AFM231 Chapter Notes - Chapter 28: Liability Insurance, Risk Premium, Insurance Policy
18 May 2018
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Chapter 28 – Insurance (702-709)
Introduction
• Insurance described in chapter 3, allows business to shift risk through an insurance policy – an
contract of insurance
• The insurer promises to compensate the insured should the contemplated loss actually
occur.
• The insured pays risk premium in exchange
• Insurance cannot stop all risks as it can be costly and is not always available
• Some premium is so high its essentially unobtainable e.g. insurance for natural disasters
• Insurance does not prevent a loss from occurring nor does it prevent the potential adverse publicity
that follows it
• Insurance policy is a contract
• Regulated by legislation in each of the provinces
• Insurance legislation serves the following purpose:
• Mandating the terms that must be found in insurance contracts
• Regulating the insurance industry generally by setting out licensing requirements for
insurance companies, insurance brokers, and insurance adjusters
• Putting in place a system for monitoring insurance companies, particularly with respect to
their financial operation
• Basic kinds of insurance:
• Life and disability insurance: provides payments on the death or disability of the insured
• Properly insurance (fire insurance): provides payment when property is damaged through
accidents. Also cover machine breakdown
• Liability insurance (casualty insurance): provides payment when insured is held legally
responsible for causing loss or damage to another, known as the third party
• Aside from life insurance: insurance can include term for the insured to pay deductible- the insured
pays for first part of loss and the insurer has liability for the rest of the balance
• Deductible lowers insurance premium
The Insurance Contract
Duty to Disclose
• Insured has a duty to disclose – the obligation to provide to the insurer all information that related
to the risk being insured
• If certain issue is not disclosed, the insurer could refuse to honour the policy when the insured want
to claim it
• Can deny coverage for non-disclosure even if the loss has nothing to do with the matter that
was left undisclosed (e.g. not stating I had a fire accident will cause me to not claim my
trespassing claim)
• The law expects the insurer to e orldly ise ad to sho persoal judgeet
• E.g. if a fire previous happened and I disclosed that I was playing matches but not go into
detail on how a match can cause a fire. The insurer is expected to make this connection.
• A duty to disclose exists not just at the time of applying for the insurance- it is an ongoing duty
find more resources at oneclass.com
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Document Summary
Insurance cannot stop all risks as it can be costly and is not always available: some premium is so high its essentially unobtainable e. g. insurance for natural disasters. Insurance does not prevent a loss from occurring nor does it prevent the potential adverse publicity that follows it. Insurance policy is a contract: regulated by legislation in each of the provinces. Life and disability insurance: provides payments on the death or disability of the insured: properly insurance (fire insurance): provides payment when property is damaged through accidents. Insured has a duty to disclose the obligation to provide to the insurer all information that related to the risk being insured. It"s to pre(cid:448)e(cid:374)t people to i(cid:374)sure (cid:449)orthless property that they (cid:272)a(cid:374) destroy a(cid:374)d (cid:272)all for insurance. Indemnity: with exception of life insurance contract, insurance contracts are contracts of indemnity, e. g. cannot insure a property with two different insurance companies.
