Insurance and Risk management questionnaires

1) What is insurance? State nature of insurance?

- Def: Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay
the financial losses suffered by the insured as a result of the occurrence of unforeseen events.
- Nature of insurance:
+ Insurance provides financial protection against a loss arising out of happening of an uncertain event. A
person can avail this protection by paying premium to an insurance company.
+ Insurance is the risk transferring from the insured to the insurer
+ Insurance works on the basic principle of risk-sharing.
+ The business object in the insurance sector is risk.

2) What is insurance amount? Insurance value? Relation between A and V?

- Insurance value: refers to the value of the property. It equals to the sum of the cost of the subject and
reasonable charges
+ by sea: V= FOB+F+I+a(expected profit, 10%)= 100%or110% CIF
+ by others: V= FCA+F+I+a= 100%or110% CIP
+ the value of the property is usually actual cash value or replacement cost (equal to the amount it would cost
to fully repair or replace the property if it must be reconstructed or purchased new).
- Insurance amount: is a certain amount of insurance coverage that the insured requires in the insurance
policy, it can be a part or an entire of insurance value.
- Relationship: A </= V, because the insured cannot make profit from insurance policy.

3) What is double insurance? Example of double insurance?

- Double insurance: Situation in which the same risk is insured by two overlapping but independent insurance
policy (buyer buys insurance for same risk in different companies, total premium exceed 100%)
- It is lawful to obtain double insurance, and the insured can make claim to both insurers in the event of a loss.
- The insured, however, cannot profit (recover more than the loss suffered) from this arrangement because the
insurers are law bound only to share the actual loss in the same proportion they share the total premium.
- Examples: Mr A involves in 2 insurance policies for his car at 2 insurance companies X and Y with
insurance amounts are 300, 500 million VND (insurance for physical value of car). Assuming that the value
of the car is 500 million VND. When a total loss occurs, X compensate 3/8*500= 187.5 million VND, Y
compensate 5/8*500= 312.5 million VND.

4) What is co- insurance? Give examples?

- Co-insurance: Insurance held jointly by two or more insurers (buyer actively divides risk into portions by
buying insurance for each portion in different company, total premium equals to 100%)
- Examples: Insurance companies A and B jointly provide insurance cover for a ship with a value of $10,000 at
the rate sharing of 80/20 respectively. When a total loss occurs, A compensate 80%*10,000= $8,000, B
compensate 20%*10,000= $2,000.

5) What is re-insurance? Give example?

- Re-insurance: Practice where an Insurance company (the insurer) transfers a portion of its risks to another
(the re-insurer).
- Legal rights of the policyholders (insureds) are in no way affected by reinsurance, and the insurer remains
liable to the insureds for insurance policy benefits and claims.
- If insurer goes bankruptcy, the insured may get compensation from reinsurer for the portion that he is in
charge only if in insurance policy, it has cut-through clause.
- Examples: Insurance company A provides insurance cover for a ship with a value of $10,000. Then, A sign a
re-insurance contract with insurance company B, in which B provides insurance cover for $3,000 of the ship
value. When a total loss occurs, A compensate $7,000, B compensate $3,000.

6) What is insurance premium? What factors affect insurance premium?

Insurance premium is the payments of the insured to the insurance company to buy a policy and to keep it in force.
 I = V(A) x R
- V: Insurance value: refers to the value of the property. It equals to the sum of the cost of the subject and
reasonable charges
- A: Insurance amount: is a certain amount of insurance coverage that the insured requires in the insurance
policy, it can be a part or an entire of insurance value.
- R: Insurance rate: issued by insurance company, calculated based on the possibility of the occurrence of loss
or damage to the goods.

7) What is insurer, insured, subject/matter insured?

- Insurer is the party to an insurance arrangement who undertakes to indemnity for losses. (they have right to
invest in other sectors)
- Insured or policyholder is the person or entity buying the insurance and receiving indemnity on happening of
unforeseen events. (sometimes, person whose name is on policy is not the one who receive indemnity, i.e
parents buy insurance for their child).
- Subject matter insured is the person, group, or property for which an insurance policy is issued. 3 types of
subject matter insured:
+ Life
+ Property – subject insured
+ Liability – matter insured

8) Analyze the principle of utmost good faith? Give example?

- A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to
other contract.
- Good faith- Let the buyer beware: insurer has to inform the insured about all conditions, principles,
premium,…
- By contrast, the insured has to declare of all material Information about the subject matter of insurance, which
enables the insurer to decide:
+ whether he will accept the risk and;
+ if so, at what rate of premium and subject to what terms and conditions
- Breach of duty of utmost good faith arises in two ways:
+ Non-disclosure of material facts- oversight, proposer thought it’s not essential => unintentionally
+ Misrepresentation- Intentionally
- Examples:
+ Example 1: Non- disclosure (unintentional):
Terry was an electrician. He had an ineffective right leg. He owned and drove a small van that had been
modified for his disability. His job was with a film company and he traveled from location to location wiring
up the lighting equipment
He proposed for personal accident insurance describing himself as an electrician and answered the
question about disabilities in the negative. Whilst travelling from one site to another he fell momentarily
asleep at the wheel and struck a lamp standard because he was not able to brake effectively.
+ Example 2: Misrepresentation (intentional):
The insured misrepresent that she had no traffic violation convictions in the prior three- year period. After an
accident, a check of her record revealed that she had two speeding tickets in that period. The insurer denied
coverage.

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.

11) Analyze principle of indemnity? Give example?

- The principle of Indemnity states that under the policy of insurance, the insured has to be placed after
the loss in the same financial position (A or V) in which he was immediately before the loss. (người
bảo hiểm phải bồi thường để khôi phục lại khả năng tài chính ban đầu cho người được bảo hiểm ngay
khi tổn thất xảy ra).
- The insurer agrees to pay no more than the actual amount of the loss => purpose: + prevent insured
from making profit from insurance.
+ reduce moral hazard

- 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.

17) Distinguish between particular average and general average?

- Particular Average: losses of each insured interest individually due to acts of God or Perils of the
sea
+ Insurer’s liability: compensate for both of the losses and reasonable costs caused by particular
average.
+ Reasonable costs are the cost used for saving cargo or reducing its damaged measurement.
- General Average: the losses/ damages caused by special expenses and sacrifices that intentionally
and reasonably conducted to save the vessel, cargo and unpaid freight from a threat in the common
ocean voyage.
+ There is a general average act when, and only when, any extraordinary sacrifice or expenditure is
intentionally and reasonably made or incurred for the common safety for the purpose of preserving
from peril the property involved in a common maritime adventure.
=> General Average is for the common safety of all of the interests (cargo, vessel, unpaid freight)

18) What is partial loss, total loss? Give examples?

- Losses sustained by the insured due to the risks listed above come from not only the loss of the goods
or the damage to the goods, but also from the expenses the insured sustained in rescuing the goods in
danger.
- The losses and the damages done to the goods can fall into total loss and partial loss
- Total loss means the whole lot of the consignment has been lost or damaged or found valueless,
including
+ Actual Loss: (Ex: the whole lot of consignment was destroyed due to a fire).
+ Constructive Total Loss: (Ex: the old ship after a heavy collision was in severe damage, but repair
is expensive and exceed the value of the ship). reasonably abandoned because its actual total loss is unavoidable
- Partial Loss means that the loss or damage dine to the goods is only partial. Partial loss can be either
general average (GA) or particular average (PA). (Ex: 1MT out of 100MT of consignment have been
damage due to a fire). : Loss affected parts of the subject matter insured, not a whole
19) Distinguish between actual total loss and constructive total loss? Give examples?
- Actual total Loss: means the whole lot of the consignment has been lost or damaged or found
valueless upon arrival at the port of destination (Ex: the whole lot of consignment was destroyed due
to a fire)
- Constructive total loss: is found in the case where the actual loss of the insured goods is unavoidable
(1), or the ship or the consignment has to be abandoned because the cost of recovery would exceed
the value of the ship and the consignment in sound condition (2) upon the arrival of the port of
destination
+ Example for (1): during the carriage of rice, rice has been damp due to the entry of seawater and
become stale. It can be seen that upon arrival at destination port, the whole lot will be unusable.
+ Example for (2): the old ship after a heavy collision was in severe damage, but repair is expensive
and exceed the value of the ship
+ Notice of abandonment (NOA): is a notice in which the insured commits to give up all of his right
related to the subject- matter insured to the insurer in order to be fully compensated.
+ Requirements:
● Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of
the notice conclusively admits liability for the loss and the sufficiency of the notice.
● NOA is unnecessary when the consignments have already reached final destination and are in
actual total loss

20) What is general average? Characteristics of general average?

