities: provide legal assistance to actuarial personnel to testify at rate hearings, review advertising and other
published materials, legal advice on taxation, marketing, investments, laws, lobbying for legislation of insurance industry.
-Loss control: an important part of risk management;
• providing advice on alarm systems, automatic sprinkler systems, fire prevention, occupational safety and health,
prevention of boiler explosions, and other loss-prevention activities;
• providing advice on the construction of a new building or plant to make it safer and more resistive to damage, and
assistance when new insurance is underwritten.