Insurance contracts - PowerPoint PPT Presentation

Loading...

PPT – Insurance contracts PowerPoint presentation | free to view - id: 424724-ZTAwN



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Insurance contracts

Description:

Insurance contracts BUS 200 Introduction to Risk Management and Insurance Jin Park Overview Distribution of Insurance Contracts Insurance as contracts legally ... – PowerPoint PPT presentation

Number of Views:81
Avg rating:3.0/5.0
Slides: 31
Provided by: Information571
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Insurance contracts


1
Insurance contracts
  • BUS 200
  • Introduction to Risk Management and Insurance
  • Jin Park

2
Overview
  • Distribution of Insurance Contracts
  • Insurance as contracts
  • legally enforceable agreements
  • Characteristics of Insurance Contracts
  • Fundamental Principles of Insurance Contracts
  • Principle of indemnity
  • Principle of insurable interest
  • Principle of utmost good faith
  • Principle of subrogation

3
Distribution of Insurance Contracts
  • Direct Marketing
  • No agent is involved
  • Mail marketing, internet based marketing
  • Exclusive Agent
  • Agent represents one insurer
  • Independent Agent
  • Agent represents more than one insurer

4
Distribution of Insurance Contracts
  • Agent versus Broker
  • Binding Authority by Agent
  • Property/Liability Insurance
  • Binder
  • Life/Health Insurance
  • Conditional premium receipt

5
Waiver and Estoppel
  • Waiver
  • The intentional relinquishment of a known right.
  • Estoppel
  • It prevents one from alleging or denying a fact,
    the contrary of which he has previously admitted.

6
Insurance as Contracts
  • Valid contracts
  • Legally enforceable
  • Void contracts
  • A void contract never had any legal existence.
  • Either party may choose to ignore the agreement.
  • Voidable contracts
  • Legally exists
  • The contracts can be legally rejected or avoided
    at the option of one or both parties.
  • cf Denying coverage based on breach of policy
  • condition

7
Insurance as Contracts
  • Elements of contract
  • Agreement
  • Offer and Acceptance
  • Consideration
  • Insured premium payment and fulfillment of
    policy conditions
  • Insurer promise to do certain things as
    specified in the contract
  • Legally competent parties
  • Parties must have legal capacity to enter into a
    binding contract
  • Legal Purpose
  • Contract must be for a legal purpose
  • Legal Form
  • Contract may be oral or written
  • Some insurance policy provisions and attachments
    must be approved by state before being marketed

8
Insurance as Contracts
  • Property - Casualty
  • Offer
  • Submission of application with a down payment
  • Acceptance
  • Binder
  • Life
  • Offer
  • Submission of application with a down payment
  • Issuance of a life insurance policy
  • Acceptance
  • Conditional premium receipt

Note Giving a quotation to a prospective insured
is deemed as mere solicitation or invitation to
make an offer.
9
Characteristics of Insurance Contracts
  • 1. Personal Contracts
  • Insurance protects insured, not the property or
    liability subject to loss.
  • Assignment provision
  • If ownership of a property changes, insurance
    contracts (or policies) normally cannot be
    transferred to another party (buyer) without the
    insurers written consent.
  • In life insurance, the beneficiary or ownership
    of policy may be freely reassigned.
  • Transfer of your rights and duties under this
    policy.

10
Characteristics of Insurance Contracts
  • 2. Aleatory Contracts
  • The values exchanged may not be equal, but depend
    on an uncertain event
  • The premium, paid to an insurer by an insured for
    a policy, is not expected to exactly equal the
    amounts to be paid by the insurer in fulfilling
    its contractual obligations to the insured.
  • cf commutative contract the values exchanged
    are theoretically equal.

11
Characteristics of Insurance Contracts
  • 3. Contracts of adhesion
  • Contracts are drafted by an insurer and an
    insured must accept or reject all the terms and
    conditions.
  • Insured gets the benefit of the doubt.
  • Courts tend to construe an ambiguous term in an
    insurance policy in favor of an insured.
  • Contracts may be altered by the addition of
    riders or endorsements
  • Rider or endorsement a document that amends or
    changes the original policy.
  • cf Contracts of cohesion both parties draft
    the contracts.

12
Characteristics of Insurance Contracts
  • 4. Conditional contracts
  • An insurers obligation to pay a claim depends on
    whether the insured or the beneficiary has
    complied with all policy conditions.
  • The insurer may not pay a claim if the policy
    conditions are not met.
  • Duties after loss Homeowners (p. 562)
  • Duties after an accident or loss Automobile (p.
    585)
  • Duties after in the event of loss or damage CP

13
Characteristics of Insurance Contracts
  • 5. Unilateral contracts
  • Only one party makes a legally enforceable
    promise.
  • Insured are not legally forced to pay premium or
    renew the policy.

14
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • The insurer agrees to pay no more than the actual
    amount of the loss suffered by the insured.
  • Why?
  • The purpose of the insurance contract is to
    restore the insured to the same economic position
    as before the loss.
  • The insured should not profit from a loss.
  • It reduces the moral hazard by eliminating the
    profit incentive.

15
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • To support the principal of indemnity insurance
    contact uses Actual Cash Value (ACV)
  • Replacement cost (RC) less depreciation
  • Takes into consideration both inflation and
    depreciation.
  • RC current cost of restoring the damaged
    property with new materials of like kind and
    quality.
  • Fair market value
  • The price of a wiling buyer would pay a willing
    seller in a free market.
  • Broad evidence rule
  • The determination of ACV should include all
    relevant factors an expert would use to determine
    the value of the property.