- General Average: 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.
+ There is a general average act when, and only when, any extraordinary sacrifice or expenditure is
intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril
the property involved in a common maritime adventure.
+ General Average is for the common safety of all of the interests (cargo, vessel, freight)

- 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

21) State the legal system that adjusts general average?

York Rules 1864
York- Antwerp 1924
York- Antwerp 1950, 1974, 1990, 1994, 2004
(Những bản sửa đổi, bổ sung sau không làm mất tính pháp lý của các phiên bản trước)
- Amendments of York- Antwerp Rules 2004:
+ Rule VI: salvage remuneration is not included in GA
+ Rule XX: A commission of 2% on GA disbursements, other than the wages and maintenance of masters, officers
and crew and fuel and stores not replaced during the voyage is not included in GA
+ Rule XXI: Interest shall be allowed on expenditure, sacrifices and allowances in GA until three months after the
date of issue of the general average adjustment. Each year the Assembly of the Committee Maritime International
shall decide the rate of interest which shall apply. This rate shall be used for calculating interest accruing during the
following calendar year.
+ Rule XXIII: limitation of claims: 1 year after the date upon which GA adjustment was issued or 6 years from the
date of termination of the common maritime adventure. These periods may be extended if the parties so agree after
the termination of the common maritime adventure
22) State content of general average? What are responsibilities of related parties in a general average case?
- Contents:
+ GA Sacrifices: to sacrifice properties for the rest ones.
+ GA Expenditures: consequent costs of GA act or expenditures concerning GA act:
● Salvage cost (York Antwerp Rules 1994)
● Temporary repairs cost
● Cost at port of refuge
● Wages and maintenance of master, officers and crew reasonably incurred and fuel and stores consumed
during the prolongation of the voyage occasioned by a ship entering a port or place of refuge or returning
to her port or place of loading
● Interest of 7% shall be allowed on expenditure, sacrifices and allowances in general average until three
months after the date of issue of the general average adjustment
+ GA adjustment:
● Arrange a GA adjuster: third party independently
● Contributing interests: vessel (ship owner), cargo (cargo owner), unpaid freight/freight at risk (ship
owner).

- Ship-owner/ master’s liabilities:

+ Form GA Notice
+ Arrange survey service to assess the measure of damage
+ Send average bond and average guarantee
+ Arrange GA adjuster: third party
+ Form Sea Protest (if applicable)
+ Contribute to GA
- Cargo owner’s liabilities:
+ Declare value of the goods
+ Receive average bond for himself (cargo owner need to sign to make sure that he will contribute) and
average guarantee for insurance company (no need to sign because insurance company automatically confirm
to pay contribution on behalf of cargo owner).
+ Contribute to GA

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

24) State different types of marine cargo insurance policy?

- Voyage policy: an insurance policy or insurance certificate for one shipment from one port to another port =>
1 policy for each shipment
- Open cover policy: + large export/import oriented industry usually prefer open cover agreement as they have
to make numerous regular shipment who would otherwise find it very inconvenient to obtain insurance cover
separately for each and every shipment => 1 policy for numerous regular shipment
+ open cover insurance policy is an agreement between a merchant and an insurance
company to insure all goods in transit within the agreement, until either party cancel the agreement
- Valued policy: the insurance value is clearly defined in policy => suitable for short voyage and goods with
unchanged value.
- Unvalued policy: the insurance value is not defined in policy. The insured just pays a deposit and the policy
just regulates the rule to calculate insurance value after a loss occurs => suitable for long voyage and goods
with changeable value.

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

26) State content of insurance clause A, ICC 1982?

A Clause: 12
- B
- Auxiliary risks: theft, rain- water, leakage, breakage, dampness, heating, hooking, rusting, malicious damage
(not by insured), piracy…
⇨ Can buy B or C plus 1 kind of auxiliary risk, no need to buy full A
Exclusion: absolutely excluded risks, loss arising from unseaworthiness and unfitness, war and SRCC
27) State content of insurance clause B, ICC 1982?
B clause: 11 Termination: if the contract of carriage is terminated at a port or place other than the named port and place, or the transit
- C is terminated before delivery of goods, then the insurance is terminated too unless notice is given to the insurer.
- Earthquake volcanic eruption or lightning
- Washing overboard
- Entry of sea, lake or river water (not rain water) into vessel craft hold conveyance container lift van or place
of storage
- Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft

28) State content of insurance clause C, ICC 1982?

C clause: this insurance covers loss of or damage to the subject- matter insured reasonably attributable to: 7
- Stranding, sinking, fire or explosion, collision: traditional main risks
- Discharge of cargo at a port of distress/ refugee
- Overturning or derailment of land conveyance: during 2 sub-periods: from seller’s premise to port of loading,
from port of unloading to buyer’s premise
- Sacrifice in and contribution to GA and reasonable expenditures
Modern main risks:
- Jettison: throwing something away onto seabed, ground or other vessel
- Missing
- 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 => explain

29) What are exlusions?

Exclusions:
- Contraband (buôn lậu)
- Willful misconduct of the assured
 - Deviation ( tàu đi chệch hướng)
- Delay
- Inherent vice or nature of subject- matter insured
- Unseaworthiness of vessel
- Insolvency or financial default of the owner or the operator of the vessel

30) Analyze transit clause, ICC 1982? Give example? Duration

Transit Clause “from warehouse to warehouse”
- Stage from port of discharge to final warehouse: insurance policy terminates either:
+ On safely delivery to the final warehouse, or
+ On the expiry of 60 days after completion of discharge
- Departure warehouse: place of storage at the place named herein for the commencement of the transit
(insurer is liable for damage since the goods are loaded on transport, not based on departure warehouse)
- Final warehouse:
+ Final warehouse owned or managed by the assured, or
+ Store other than in the ordinary course of transit, or
+ Store using for allocation or distribution, or
+ Store named in insurance policy

31) What are auxiliary risks in marine insurance?

- Auxiliary risks are unpopular risks, including: theft, rain- water, leakage, breakage, dampness, heating, hooking,
rusting, malicious damage (not by insured), piracy…

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

33) Who can buy insurance?

- Base on contract of sale: Legal contract for exchange of goods, services or property to be exchanged from
seller to buyer for an agreed upon value
- The contract of sale determines who buy the policy
- The most common contracts of sale are: FOB, CFR and CIF
+ FOB: Buyer pays freight, buyer arranges insurance
+ CFR: Seller pays freight, buyer arranges insurance
+ CIF: Seller pays freight, seller arranges insurance
- In marine cargo insurance, the person having insurable interest at the time of loss can only recover
- Marine cargo policy are freely assignable. Unlike other policies, there is no need to take insurance company’s
consent for transferring policy to new buyer

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.

35) What is the scope of coverage of ITC 1995?

