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
- Concealment
- Warranty

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.

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
- 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
- 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.
- 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
• 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
• 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).
- 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).

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
 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

27) State content of insurance clause B, ICC 1982?

B clause: 11
- C
- 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?

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:
+ 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:

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?

- 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.
 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.

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
- 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:
- 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
- Minimize the effects that a loss will have on other persons and on society

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

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?
- 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.
- 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

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