16
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • To support the principal of indemnity insurance
    contact includes Other Insurance Provisions.
  • Escape clause
  • The policy (or insurance) would not apply if the
    insured was covered by another policy.
  • Excess
  • It (or This insurance) is excess insurance over
    any other valid and collectible insurance.
  • Pro-rata provision
  • Proration by face amounts
  • Proration by amounts otherwise payable
  • Contribution by equal shares

17
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Primary-Excess
  • Accident while test driving a dealers car.
  • Health insurance between a couple working for
    different employers.
  • Own insurance primary
  • Spouse insurance excess
  • Birthday rule for dependents coverage

18
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Proration by Face Amounts
  • It limits the insurers maximum obligation to the
    proportion of the loss that the insurers policy
    limit bears to the sum of all applicable policy
    limits.
  • If Loss amount is 150,000

Insurer A Insurer B Insurer C
Policy Limit 100,000 200,000 300,000
Share 1/6 2/6 3/6
Payment 25,000 50,000 75,000
19
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Proration by Amounts Otherwise Payable
  • What would be payable under each policy in the
    absence of other insurance
  • If Loss amount is 150,000

Insurer A Insurer B Insurer C
Policy Limit 100,000 200,000 300,000
Payable 100,000 150,000 150,000
Share 1/4 1.5/4 1.5/4
Payment 45,000 67,500 67,500
20
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Proration by Amounts Otherwise Payable
  • If Loss amount is 60,000

Insurer A Insurer B Insurer C
Policy Limit 100,000 200,000 300,000
Payable 60,000 60,000 60,000
Share 1/3 1/3 1/3
Payment 20,000 20,000 20,000
21
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Contribution by Equal Shares
  • Each insurer contributes equal amounts until it
    has paid its applicable limit of insurance or
    none of the loss remains, whichever comes first.
  • If Loss amount is 150,000

Insurer A Insurer B Insurer C
Policy Limit 100,000 200,000 300,000
Equal Share 50,000 50,000 50,000
Payment 50,000 50,000 50,000
22
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Contribution by Equal Shares
  • If Loss amount is 400,000

Insurer A Insurer B Insurer C
Policy Limit 100,000 200,000 300,000
Equal Share 1 100,000 100,000 100,000
Equal Share 2 N/A 50,000 50,000
Payment 100,000 150,000 150,000
23
Fundamental Principles of Insurance Contracts
  • 1. Principle of Indemnity
  • Exceptions to the Principle
  • Valued policy (or agreed value)
  • Pays face value of insurance if a total loss
    occurs
  • Life insurance, disability insurance, fine arts,
    antiques
  • Ex.) Value of a fine art is agreed at 250,000.
  • Valued policy law
  • A law that requires payment of the face amount of
    insurance to the insured if a total loss to real
    property occurs from a covered peril, regardless
    of the propertys ACV.
  • Replacement cost
  • No deduction for depreciation in determining the
    amount paid for a loss.

24
Fundamental Principles of Insurance Contracts
  • 2. Principle of Insurable Interest
  • The insured must be in a position to financially
    suffer if a loss occurs.
  • Why?
  • To prevent gambling
  • Insurance on a property and wait for a loss
    occur.
  • To reduce moral hazard
  • Life insurance on a person and pray for his/her
    death for insurance proceeds.
  • To measure the amount of the insureds loss in
    property insurance
  • In order not to indemnify more than the insurable
    interest.

25
Fundamental Principles of Insurance Contracts
  • 2. Principle of Insurable Interest
  • Property-Casualty insurance
  • At the time of a loss, an insured must have
    insurable interest.
  • No insurable interest no financial loss
  • no indemnity support Prin. of indemnity
  • Life Insurance
  • Insurable interest must exist at the time of a
    policy inception, but not at the time of a loss
    (death)

26
Fundamental Principles of Insurance Contracts
  • 2. Principle of Insurable Interest
  • Insurable Interest may be created either by
  • Obligation to Insure   
  • by Statute
  • by Contract
  • by Custom
  • Option to Insure  
  • Owners
  • Mortgagors
  • Lessors
  • Trustees
  • Tenants

27
Fundamental Principles of Insurance Contracts
  • 3. Principle of Utmost Good Faith
  • A higher degree of honesty is imposed on an
    insurance contract than is imposed on other
    contracts
  • Honesty is imposed on the applicant for insurance
  • It is supported by three legal doctrines
  • Representation
  • Concealment
  • Warranty

28
Fundamental Principles of Insurance Contracts
  • 3. Principle of Utmost Good Faith
  • Representation
  • Statements made by an applicant
  • Insurance is voidable at the insurers option.
  • Material
  • False
  • Reliance
  • cf Innocent misrepresentation
  • Concealment
  • Intentional failure to disclose a material fact
  • Warranty
  • A statement of fact or a promise made by the
    insured, which is part of the insurance contract
    and must be true if the insurer is to be liable
    under the contract.
  • In exchange for a reduced premium, a store owner
    warrants that alarm will be always on.

29
Fundamental Principles of Insurance Contracts
  • 4. Principle of Subrogation
  • Substitution of the insurer in place of the
    insured for the purpose of claiming indemnity
    from a third party wrongdoer for a loss covered
    by insurance.
  • Why?
  • To prevent collecting twice
  • To hold the negligent party responsible
  • To hold down insurance rates

30
Fundamental Principles of Insurance Contracts
  • 4. Principle of Subrogation
  • The insurer is entitled only to the amount it has
    paid under the policy.
  • If the insurer collects more than the amount the
    insurer paid to the insured from the negligent
    party , the insured must be paid in full before
    the insurer retains the remaining balance.
  • The insured cannot impair the insurers
    subrogation rights.
  • Subrogation does not apply to life insurance and
    to most individual health insurance contracts.
  • The insurer cannot subrogate against its own
    insured.
About PowerShow.com