This insurance covers total loss (actual or constructive) of the subject-matter insured caused by
1.1.1. Perils of the seas, rivers, lakes or other navigable waters
1.1.2. Fire, explosion
1.1.3. Violent theft by persons from outside the Vessel
 1.1.4. Jettison
1.1.5. Piracy
1.1.6. Contact with land conveyance, dock or harbor equipment or installation
1.1.7. Earthquake, volcanic eruption or lightening
1.1.8. Accidents in loading, discharging or shifting cargo or fuel
This insurance covers total loss (actual or constructive) of the subject-matter insured caused by
1.2.1. bursting of boilers (nổ nồi hơi), breakage of shafts (vỡ trục) or any latent defect in the machinery or hull
1.2.2. negligence of Master Officers Crew or Pilots
1.2.3. negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder
1.2.4. barratry (cố ý gây tổn hại) of Master Officers or Crew
1.2.5. contact with aircraft, helicopters or similar objects, or objects falling therefrom provided that such loss or
damage has not resulted from want of due diligence by the Assured, Owners, Managers or Superintendents or any of
their onshore management

36) Explain responsibility of hull insurer in collision accident? Give example?

- Insured vessel: loss/damage of ship itself, machinery and equipment
- Other vessel: Insurer agrees to indemnify the insured vessel for three-fourth of its civil liability to other
vessel but that amount of money is not exceeded three- fourth of insurance amount of insured vessel,
including:
+ Loss of/damage to ship itself, machinery and equipment
+ Loss of/damage to cargo and other property on other vessel
+ Delay to or loss of use of any such other vessel or property thereon
+ General average of, salvage of, or salvage under contract of, any such other vessel or property thereon.
- This Clause shall in no case extend to any sum which the insured shall pay for or in respect of:
Exclusions
+ Removal or disposal of obstructions, wrecks, cargoes or any other thing whatsoever
+ Any real or personal property or thing whatsoever except other vessels or property on other vessels
+ The cargo or other property on, or the engagements of, the insured vessel
+ Loss of life, personal injury or illness
+ Pollution or contamination of any real or personal property or thing whatsoever (except other vessels with
which the insured vessel is in collision or property on such other vessels).
- Example:

ollision and liabilities of different parties

37) Explain responsibility of marine cargo insurer in collision accident? Give

example?
- If cargo owner has not received compensation:
+ Loss/ damage in colliding accident
+ Proportion of liability under the contract of affreightment “Both to Blame Collision” Clause
- If cargo owner has already received a portion of compensation:
+ The rest part of Loss/ damage in collide accident
+ Proportion of liability under the contract of affreightment “Both to Blame Collision” Clause
- Example:

38) What is P&I insurance? History of P&I insurance?

Protection and Indemnity insurance, or “P&I” as it is usually called, is ship owner’s insurance cover for legal liabilities
to third parties
- “Third parties” are any person, apart from the ship owner himself, who may have a legal or contractual claim
against the ship
 - P&I insurance is usually arranged by entering the ship in a mutual insurance association, usually referred to
as a “club”. Ship owners are members of such clubs.
- Legal liability is decided in accordance with the laws of the country where an accident takes place
- The P&I insurance cover for contractual liability is agreed at the time the owner requests insurance cover
from the club and is usually in accordance with the owner’s responsibility under crew contracts or special
terms relating to the trading pattern of the vessel
Meaning of term P&I:
- Protection: the insurance also covers assistance when a ship is involved in an accident and the ship owner and
his Master need help
- Indemnity:
+ P&I insurance is an indemnity type of insurance, the ship owner (or member of the club) must demonstrate
his loss before the club will pay out (or indemnify him) under the terms of the insurance policy
+ The club never assumes the owner’s liability, therefore technically the owner (or member) is always
responsible for payments
+ The club takes over the business of handling claims and ensuring that payments are correctly made.
History of P&I:
- Protection & Indemnity Insurance (P&I Insurance) developed from the old Hull Clubs in England in the
eighteenth century
- One century later, with the increase of liabilities arising from shipping activities which were unfortunately
excluded by the hull clubs, it was the result of an urgent need for ship owners to seek some new mechanism
to protect their potential liabilities in their business activities
⇨ P&I club came into the world in order to dealt with those things that excluded from Hull insurance:
i.e. third party liabilities and the rest part of collision liabilities
⇨ P&I Club has become one kind of mutual insurance with its own legal capacity
⇨ Modern P&I Insurance not only covers the part of collision liabilities which had once been excluded
by the hull insurers but also includes liabilities relating to cargo claims, liabilities relating to personal
injury, oil pollution liabilities, as well as some costs and expenses arising from the relevant casualties
- 2 reasons:
+ Firstly, because insurance premium for hull was expensive
+ Then, when premium decreased, club found other reason that they will cover everything that hull insurance
doesn’t cover

39) State the principle of mutuality in P&I insurance? Give example?

⮚ In respect of the organization of insurance
– Members of P&I Clubs have a dual role as both assureds and insurers
– P&I Insurance is not profit-making, all the money raised is from the members and will be used for the
members as well
⮚ It is the members themselves to share the losses
– The operational principle of P&I Clubs is to balance all the calls received from the members and the
liabilities the members incur in each policy year
– P&I Club would not operate on borrowing, the payment by the members is very important to P&I Clubs
– the clubs also take strict measures to the member: i.e.the club will refuse to provide guarantee, or decline
the settlement of claim, even more cancel the insurance contracts in the case that the member fails to pay his
member fee in time
⮚ The fund of the club
– The club fund plays a very important role in the operation of P&I Insurance, and it is usually collected by
levying calls from the members
– The “calls” are used in P&I Insurance instead of the “premiums”- an agreement that each member should
bear his aliquot share of the losses of the year covered by the policy

40) What is scope of coverage of P&I insurance in collision accident?

Liability for the insured vessel:
- Damage to cargo, people and other property on the insured vessel
Liability for the other vessel:
- One-fourth of civil liability to the other vessel
 - Liability exceeded three-fourth of insurance amount of insured vessel

41) What is scope of coverage of P&I insurance?

9 - Liability for damage to cargo
- Death and personal injury:
+ Any person injured on your ship – crew, stevedores, pilots or passengers, for example may allege that your
ship was unsafe. The injured person could decide to sue the ship and her owners and demand huge sums of
money as compensation
+ It is necessary for a Master and his senior officers to have a good idea of what his P&I club’s rules state on
the insurance cover for personal injury, illness and loss of life.
- Repatriation of sick or injured crew and hospital expenses:
+ P&I insurance also covers a ship owner’s liability to pay for the costs of repatriating crew members who
become sick or are injured on board. The insurance also covers the crew’s hospital bills and costs of sending
replacement personnel to the ship if necessary.
- Loss of crew members’ personal belongings
+ P&I insurance also covers the owner’s liability for loss of crew belongings in cases of shipwreck or fi re on
board.
+ The cover only applies to items which are deemed to be reasonable for any crew member to have with him
on board.
+ A crew member travelling with unusually expensive items, such as laptop computers, gold watches etc
should make sure that he has such items separately insured.
- Stowaways, refugees and persons saved at sea
- Pollution:
+ Oil from your ship which pollutes a harbor, dock or waterway will have to be cleaned up. Clean-up costs
will be charged to the ship and fines may be imposed on the ship, the Master, and the Chief Engineer. Your
ship could be arrested, and the owners are required to establish some form of security acceptable to the port
authorities.
- Wreck removal and obstruction:
+ The standard insurance shall cover liability and costs arising out of the raising, removal, destruction or
marking of the wreck of the entered vessel, her equipment, bunkers or cargo lost as a result of a casualty, in so
far as the raising and other operations are compulsory by law, or necessary to avoid or remove a hazard or
obstruction to navigation, or the costs are legally recoverable from the member
- General average contribution:
+ Cargo
+ The standard insurance shall cover the member’s loss in respect of general average expenditure and special
charges which should be paid by the cargo interest or some other party to the maritime adventure but which
are not legally recoverable solely by reason of a breach of the contract of carriage
- Fines:
+ Since fines are imposed for breaches of criminal law, they are generally not covered by insurance. However,
P&I clubs do indemnify members for fines imposed in a few very specific cases. Rule
+ P&I insurance normally provides cover for fines imposed for
● Breach of immigration laws
● Inaccuracies in cargo documentation
● Accidental pollution
● Smuggling or infringement of customs laws
+ The club only provides cover for fines imposed on the member, not the crew. However, the club does have a
discretion to cover members if they pay a fine imposed on the master or crew because they are legally obliged
to do so, or because the club accepts that it was reasonable to do so.

