Case Study on some situations whether the General Insurance provides coverage

Whether negligence in non-disclosure of some information justified to cancellation of policy

In August 1999, Mrs. A insured her new brought car by buying auto insurance from an insurance broker. However, the car was stolen in June 2001. Immediately, she contacted the firm to file a claim. The firm had discovered that she had a total of four convictions for speeding. Three out of the four convictions were occurred in September 1994, September 1995 and April 1996 in which she had been convicted for driving faster than 30 mph in a 30 mph speed limit area. The fourth conviction was occurred in March 2000 when she was convicted for exceeding a 60 mph speed limit. The firm rejected Mrs. A's claim because she had not mentioned the convictions when she brought the policy. The firm said that both when she was first applied for the insurance, and again when she had renewed the policy in August 2000, they had specifically asked whether she had received any convictions for the past five years. Mrs. A convinced that the broker had completed the proposal form for her and she had simply signed it without reading the policy carefully. She said she had no intention to conceal any information from the firm. However, since her offences were relatively minor, she considered that even if she had told the firm about her convictions, the firm would still have insured her.

Analysis

The question on the policy about the convictions was clearly stated. Although it was the broker who had completed the policy, Mrs. A should have checked the details in the policy thoroughly before she signed it. However, in this situation, the firm considered her failure to expose her convictions was an oversight and not her attempt to conceal those convictions from the firm. The firm also agreed that the convictions were considered minor. They also agreed that the firm would still have insured her if they had known about those convictions. However, the firm said that they would charge her 12% more for the premium that she had to pay and charged a further of 5% when she renewed her policy in 2000. In this situation, her failure to disclose her convictions had led to that she paid less than what she had to. In the circumstances, a fair and reasonable settlement was needed to meet the claim on a proportional basis. Therefore, the firm had agreed to pay Mrs. A with 85% of the value of her claim.

Car was stolen from driveway – whether the firm had the right to reject complaint on the ground of the customer’s negligence

Miss L's car was stolen from the driveway of her home while she was inside the house. She didn’t saw and heard the thief.  When she claimed the losses from firm, they asked her to send them her car keys. Unfortunately, she was only able to produce the spare ignition key. In this situation, the firm rejected her claim because the key may have been in or on the car when it was stolen. Miss L had breached the condition of her policy which is “exercise reasonable care in safeguarding her car”. However, Miss L defended herself by claiming that her car key was lost a month earlier and she had been using the spare key. She insisted that she had not been careless in this situation as the firm had suggested.  

Analysis

Miss L might not been so careless. Miss L could had not done this, so the firm was wrong to jump into conclusion and said that she had breached the condition of the policy. However, the firm's policy contained a specific clause which excluded the claims for cars stolen when the keys were left in the car. The firm had specifically highlighted this clause when the policy was sold Miss L. Besides, Miss L’s explanation regarding that she had lost the original car key was not concrete enough and so the firm presumably that the car key was left in or on the car. Unfortunately for Miss L, the circumstances of this thief fall within the scope of that exclusion. In addition, the fact that her car was parked at the road side was relatively vulnerable for the thief to take the opportunities. Therefore, Miss L could not claim for the losses of her car.

Sources:

http://www.financial-ombudsman.org.uk/publications/ombudsman-news/38/keys-in-car-38.htm

http://www.financial-ombudsman.org.uk/publications/ombudsman-news/25/25-insurance-casestudies-non-disclosure.htm

How does General Insurance benefits our economy?

General Insurance is more than just compensating loss when the loss occurred. This is one of the most effective methods that we can deal with uncertainty. It helps us to manage and reduce the potential risk that we face. In fact, general insurance makes a major contribution to our lives by drives up standard because it put continuing pressure on the factors that generate insecurity. The major function of general insurance is reducing risk in our daily life. General insurance not only helps people to recover from loss but also help people to avoid those risk and this is the fundamental to general insurance industry.

Reducing risk by transferring catastrophe loss into manageable loss.

Without general insurance, people will become risk adverse and hesitate to take risk in daily life. This is because we know that high return is always associates with high risk compare to low return. But there is only few of us out of million will take those high risk chances. This is reasonable since we will not risk everything that we have into an unsecure investment, such as property. If general insurance does not exist, it is difficult to imagine that ordinary families will invest most of their wealth in single property. Besides, general insurance also allow new technology and product to be tested. This is good since we do not need to worry that such failure would bankrupt our promoters and hence more advance product will be found in the market. As a result, people would be more willing to engage in risk-taking because the risk is manageable now.

Obtaining financing

Besides, general insurance does help consumer in obtaining financing. Consumer cannot get a loan for car and house without the proof of insurance, namely homeowner insurance and auto insurance. Likewise, the business owner or entrepreneur cannot obtain financing to buy commercial building or invest in their business project without the proof of insurance. This is because the risk is too high without the proof of insurance and therefore lender will not lend. Business is unable to expand without financing and hence they do not create job for the public. Without job opportunities, the unemployment rate will increase and will lead to a decrease in spending because people have less money to spend. Eventually, economy will go down.

