PRINCIPLES OF INSURANCE.pptx

BASICS PRINCIPLES OF INSURANCE

1. INSURANCE AND RISK MANAGEMENT PRINCIPLES OF INSURANCE

2. Insurance is a financial arrangement that provides protection against the risk of uncertain losses. It involves the transfer of risk from an individual or entity to an insurance company in exchange for a premium. The principles of insurance form the foundation of this contractual relationship, ensuring fairness, transparency, and sustainability in the insurance industry. Understanding these principles is essential for both insurers and policyholders. INSURANCE

3. PRINCIPLES OF INSURANCE 1. PRINCIPLE OF UTMOST GOOD FAITH 2. PRINCIPLE OF INSURABLE INTEREST 3. PRINCIPLE OF INDEMNITY 4. PRINCIPLE OF CONTRIBUTION 5. PRINCIPLE OF SUBROGATION 6. PRINCIPLE OF LOSS MINIMISATION 7. PRINCIPLE OF CAUSA PROXIMA

4. Insurance contracts are based on trust and honesty. Both the insurer and the insured must disclose all relevant information to each other before entering into the contract. This principle ensures that both parties have a complete understanding of the risk involved. 1. Utmost Good Faith ( Uberrimae Fides)

5. The insured must have a genuine financial interest in the subject matter of the insurance. This principle ensures that insurance is not used as a tool for speculation. There must be a valid reason for obtaining insurance coverage, and the insured must suffer a financial loss if the insured event occurs. 2. Insurable Interest

6. The principle of indemnity states that insurance is meant to compensate the insured for the actual financial loss suffered, and not to provide a profit. The insured should be restored to the financial position they were in before the loss occurred. This principle prevents over-insurance and the moral hazard of intentionally causing losses. 3. Indemnity

7. When a person is insured by more than one insurance policy covering the same risk, the principle of contribution applies. Each insurer shares the loss proportionately, ensuring that no one policy pays more than its share. This principle prevents the insured from receiving more than the actual loss. 4. Contribution

8. Subrogation gives the insurer the right to take legal action against third parties who are responsible for the loss. If the insurer pays a claim, and the loss was caused by a third party, the insurer may seek reimbursement from that party. This helps prevent the insured from being compensated twice for the same loss. 5. SUBROGATION

9. The insured has a duty to take reasonable steps to minimize the extent of the loss after an insured event occurs. Failing to do so may affect the amount of the claim payable. Insurers expect policyholders to act responsibly to prevent further damage. 6. LOSS MINIMISATION

10. This principle emphasizes determining the nearest or most dominant cause of the loss. It helps in identifying the specific event or chain of events that led to the insured loss, guiding the claims settlement process. 7. CAUSA PROXIMA

11. Over insurance refers to a situation in which the coverage provided by an insurance policy exceeds the actual value or replacement cost of the insured property or assets. In other words, an individual or entity is considered over-insured when the amount of insurance coverage purchased surpasses the real monetary value or risk associated with the insured item or liability. OVER INSURANCE

12. Causes of Over Insurance Overestimation of Property Value: Policyholders may overvalue their assets, leading to higher coverage than necessary. This can result from a lack of understanding of the true replacement or market value of the insured property . 2. Failure to Update Policies: Changes in the value of assets or property improvements are often overlooked when renewing insurance policies. Failure to update coverage can lead to over insurance . Consequences of Over Insurance Excessive Premiums: Over-insured individuals pay higher premiums than necessary, leading to increased financial burdens . 2. Waste of Resources: Resources spent on excessive coverage could be utilized more effectively elsewhere in personal or business budgets .

13. Under insurance is a situation in which the coverage provided by an insurance policy is insufficient to fully compensate for the actual value or replacement cost of the insured property or assets in the event of a loss. In other words, an individual or entity is considered under-insured when the amount of insurance coverage purchased is inadequate to cover the potential financial losses associated with the insured item or liability. UNDER INSURANCE

14. Causes of Under Insurance 1. Underestimation of Risk: Individuals may underestimate the potential risks they face, leading to inadequate coverage. 2. Cost-Cutting Measures: Businesses or individuals may opt for lower coverage to reduce premium costs, leaving them vulnerable to significant financial losses. Consequences of Under Insurance Insufficient Compensation: In the event of a claim, under-insured policyholders may receive compensation that falls short of covering the actual loss . 2. Financial Strain: Policyholders may face financial difficulties when trying to cover expenses not covered by their insurance due to inadequate coverage.

15. Reinsurance is a risk management practice in the insurance industry where an insurance company, known as the ceding or primary insurer, transfers a portion of its risk to another insurance company, known as the reinsurer. In simpler terms, reinsurance involves the ceding of insurance policies by one insurer to another to mitigate the financial impact of large or unexpected losses. REINSURANCE