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.

43) Briefly describe the sales and marketing activities of insurers?

- The term production refers to the sales and marketing activities of insurers
+ Agents who sell insurance are producers
+ The key to insurer’s financial success is an effective sales force
- Life insurers have an agency or sales department, which is responsible for recruiting 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
be appointed. A special agent is a specialized technician who provides local agents with technical help and
assistance with their marketing problems
- Insurance company engages in a wide variety of marketing activities such as marketing research,
identification of short-run and long-run goals, advertising of insurer’s product, …

44) Explain the basic objectives in settlement of a claim?

From insurer’s viewpoint, there are 3 basic objectives in settling claims:
- Verification of a covered loss: Determining whether a specific person or property is coverage under the
policy, and the extent of the coverage.
- Fair and prompt payment of claims: The insurer should avoid excessive claim settlements and should resist
the payment of fraudulent claims, because the will ultimately result in higher premiums. (example of unfair
claim: misrepresentation of material facts or policy provisions by insurers that related to a coverage issue)
- Provide personal assistance to the insured: Insurer should provide personal assistance after a loss occurs.
For example, the claims adjustor could assist the agent in helping a family find temporary housing after a fire
occurs.

45) Describe the steps involved in the settlement of a claim?

- Notice of loss: Notify the insurer of a loss. A provision concerning notice of loss is usually stated in the
policy. A typical provision requires the insured to give notice immediately or as soon as possible after a loss
occurs.
- Investigation of claim: An adjustor must determine that a covered loss has occurred and must also determine
the amount of the loss. Some questions may be raised before a claim is approved:
+ Is the person an insured under the policy?
+ Did the loss occur during the policy period?
+ Is the cause of loss covered under the policy?
+ Is the damaged property covered under the policy?
+ Is the amount of loss or damage covered under the policy?
+ Is the location where loss occurred covered under the policy?
+ Are there any exclusions that apply to the loss?
+ Does any other insurance apply to the loss?
- Filling a proof of loss: A proof is a sworn statement by the insured that substantiates (chứng tỏ) the loss.
- Decision concerning payment: There are 3 possible decisions:
+ The claim can be paid:
+ The claim cannot be denied: For example, the policy does not cover the loss
+ The claim may be valid but there may be a dispute between the insured and insurer over the amount to be
paid. In the case of a dispute, a policy provision may specify how the dispute is to be resolved.
The claim needs further investigations
46) Briefly describe the following insurance company operations:
- Information system: are extremely important in the daily operations of insurers. These systems
depend heavily on computers and new technology. Computers have revolutionized the insurance
industry by speeding up the processing and storage of information and by eliminating many routine
tasks.
 - Accounting: The accounting department is responsible for the financial accounting operations of an
insurer. Accountants prepare financial statements, develop budgets, analyze the company’s financial
operations, and keep track of money that flow into and out of the company each year.
- Legal services: include providing legal assistance to actuarial personnel, providing general legal
advice concerning taxation, marketing investment and insurance laws.
- Loss control services: include advice on alarm systems or automatic sprinkler systems and other loss
prevention activities. Loss control specialists can also assist underwriters when new insurance is
underwritten. Refers to the process of selecting, classifying, and pricing applicants for insurance

47) What is meaning of risk management?

Risk management is a process that identifies loss exposures faced by an organization and selects the most
appropriate techniques for treating such exposures
Risk – loss exposure: is any situation or circumstance in which a loss is possible, regardless of whether a loss actually
occurs.

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.

52) Explain meaning of risk control?

Risk control: refers to techniques that reduce the frequency and severity of losses
- 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.

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.

55) Explain the meaning of risk financing?

Risk financing: refers to techniques that provide for the funding of losses to cover the financial effect of unexpected losses
experienced by a firm. Traditional forms of finance include risk transfer, funded retention by way of reserves and risk pooling.
56) Explain the risk financing techniques and give examples:
- Retention: the firm retains part or all of the losses that can result from a given loss, provided that:
+ No other method of treatment is available
+ The worst possible loss is not serious
+ Loss is fairly predictable
Defining retention levels: the dollar amount of losses that a firm will retain:
● First, a company can determine the maximum uninsured loss it can absorb without adversely
affecting its earning. The maximum retention can be set at 5% of the company’s earnings
before taxes from current operations
 ● Second, a company can determine the maximum retention level as a percentage of the firm’s
networking capital (between 1 and 5%) - Networking capital is the difference between a
company’s current assets and current liabilities.
=> Although this method does not reflect the firm’s overall financial position for absorbing a loss, it
does measure the firm’s ability to fund a loss.
Example: a motorist may retain the risk of a small collision loss by buying an auto insurance policy
with high deductible

- 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)

61) What are benefits of risk management?

- The pre-loss and post- loss risk management objectives are more easily attainable
- The cost of risk is reduced, which may increase company’s profit (the cost of risk is a risk
management tool that measures certain costs, including premiums paid, retained losses, loss control
expenditures, outside risk management services, financial guarantees, internal administration costs,
and taxes, fees, and certain other expenses).
- A firm may be able to implement an enterprise risk management program that treats both pure and
speculative loss exposure.
- Society also benefits since both direct and indirect losses 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

2. What is insurance amount? Insurance Value? Relationship between V and A?

a. Insurance amount: a certain amount of insurance coverage that the insured require in the insurance policy, it can be a
part or an entire of insurance value
b. Insurance Value: the term value refers to the value of the property, on the same basis used in indemnifying losses; that
basis is usually actual cash value or replacement cost.
Actual Cash Value: Replacement cost minus any depreciation ( to account for the reduction in value over time). An object
usually have a lifetime value. After a period, only a percentage of that lifetime value remains. The loss in lifetime value is
depreciation.
Example: a man purchased a television set for $2,000 five years ago and it was destroyed in a hurricane. His insurance
company says that all televisions have a useful life of 10 years. A similar television today costs $2,500. The destroyed
television had 50% (5 years) of its life remaining. The ACV equals $2,500 (replacement cost) times 50% (useful life
remaining) or $1,250.
Replacement cost: the amount of money it would cost to fully repair or replace an object if it must be reconstructed or
purchased anew
d. Insurance amount must never exceed insurance value to prevent moral hazard or deliberate sabotage
from the side of the insured
e.
3. What is double insurance? Example?
a. Double insurance: situation in which the same risk is covered by two overlapping independent insurance policy
b. Example: You can by insurance for your car, in the event that it has a collision, from two companies.
Note: while you can claim money from all of your insurers, the total amount of insurance must not exceed the actual loss.
The insurers are to share the actual loss in proportion to their share in the total premium. Example: Company A requires a
premium of 2 while B require 8. Total premium is 10. If accident happens, A pays the insured 20% of the total insurance
amount while B pay 80%.
Trying to claim money exceeding insurance value from two or more companies is called "double dipping" or "unjust
enrichment" and can be considered a felony.
4) What is co-insurance? Example?
a. Co-insurance: 1. Co-insurance is a co-sharing agreement between the insured and the insurer under an insurance policy
which provides that the insured will pay a set percentage of the covered costs after the deductible has been paid. 2. Also
means risk held jointly by two or more insurer
b. Example: in health insurance, let's suppose you take out a policy with a 80/20 co-insurance provision with a $1000
deductible. During the year, you have an medical operation costing $11,000. You pay the deductible, now the insurance
value is $10000. According to the provision, now you pay 20% of the insurance amount.
c. Re-insurance: a practice by which the insurer passes some parts of all of this risk to another Insurer called the
Reinsurer. The policyholders still retain all claims and benefits they demand from insurer. By covering the insurer against
accumulated individual commitments, reinsurance gives the insurer more security for its equity and solvency and more
stable results when unusual and major events occur
Two major types of reinsurance include:
- Facultative reinsurance: each policy will be negotiated individually
- Reinsurance treaty: the reinsurer covers a specified share of all policies included in the scope of an insurance contract
agreed between them and the insurer
Example:  an insurance company might insure commercial property risks with policy limits up to $10 million, and then
buy reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the
recovery of $1 million from the reinsurer.