Prosperity of a country

General insurance industry is a major contributor to a nation gross domestic product (GDP), which is a measurement of a nation’s overall economic activity. As mention in the previous section, general insurance not only provide financing for a business but also provide a safety net for entrepreneur. This is because general insurance break down barrier for business to obtain financing and for product to launch. Individuals and businesses do not need to maintain excessive cash reserves to protect themselves against risk so that they can freely invest in other potential project. This also lead to a continuous improvement for a business.

Paying Taxes

Insurance companies and their employees pay taxes, which fund government programs that help needy people, contribute to education, protect the country, and maintain and expand the infrastructure.

Invest in capital marketing

Insurance companies are stabilizing the financials of individuals, companies and the state. They act a role as institutional investors which contribute to the development of a well- functioning capital market. Insurance companies invest the large amount of asset which is the premium that they receive and set aside some reserves as provisions for the payment in the future if the claim is made.  From macroeconomic point of view, the insurance companies help to mobilize the national saving and further they are narrowing down the investment gap of emerging economies. Insurance companies act as important long-term institutional investors which function as financial intermediaries contribute to bringing savers and borrowers.

Provides information to the investors

Insurance companies also play an important role in the economy in providing the information. The level of the insurance premiums provides will be an indication that the existing risk and of how probable it is that a loss will be suffer by the investors. This helps companies to make a comparison of the risk or return profiles of projects, thereby ensuring that the available resources are put at the best possible use. Insurance companies also offer consultancy services which advise the companies on how to improve a product's quality.

Source: https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/Migrated/The%20Social%20Value%20of%20General%20Insurance.pdf

How does General Insurance benefits the Society?

            When we talk about the benefits of general insurance, the role of general insurance as a social protection mechanism often comes to our minds first. In fact, this is very true as general insurance allows the insured individuals to recover from sudden loss by indemnifying their loss or minimizing the financial burden. However, the benefits of insurance are not limited to only this but are much wider and have greater impacts to the society and economy. Due to the fact that the insurance companies diversify, manage and also absorb the risks of the insured, insurance is considered a precondition for developing other productive activities most of the time, for example, when one wants to buy a home or expand a business. These activities, though can help to improve the economic conditions and support the trade of a country, are often engaged in only once the related and attributable external risks are managed and minimized through the use of insurance. Hence, general insurance can have far greater benefit than our initial perception. Thus the saying by The Geneva Association (2012), “Insurance should be perceived not only as a protection mechanism, but more importantly as a partnership that allows individuals and businesses to spread their wings and go where they might otherwise not have dared to go.”

            To focus on the benefits of general insurance on society, there are few points of perspective we can embrace. First and foremost, as has been mentioned from the start, general insurance plays the role of social protection mechanism. This is easily understandable as it is the core objective of general insurance to protect the insureds from the losses out of property damage, bodily harm and other incidents such as accident, fire and legal liabilities. With general insurance, the insureds are protected against sudden and unpredictable misfortune and their losses are indemnified or minimized compared to the case should they have not been covered by insurance. This in turn enhances the peace of mind of the society and promotes their financial stability. It is this function of general insurance that enables not only families but also businesses to remain financially feasible and stable in an event of sudden and unpredictable loss that constitutes to the most important social protection mechanism of the general insurance. By mitigating losses through insurance services or financial indemnification and compensation, insurance helps greatly to enhance the peace of mind of the society and alleviate the society’s fear of sudden loss.

            Besides playing the role of social protection mechanism and enhancing peace of mind and financial stability, general insurance also encourages risk management, loss mitigation and raise the awareness towards various risk among the society. Risk management basically are made up of three major parts and principles, that is, risk assessment, risk mitigation/prevention, and also risk transfer. Insurance companies often send pricing signals to the society. These pricing signals can have a great effect on the behavior of the society towards risk that inclines towards loss prevention and also risk mitigation. This is all done to lower the premiums need to be paid in order to obtain an insurance to cover the possible losses. In addition to providing coverage for losses of the insured, the insurance industry also acts as a valuable and important source of risk management skills and information that could bring great benefits to the society. In fact, the insurance sector needs to do a large quantity of research on what could constitute and contribute to the risk in various areas. The results of all these researches would then send pricing signals that can fuel the public debates on loss preventions and safety. This will surely lead to a more risk-adverse or risk-resilient behavior of the insured or potential customers, and thus encourage better safety standards such as improved and revised safety performance requirements for various securities measures like fire alarms or security systems for business and home.

            Furthermore, general insurance also helps to relieve the burden on government through providing the services of social protection. The countries that have not make a shift in their welfare strategy can suffer from limited economic growth, low demand and experience lack of competitiveness due to the ever growing of demographic pressures. This is where insurance can come in and help. In fact, general insurance can help to provide security to the society and at the same time relieve their financial burden. The general insurance industry can share their experience on risk mitigation and management. They can also help to design solutions to the challenges faced by the country.

