Insurance procedures

Companies and individuals protect themselves against loss, damage, or injury by taking out insurance policies, which are contracts against possible future risks. The usual process of insuring a business or oneself is as follows:

A proposal form is completed by the firm or person who wants insurance cover. This tells the insurance company what is to be insured, how much the policy is worth, how long it is to run, and under what conditions insurance is to be effected, as the policy may not automatically cover the insured against all risks. Underwriters, who will pay compensation in the case of a claim, then work out the premium, i.e. the price of insurance.

The premium is usually quoted in pence per cent, i.e. pence per hundred pounds. This means that for every £100 of insurance you will have to pay x pence. So if you insure your stereo for £800 at 25p%, you will have to pay £2.00 per annum for the premium.

If the insurers are satisfied with the information given on the proposal form, they will issue a cover note. This is not the policy itself, but an agreement that the goods are covered until the policy is ready. Once the policy is sent it will tell the client that he is indemnified against loss, damage, or injury under the conditions of the policy. Indemnification means that the insurance company will compensate the client to restore him to his original position before the loss or damage. Therefore, if you insured your car for £4,000 and three months later it was damaged, you would not receive £4,000 for the car, but its market price, which might have depreciated by 20% to £3,200. The insurance company will also have the right of subrogation, which means they can now claim the wrecked vehicle and sell it for any price they can get.

In the case of injury or death to an insured person, or in the case of Life Assurance, where a fixed amount is to be paid over the years so that a total sum, or pension, will be paid at the end of a period, the principle of benefit payment comes into operation. This means that the injured person will be paid compensation based on loss of earnings or suffering. Life Assurance payments are calculated on annual contributions, plus interest the company received on investing the premiums.

Insurance companies are large institutional investors on the stock market, and by investing premiums they are able to cover claims for compensation or pay on Life Assurances policies, which have matured.

12.2

Fire and accident insurance

12.2.1

Fire insurance

Fire insurance companies offer three main types of insurance policy:

1. insurance of home and business premises and their contents;

2. 'special perils' policies, which protect the insured person against loss or damage due to special factors, e.g. flooding or earthquakes;

3. consequential loss insurance, which insures against loss of profit in the period after a fire, e.g. while a factory is being rebuilt.

12.2.2

Accident insurance

Accident insurance covers four areas:

1. Insurance of liability, which covers employers' liabilities for industrial accidents, accidents to people attending functions on company business, and motor insurance.

2. Property insurance, which is part of the service fire offices provide, but also includes a wide range of protection against riots, terrorism, gas explosions, etc. Usually, the client takes out an all risk policy offering full protection.

3. Personal accident insurance, which offers compensation in the form of benefit payments to people injured or killed in outings, playing games, e.g. ice hockey, or travelling by train, coach or aircraft.

4. Insurance of interest protects firms against making costly mistakes. For example, publishers might want to cover themselves against libel, i.e. being sued for publishing something which damages someone's reputation. Accountants and lawyers protect themselves with insurance of interest. We can also include under this head Fidelity Bonds, under which firms insure against their employees defrauding them, or stealing from them.

12.2.3

Claims

Companies and individuals make claims for loss, damage, or accident, by filling in a claims form, which tells the insurance company what has happened. If the insurers accept the claim, often after an investigation, they will then pay compensation.

The insurance company will not pay compensation if the claimant was negligent; or suffered the injury or loss outside the terms of the policy; or misled the insurers when obtaining insurance, e.g. overvalued the article; or insured the same thing twice; or gave false information on the proposal form.

The insurer may, of course, offer less compensation than the claimant is asking for. If the claimant disagrees with the offer, he can call in an independent assessor, and then, if necessary, take the case to court. But usually insurance companies are quite reasonable in their assessments, and small claims are sometimes paid without question.

Date: 2016-01-03; view: 1219