5) What is insurance premium? What factors affect insurance premium?

a. Insurance premium: the amount of money that an individual or business must pay for an insurance policy
b. Factors: type of coverage, likelihood of incidence, characteristics of subject insured, competition from other insurers.
Type of coverage: This policy covers which perils and to what extent? For example, for automobile insurance, we have
coverage for traffic accident (collision coverage) and for fire or vandalism (comprehensive insurance). Would it cover
complete destruction of the device? Normally for each different subject insured, we have different types of coverage with
a corresponding premium.

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.

6) Insurer, Insured, subject/matter insured?

a. Insurer: the party to an insurance contract who undertakes indemnity for losses
b. Insured: an insured or policy holder is the person or entity buying the insurance and receiving indemnity upon the
occurrence of incidence.
c. Subject/matter insured: the person, group or property for which an insurance policy is issued. Life, Property, Liability

7) Analyze the principle of utmost good faith? Give example.

a. Utmost Good Faith (Uberrima Fides): all parties to an insurance contract must deal in good faith, making a full
declaration of all material facts in the insurance proposal and uphold their shares of duties.
This is in contrast with the principle of Let the buyer beware (Caveat Emptor): it is the duty of the buyer to carry out due
diligence research into the product before purchasing it.
A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contract
Breach of duty of utmost good faith arises in two ways:
+ Non-disclosure of material facts- oversight, proposer thought it’s not essential => unintentionally
+ Misrepresentation- Intentionally
Material facts: information enabling the insurers to decide whether to accept the risk and at what rate of premium, with
which terms and conditions. In turn, insurer must reveal all information regarding policies that can benefit the insured. No
withholding of any such information.
Example: someone who buys car insurance must reveal any fault in their vehicle, any accident caused by the vehicle, the
technical specifications of the vehicle, any pre-existing insurance policy, etc. In return, the insurer must reveal all
available insurance policies, not just the one with highest premium rate.

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.

14) Marine Insurance? Types?

Marine Insurance is a type of insurance that covers the loss or damage of ships, cargo, terminals, any transport or cargo by
which the property is transferred, acquired or held between the points of origin and destination.

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.

b. Three on the basis of time period

- Time Policy: coverage for a specific period of time
- Voyage Policy: coverage for the period of a particular voyage
-Mixed Policy: mix of time and voyage policy

c. Two on the basis of the value of the insured subject matter

- Valued Policy: A type of insurance coverage that places a specific value on the insured property, such as the hull or
cargo of a shipping vessel. A valued marine policy pays up to, or in its entirety, the specified value in the event of a total
loss.
- Open or Unvalued Policy:  the value of the cargo and consignment is not put down in the policy beforehand. Therefore
reimbursement is done only after the loss to the cargo and consignment is inspected and valued.

15) Different types of risk in marine insurance?

There are two ways to categorize risks in marine insurance:
a. By cause:
- Acts of God: extreme weather phenomenon or natural occurrences such as storms, tsunami or volcano eruption
-Perils of the sea: commonly encountered incidents or phenomenon during sea voyage such as stranding, sinking, or
collision.
- SRCC: strikes, Riot, Civil, Commotion
- Actions of human: thievery, robbery, barratry
- Actions of government: restrain and detainment
- Other sources of risk such as pest, sickness, contamination, etc.
b. By insurance technique
- Insured Common Perils: the risks normally insured in original insurance clauses
 Main risk: stranding, sinking, fire, explosion, collision, jettison, missing
Auxiliary risk: theft, rain, leakage breakage, dampness, heating, hcooking, rusting
- Relatively Excluded Perils: risks not included in normal standard insurance clause such as War and SRCC
- Absolutely Excluded Perils:
Loss damage or expense attributable to willful misconduct of the insured (Accidental Loss violation)
Ordinary loss, leakage, weight loss, wear and tear (Meaningful loss Violation- The loss is not significant)
Loss damage or expense caused by lack of due diligence (Accidental Loss Violation)
Loss damage or expense caused by inherent vice or nature of the subject/matter insured (Inherent vice means the innate
quality/ characteristics of an object that make it prone to deterioration or destruction) (Accidental Loss Violation- The loss
results from a speculative or business risk)
Loss damage or expense caused by delay even though the delay is caused by a risk insured against (Meaningful Loss,
Calculable Loss Violation- the loss is not significant enough, or not calculable, or obvious)
Loss damage or expense arising from insolvency or financial default of the owners, managers, charterers or operators of
the vessel (Accidental Loss Violation- 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 (Limited risk of catastrophically large loss violation- the loss is
catastrophic in nature)

Question 16: As above

Question 17: Distinguish between General Average and Particular Average

General Average and Particular Average cover partial losses (only parts of the subject insured is damaged, the insured is
indemnified to the tune of the damaged part). They are legal principles in marine insurance.

Particular Average General Average

Extent of damage - a particular subject matter
Risk/loss bearer - a particular person personally
affected by the damage of their
subject matter
Characteristics of loss - loss/damage to a particular
subject matter
- two or more subject matters
- all parties in sea venture
- voluntary
- extraordinary in nature, beyond
the common routine of crew
members
- properly made
- direct result or reasonable
consequence of the act causing it
- for the common safety of ship
and cargo

Note: What exactly is loss extraordinary in nature?

18)Partial Loss? Total Loss? Example?

Partial Loss: Loss affected parts of the subject matter insured, not a whole.
Total Loss:
-Actual total loss: Where the subject-matter insured is destroyed, or so damaged as to cease to be in its original state, or
where the insured is irretrievably deprived thereof, there is an actual total loss.
Actual total Loss: means the whole lot of the consignment has been lost or damaged or found valueless upon arrival at the port of destination (Ex:
the whole lot of consignment was destroyed due to a fire)
Constructive total loss: is found in the case where the actual loss of the insured goods is unavoidable (1), or the ship or the consignment has to be
abandoned because the cost of recovery would exceed the value of the ship and the consignment in sound condition (2) upon the arrival of the port
of destination
+ Example for (1): during the carriage of rice, rice has been damp due to the entry of seawater and become stale. It can be seen that upon arrival at
destination port, the whole lot will be unusable.
+ Example for (2): the old ship after a heavy collision was in severe damage, but repair is expensive and exceed the value of the ship
-Constructive total loss: there is a constructive total loss where the subject-matter insured is reasonably abandoned
because its actual total loss is unavoidable, or because it could not be preserved from actual total loss without an
expenditure which would exceed its value.

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.

