Vấn đáp CLC - Insurance & Risk Management PDF

Preview

Summary

Insurance and Risk management questionnaires1) 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. ...

Description

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 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 lawsuits: 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: + Sellers 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 homeowner’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 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 clau...