REFERENCE:

https://www.genevaassociation.org/media/99535/ga2012-the_social_and_economic_value_of_insurance.pdf

Objective

The main objective of our assignment is analyze how general insurance benefits society and the economy from different aspects. Firstly, we will briefly discuss what is general insurance and the different type of general insurance product that we can found in the market. Besides, we also compare the differences between life insurance and general insurance so that we know the advantages of buying general insurance. Next, we will discuss the benefits of general insurance from point of view of economy. There are many way that general insurance benefit our economy but we only discuss few of them in our assignment, which is reducing risk, obtaining financing, prosperity of country, paying taxes, invest in capital marketing and provide information to investor. On the other hand, we also want to know that how general insurance benefits society. We focus on few points which are role of social protection mechanism, encourage risk management, relieve the burden on government through providing the service of social protection. Lastly, we also include some of the case study on situations where the general insurance provides coverage.  

Introduction to general insurance

General insurance is an insurance other than life insurance which includes automobile and homeowner policies. It provides payment to the insured based on the loss due to a particular financial event. It is also called as property and casualty insurance or Non-Life insurance. Basically, general insurance protects us and the things we value from financial impact of risks.

The few main products of general insurance includes:

i) Motor insurance

Motor insurance generally cover your vehicle such as motorcycle or car or even a lorry from any cases such as accidents or thefts. There are three main types of motor insurance which we can choose from which are third party cover, fire and theft cover and comprehensive cover. All three coverage cover in different area and thus it depends how much you can claim if your vehicles sustain different level or type of damage.

ii) Home insurance

Home insurance is one of the most important insurance that you should definitely buy in your life. Home being the largest asset is the most important financial investment to be protected and secured in your life. In order to protect your house, there are three types of home insurance available to be bought: basic fire policy, house owners policy and house holder policy. House owners policy provides more coverage than basic fire policy which only cover against lost or damage caused by fire, lightning or explosion. Meanwhile house holder policy contains coverage on your household content and also fatal to you as the insured.

iii) Personal accident insurance

Personal accident insurance is an policy which is normally annually that provides compensation on those events of injuries, disability or death caused solely by  violent, accident and external and visible events. Personal accident insurance is a 24-hour worldwide policy which means that you are secured 24 hours no matter where you are. Therefore this is a suitable for a whole family to secure their future. The types of coverage which are normally provided under personal accident insurance are accidental death, permanent disablement, temporary total or partial disablement, medical expenses, corrective surgery, hospitalisation benefits and funeral benefits.

iv) Medical & health insurance

Medical & health insurance are policy made specifically to cover the cost of private medical treatment such as hospitalisation and surgery which may be highly cost. This policy is important where you don't have to worry about the medical expenses when there is emergency. Moreover, when you are undergoing treatment, you also may receive an income stream.

v) Travel insurance

Travel insurance is the insurance bought when an insured are travelling. There are different type of policies for long term or short term traveler. There are lots of accident or travel related losses which may happen during travelling such as personal accident, losing your passports, hijacking, delayed baggage, losing your baggage, belongings or money and travel delays. All of the above may be covered under a travel insurance.

Difference between Life insurance and General insurance

Life insurance generally transfer the financial risk associated to your death to the insurer. You pay premiums to the insurer so that the insurer will pay you a death benefit promise in return. Meanwhile, general insurance transfer the financial risk away from you and your family to the insurer for personal matters other than life insurance. General insurance do like life insurance require the payment of premiums. However, general insurance is normally indemnity policies. With general insurance, such as property and casualty or health insurance, the amount of money is limited to the risks specifically named in the policy and to the damage actually incurred. Health insurers, for example only pay for the medical costs you incurred, instead of a lump sum of money unrelated to your medical bills. 

Advantages of general insurance

-The expenses of medical treatment which may not be delayed could be secured by     compensating from the policies of health and medical insurance.

-Sometimes those cost dealing with pets maybe handy. Pet lovers could get pet insurance policies to secure their pets' benefits.

-Accident insurance policies enable us to arrange those huge amount in least possible time in order to solve the urgency.

-Secure your new vehicles from accidents or thefts by purchasing motor vehicle insurance.

-There are also unemployment insurance which may insure your new gotten job.

-Having a travel insurance plan also secure you a safe and happy vacations.

Most important, we need to get an insurance which best suites our life style. At every step of life we need to have a insurance plan to safeguard us from calamities taking place. This uncertainties may cause a lot of trouble to our life. Therefore, general insurance is there to secured not just ourselves and also our properties.

Outline

Introduction to General Insurance

• What is General Insurance
• Types of General Insurance

Contents

-How General Insurance Benefits the economy

• Reducing Risk
• Obtaining Financing
• Prosperity of a country
• Paying taxes
• Invest in capital marketing
• Provide information to investor

-How General Insurance Benefits the society

• Social protection mechanism
• Enhancing peace of mind and financial stability
• Encourage risk management
• Relieve the burden on government through providing the service of social 
• protection

-Case study 

• What situation does general insurance provides coverage

Group members

No.	Name	Student ID	Course
1	Goh Xing-You (L)	1303876	AS
2	Goh Yong Xun	1205107	AS
3	Phan Choon Vui	1304991	AS
4	Diow Rhu Hwang	1301569	AS