23) Marine Cargo Insurance? Necessity?

a. Marine Cargo Insurance: provides coverage to goods during transit of rail, road, sea, or air
b. Necessity: high probability of risk during voyage, carrier's liability is very limited, and marine cargo insurance is a
custom in international trade.
Carrier's liability is very limited: since most marine contracts are executed within the terms and conditions of the
Hague-Visby Rules, carrier's liability is very limited. According to article IV, the carrier is exempted from loss and
damages arising or resulting from act, neglect or default of the master, pilot , servants; fire; perils at sea, act of
Gods, of war, SRCC, quarantine and various other sources of loss.
International trade contracts requires insurance. Various states and nations have issued convention and act obligating
shipowners to buy insurace. For example: the Convention on Civil Liability for Oil Pollution Damage CLC in 1969
administered by the International Maritime Organization states that if a ship carries more than 2000 tons of oil in cargo,
CLC requires shipowners to maintain "insurance or other financial security" sufficient to cover the maximum liability for
one oil spill.

24) Different types of marine cargo insurance policies?

Voyage Policy is actually another name for marine cargo insurace
a. Open Cover Cargo Policy: an agreement between a merchant and an insurance company to insure all goods in transit
within the agreement until either party cancels the agreement. For import/export-orientated industries with numerous
shipment and find it inconvenient to obtain insurance for each and every shipment.
b. Specific Cargo Policies: a policy that only covers goods specified by the merchant to the insurance company
c. Contingency Insurance Policy: for contingent situation. A contingent policy protects the secondary insured if the
primary insured is deceased, unable to be located or refuses to enter insurance contract.

25) Present legal issues related to marine cargo insurance in England and Vietnam?

26) Content of Insurance clause A, ICC 1982?

a. Risk covered: all risks covered by clause B and C; general average and salvage charges; both to blame collision clause;
auxiliary risks such as theft, rain water, leakage, breakage, rusting, etc.
b. Exclusion: absolutely excluded risks, loss arising from unseaworthiness and unfitness, war and SRCC
c. Duration: insurance contract shall last from port of discharge/departure warehouse to final warehouse or on the expiry
of 60 days after completion of discharge oversize of the goods insured from the vessel at the final port of discharge
whichever occurs first
d. Termination: if the contract of carriage is terminated at a port or place other than the named port and place, or the
transit is terminated before delivery of goods, then the insurance is terminated too unless notice is given to the insurer.

27) Insurance Clause B ICC 1982

a. Risk covered: All risk in clause C; earth quake volcano eruption or lightning; washing overboard; entry of sea, lake or
river water into vessel craft hold conveyance container lift van or place of storage, total loss of any package lost
overboard or dropped whilst loading on to or unloading from the vessel; general average and both to blame collision
clause
b. Exclusion: absolutely excluded risks; unseaworthiness and unfitness of the vessel; war and SRCC
c. Duration: transit clause (Like clause A and C).
To elaborate on the concept of departure warehouse and final warehouse
Departure warehouse: the warehouse or place of storage at the place named in the insurance contract for the
commencement of the transit
Final warehouse: the Consignees' or other final warehouse or place of storage at the destination named in the insurance
contract,
Any other warehouse or place of storage, whether prior to or at the destination named in the contract, which the insured
elect to use either for storage other than in the ordinary course of transit or for allocation or distribution
d. Termination: As clause A

28) Insurance Clause C ICC 1982

a. Risks covered:
Loss or damage to the subject matter insured reasonably attributed to fire or explosion; stranding, grounding, sinking or
capsizing; overturning or derailment of land conveyance; collision; discharge of cargo at port of distress; general average
sacrifice and both to blame clause.
b. Exclusion: Like clause A or B
c. Duration: Like clause A or B
d. Termination: Like clause A or B

29) Analyze Transit Clause

30) What are auxiliary risks in marine insurance?

Auxiliary risks are uncommon risks, only covered in most comprehensive insurance clauses, including theft, rain water,
leakage, breakage, dampness, contamination, heating, hooking, rusting, barratry, piracy.

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.

32) Analyze "Such Proportion of losses...'Both to blame Collision' Clause"?

Under the terms and conditions of Hague-Visby, carriers do not have to be responsible for the loss or damage of cargo on
the vessel. However, when the vessel collided with another, the carrier on the other vessel will ask for compensation,
which include the money they have to pay the cargo owners on the original vessel to compensate for loss and damage.
Therefore, the original carrier in this scenario actually have to pay for the loss/damage of the cargo owner on their own
vessel. This is against Hague-Visby. The cargo owner, therefore, must pay back the carrier the amount of money they
compensate for the other carrier, or reimbursement.
vessel. This is against Hague-Visby. The cargo owner, therefore, must pay back the carrier the amount of money they
compensate for the other carrier, or reimbursement.

33) Marine Hull Insurance? Subject Matter?

a. Hull insurance is one of the main types of marine insurance policies available in the marketplace. It covers a broad
range of damages on a vessel's hull, machinery, and equipment, which in turn gives the vessel owner a level of confidence
and security in operating their yacht/ship on international waters.
b. Subject matter:
- The ship, the machinery and the equipment
- Some liabilities, normally collision liabilities with another ship (Running Down Clause)
RDC: An ocean marine hull policy clause adding legal liability coverage for damage done to another ship or its cargo
resulting from a collision with, and caused by, the insured vessel.
- Liabilities for colliding with objects other than a normal ship (Fixed and Floating Objects)
Fixed Object: structure that does not float and therefore not designed to move or be moved on water such as harbor, quay,
dock, pier, jetty,...
Floating Object: a structure other than a ship which is designed to have buoyancy
- Salvage Charges and General Average Contributions
Salvage charges: Salvage charges are amounts paid to protect the vessel against additional loss. This could be as simple as
adding a barrier to a broken window or as complicated as a salvage company protecting the vessel if grounded. Most
marine insurance polices provide salvage charges as part of the normal boat insurance policies. Salvage charges must not
exceed the total value of the hull.

34) Scope of coverage ITC 1995? (Institute Time Clause)

Link: https://www.cpic.com.cn/cx/upload/Attach/infordisclosure/47624693.pdf
Scope Coverage including:
a. Perils
-perils of the sea and other navigable waters
-explosion
-violent theft by persons from outside the vessels
-jettison
-piracy
-collision with land conveyance harbor or dock
- earthquake volcanic eruption or lightning
-accidents in loading discharging or shifting cargo and fuel
- bursting of boilers, breakage of shafts or any latent defects in the machinery or hull
- negligence of Master Officers and Crew or Pilot; of repairers or charterers
- barratry
- contact with aircraft, helicopter or similar objects, or objects falling therefrom
Provided such loss or damage has not resulted from from lack of due diligence
b. Pollution hazard
c. Collision liability: The insurer agree to indemnify the insured for three-fourths of any sum or sums paid by the insured
to any other person or persons by reason of the insured becoming legally liable by way of damages for their vessels,
properties
d. General Average and Salvage Charges
Exclusion:
- War
- SRCC
- Malicious acts such as detonation of bomb, weapon of war or terrorism
- Radioactive contamination

35) Responsibility of Hull Insurer in Collision Accident?

The Underwriters agree to indemnify the Assured for three-fourths of any sum or sums paid by the Assured to any other
person or persons by reason of the Assured becoming legally liable by way of damages for
8.1.1 loss of or damage to any other vessel or property on any other vessel
8.1.2 delay to or loss of use of any such other vessel or property thereon
8.1.3 general average of, salvage of, or salvage under contract of, any such other vessel or property thereon,
where such payment by the Assured is in consequence of the Vessel hereby insured coming into collision with any other
vessel,
( This part is optional) 8.2 The indemnity provided by this Clause 8 shall be in addition to the indemnity provided by the
other terms and conditions of this insurance and shall be subject to the following provisions:
8.2.1 where the insured Vessel is in collision with another vessel and both vessels are to blame then, unless the
liability of one or both vessels becomes limited by law, the indemnity under this Clause 8 shall be calculated on the
principle of cross liabilities as if the respective Owners had been compelled to pay to each other such proportion of each
other’s damages as may have been properly allowed in ascertaining the or sum payable to the Assured in consequence of
the collision,
8.2.2 in no case shall the Underwriter’s total liability under Clauses 8.1 and 8.2 exceed their proportionate part of
three-fourths of the insured value of the Vessel hereby insured in respect of any one collision.
8.3 The Underwriters will also pay three-fourths of the legal costs incurred by the Assured or which the Assured
may be compelled to pay in contesting liability or taking proceedings to limit liability, with the prior written consent of
the Underwriters.
EXCLUSIONS
8.4 Provided always that this Clause 8 shall in no case extend to any sum which the Assured shall pay for or in respect of
8.4.1 removal or disposal of obstructions, wrecks, cargoes or any other thing whatsoever
8.4.2 any real or personal property or thing whatsoever except other vessels or property on other vessels
8.4.3 the cargo or other property on, or the engagements of, the insured Vessel
8.4.4 loss of life, personal injury or illness
8.4.5 pollution or contamination, or threat thereof, of any real or personal property or thing whatsoever (except
other vessels with which the insured Vessel is in collision or property on such other vessels) or damage to the
environment, or threat thereof, save that this exclusion shall not extend to any sum which the Assured shall pay for or in
respect of salvage remuneration in which the skill and efforts of the salvors in preventing or minimising damage to the
environment as is referred to in Article 13 paragraph 1(b) of the International Convention on Salvage, 1989 have been
taken into account.

36) Responsibilities of marine cargo insurer?

If Cargo Owner has not received compensation:
- loss/damage in collide accident
- proportion of liability under the contract of affreightment "Both to Blame Collision" Clause
If Cargo Owner has received compensation:
- the rest of the loss/damage in collide accident
- proportion of liability under the contract of affreightment "Both to Blame Collision" Clause

37) P&I Insurance? History of P&I Insurance?

a. P&I Insurance, or Protection and Indemnity Insurance is ship-owner's insurance cover for legal liabilities to third
parties. It also provides cover for war risks and risk of environmental damage.
b. History
-P&I insurance developed from the old Hull Clubs in England in 18th century
- One century later, with the increasing liabilities arising from shipping activities which were unfortunately excluded by
the hull clubs, ship-owners had an urgent need to seek new mechanism to protect their potential liabilities in their business
activities.
- P&I clubs were created to deal with liabilities excluded from hull insurance, that is 3rd party liabilities and the rest of
the collision liabilities (remember Hull Insurance indemnifies at most 3/4)
- P&I gradually becomes one kind of mutual insurance with its own legal capacity
- Modern P&I insurance not only covers parts of collision liabilities once excluded by hull insurance but also includes
liabilities relating to cargo claim, personal injuries, pollution, as well as costs and expenses arising from relevant
casualties.

38) Principle of Mutuality? Example?

- Member of the P&I club have a dual role as the insured and the insurer. Member will be insured against his loss, and he
will also insure his fellow members against their losses.
- P&I Insurance is not-for-profit, all the money raised is from members and used for members.  If the risk pool cannot
cover current claims, the club members will be asked to pay a further call. If the pool has a surplus, the club will ask for a
lower call the following year or make a refund to members.
Why is it called principle of mutuality? For two reasons:
- Referring to mutual exchanges, a member is an insured and an insurer. He receives help, and provides help.
- Referring to the fact that P&I club does not derive income from itself and must rely on "calls" from its member

39) P&I Scope of coverage in collision accident?

40) P&I Scope of Coverage?

- Liabilities in collision accident
- Liability for damage to cargo
- Death and personal injury: pay for compensation demanded by a person injured on the vessel, or by a person whose
acquaintance dies on the vessel
- Repatriation of sick or injured crew and hospital expenses: to pay for repatriation expense, hospital bills and personnel
replacement cost
- Loss of crew members' personal effects: to pay for loss of crew member's belongs, which are deemed reasonable for any
crew member to carry on-board, not unusually expensive items
- Stowaways, refugees and persons saved at sea
-Pollution
-Wreck removal and obstruction: The standard insurance shall cover liability and costs arising out of the raising, removal,
destruction or marking of the wreck of the entered vessel, her equipment, bunkers or cargo lost as a result of a casualty, in
so far as the raising and other operations are compulsory by law, or necessary to avoid or remove a hazard or obstruction
to navigation, or the costs are legally recoverable from the member
- General Average Contributions
-Fines: for breach of immigration law, inaccuracies in cargo documentation, accidental pollution or smuggling and
infringement of custom law

41) How does rate making, or pricing of insurance, differ from the pricing of other products?

42) Describe the sales and marketing activities of insurance company?

43) Explain the basic objectives in settlement of a claim?
- Verification of a covered loss: verify whether a cover loss has occurred. This objective involves determining whether a
specific person or property is covered under policy, and the extent of coverage
- Fair and Prompt Payment of Claim: if a valid claim is denied, the fundamental social and contractual purpose of
protecting the insured is defeated. The insurer's reputation is harmed, and sales of new policy is adversely affected (fair
payment means the insurer should avoid paying excessive claim settlements and fraudulent claims; unfair payment
includes refusal of payment without proper investigation, refusal of payment when liabilities have become reasonably
clear, compelling insured to institute lawsuit)
- Personal assistance to the insured: if the insured has any grievances or questions, address them

44) Steps involved in settlement of claims

- Publish Notice of Loss: notify the insurer of a loss. A provision concerning notice of loss is usually stated in the policy.
A typical provision requires the insured to give notice at once or as soon as possible after loss occurs
- Claim Investigation: Investigate the claim. Important questions: Did the loss occur while the policy was in force? Does
the policy cover the perils that caused the loss? The property destroyed or damaged? Is the claimant entitled to recover?
Did the loss occur at an insured location? Is the type of loss covered?
- File Proof of Loss: an adjustor may require a proof of loss before the claim is paid. A proof of loss is a sworn statement
by the insured that substantiates the loss
- Decision making: After the claim is investigated, the adjustor must make a decision concerning payment. There are three
possible decisions. The claim can be paid: In most cases, the claim is paid promptly according to the terms of the policy.
The claim can be denied: The adjustor may believe that the policy does not cover the loss or that the claim is fraudulent.
And the claim needs further investigation.

46) What is the meaning of risk management?

Risk management is defined as a systematic process for the identification and evaluation of pure loss exposures faced by
an organization or individual and for the selection and administration of the most appropriate technique for treating such
exposures.

47) Objective of risk management before and after losses

Before:
- Economic Goal: manage risk helps firms to save income, assets and reduce expense
- Reduction of Anxiety: When risk is controlled and financed, a firm has more confidence with its operation
- Legal Obligation Fulfillment: Most states and nations require firms to manage specific risks. For example, construction
companies are legally required to equip its field workers with helmet
After:
-Survival of the firm: large risks can put business out of business if not managed
-Continued Operation: risk can put a firm on hold if not managed
-Stability of Earnings: a portion of cash flow set aside to finance risk allows earnings to be minimally affected
-Continued Growth: Managed risks will have minimal effects on growth of firm
-Social Responsibility: Risks can lead to negative externalities (environmental pollution, for example). Manage such risks
to protect surrounding communities

48) Describe the steps in risk management process

Step 1: Identify the Risk. Recognize and describe risks that might affect project or its outcomes. There are a number of
techniques you can use to find project risks such as documentation, brainstorming, root cause identification, historical loss
data or delphi technique.
Step 2: Measure and Analyze the risk. Once risks are identified, determine the likelihood and consequence of each risk.
Develop an understanding of the nature of the risk and its potential to affect project goals and objectives.
Step 3: Select appropriate combination of techniques for treating loss exposure. Risk control methods and risk
financing methods are combined to dealing with risks.
Step 4: Implement and Monitor. Announce policy, integrate into various departments and periodic review.

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.

51) Meaning of Risk Control?

Risk control is the practice with which firms evaluate potential losses and take action to reduce or eliminate such threats.
Risk control helps companies limit lost assets and income, in many cases a great amount, so they practice it.

52) Explain and Example

a. Avoidance: This includes not performing activity which carries risk.  An example would be not buying a property or
business in order to not take on the legal liability that comes with it. Another would be not flying in order not to take the
risk that the airplane were to be hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means
losing out on the potential gain that accepting (retaining) the risk may have allowed. Not entering a business to avoid the
risk of loss also avoids the possibility of earning profits. Increasing risk regulation in hospitals has led to avoidance of
treating higher risk conditions, in favor of patients presenting with lower risk.
b. Loss Prevention: This includes performing activity which lowers the probability or frequency of risks. In architecture,
building materials have been improved throughout the years to lower likelihood of fire. Roof used to be made with straws,
now they are made with steel plate.
c. Loss Reduction: This includes performing activity which reduces severity of risk. Fire-alert system automatically
unlocks sprinklers and calls firefighters to reduce damage of fire.

53) Explain and Example

a. Duplication: A risk control technique that entails the utilization of backups or spares. Example: spare tires for cars in
case a tire is flattened or exploded
b. Separation: Separation is a risk control technique that involves dispersing key assets. This ensures that if something
catastrophic occurs at one location, the impact to the business is limited to the assets only at that location. Example: store
inventories in different warehouses
c. Diversification: Diversification is a risk control technique that allocates resources to create multiple lines of incomes
that offer a variety of products and/or services in different industry. With diversification, a significant revenue loss from
one line of business will not cause irreparable harm to the company’s bottom line.

54) Risk Financing?

Risk financing is concerned with providing funds to cover the financial effect of unexpected losses experienced by a firm.
Traditional forms of finance include risk transfer, funded retention by way of reserves (often called self-insurance)
and risk pooling.

55) Explain and Example

-Retention: A risk management technique in which a party facing a risk or risks decides to absorb part or the entirety of
potential loss rather than transfer that risk to an insurer or other party. Complete retention means that no outside financing
option is sought out. Example: some people do not buy health insurance, decide to pay for medical costs with their own
money
Active Retention: The practice of protecting against a loss via the designation of specific funds to pay for the expected
amount of the loss
Passive Retention: no funds are set aside on a mathematical basis to pay for expected losses
- Non-insurance transfer: methods other than insurance by which a pure risk and its potential financial consequences are
transferred to another party. This risk management technique usually involves risk transfers by way of hold harmless,
indemnity, and insurance provisions in contracts and is also called "contractual risk transfer." Example: in a contract,
party A can ask party B to cover all the losses and damages during transit. The risk is transferred from A to B.
- Insurance: The transfer of risk from one party to an insurance company and involves the payment of premium. E.g: car
insurance

56) What conditions to be fulfilled before using retention?

- No other method is available
- The worst possible loss is not serious
- Losses are fairly predictable
- Company's past losses are not frequent and severe

57) Advantages and disadvantages of insurance?

Pros:
-The firm will be indemnified after a loss occurs.
-Uncertainty is reduced, which permits the firm to lengthen its planning horizon.
-Insurers can provide valuable risk management services, such as loss control, identification ofloss exposures, and claims
adjusting.
-Premiums are deductible for income-tax purposes.
Cons:
- The payment of premiums is a major cost.
- Considerable time and effort must be spent in negotiating the insurance coverages.
- The risk manager may have less incentive to follow a loss control program, because theinsurer will pay the claim if
a loss occurs.

58)Pros and Cons of Retention?

Pros:
- save money if actual losses are less than the loss allowance in the insurer’s premium
- sizable expense savings
- Loss prevention is encouraged since the firm bears the risks on its own
-Cash flow may be increased, since the firm can use the funds that normally would be held by the insured
Cons:
- The losses retained by the firm may be greater than the loss allowance in the insurance premium that is saved by not
purchasing the insurance, and there may be great volatility in the firm’s loss experience in the short run.
- Expenses may actually be higher, since loss prevention programs should be established, which may be provided by
insurers more cheaply.
- Contributions to a funded reserve under a retention program are not usually income tax-deductible

59) Pros and Cons of non-insurance transfer?

Pros:
- Can transfer some potential losses that are not commercially insurable: remember many insurance companies do not
cover insignificant risks. A contractual risk transfer, on the other hand, allows for greater degree of flexibility between
two negotiating parties.
- Non insurance transfer often costs less than insurance: No premium needed.
- Potential Loss may be shifted to someone who is in a better financial position to exercise loss control
Cons:
- Transfer of risk may fail because contract language is ambiguous. There may be no court precedence for the
interpretation of a contract tailor made to fit the situation
- If the party to whom the risk is transferred fails to make payment, the firm is responsible for the claim
- An insurer may not give credit for transfer and insurance costs are not reduced

60) Benefits of Risk management

● Identify risks that are not apparent: Many of the real risks facing an organization cannot be gleaned from a
textbook. A comprehensive preventative risk management program leverages a team of experts to identify and
provide a deeper understanding of all types of risks.
● Provide insights and support to the Board of Directors: Board members may find it difficult to identify risks
outside their areas of expertise and experience. Providing resources and advisory services to the Board and its
committees charged with risk management will make them better able to discharge their duties.
● Get credit for cooperation: Many regulatory agencies have policies where they “give credit” to companies under
investigation for having a compliance or a risk prevention program in place. While it is impossible to avoid risk
and the manifestation of risk into potential problems, regulators want to see that an event is not due to a systemic
breakdown and that the company has measures in place—such as proper leadership, training and certification—to
prevent such activity.
● Build a better defense to class-actions: Plaintiffs in class actions and other downstream litigation often rely on
their ability to convince triers of fact that the defendants have been negligent. This is harder to prove when the
company can point to a preventative risk mitigation program that is in place to minimize these risks.
● Reduce business liability: Regulators and shareholders increasingly view litigation risk as a business liability.
Reducing litigation risk upfront makes the company a more attractive investment.
● Frame regulatory issues. Preventative risk management programs provide greater insight into insurance,
indemnity and liability issues and allow the company to better focus and structure its inquiry.

61) Pros and Cons of Avoidance?

Pros: the chance of loss is reduced to zero if the loss exposure is never acquired. Also, if an existing loss exposure is
abandoned, the chance of loss is reduced or eliminated because the activity or product that could produce a loss has been
abandoned.
Cons: It is not feasible or practical for a firm to avoid all potential losses. Some losses will occur in the normal
operations of the firm’s business. The firms also sacrifice productivity and growth if it tries to avoid risk. Risk must be
taken to move forward.

62) Types of Pure Risk/Loss Exposure? Example?

Pure risk/loss: a situation where there are only two possibilities- either loss or no loss.
Pure Risk/Loss Exposure: any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
There are three types of pure risk/loss:
a. Personal risks, including premature death, old age, sickness or disability, unemployment
b. Property risks: These are the risks to the persons in possession of the property being damaged or lost
The losses may be direct or indirect/consequential. A direct loss implies the visible financial loss to the property due to
mishappenings. Whereas, the indirect ones are the losses arising from the occurrence of an incident resulting in
direct/physical damages or loss.
c. Liability Risks: These are the risks arising out of the intentional or unintentional injury to the persons or damages to
their properties through negligence or carelessness.
These above three are most used to categorized pure risk. Also, there are several types less popular such as:
- Catastrophic Loss Exposure/Fundamental/Systematic Pure Risk: Risks that impact large group of people at the same
time
- Accidental Loss/ Particular Risk: risks that are accidental and happen to a limited number of people at different times

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.