1.A broker submits an application for automobile insurance to an insurance company on behalf of a client. The broker is unaware that although his client is the registered owner of the vehicle to be insured, his client’s adult son is the actual owner and operator of the vehicle. This means that the client has provided false information on the insurance application.
You are the underwriter on this risk and it comes to your attention that the insured’s son is the owner and operator of the insured vehicle. What issues should you consider when you discover the actual facts about the ownership and operation of the insured automobile?
2.ABC Insurance Company has issued a binder to cover property and liability coverages on Mr. White’s store. Shortly thereafter there is a burglary. During the investigation it is discovered that Mr. White did not have an alarm system to protect his premises. ABC indicates that coverage will not apply as such an alarm system is one of its absolute requirements. Can ABC be forced to honour the claim?
3.During the investigation of a claim, a staff adjuster realizes that the claim may not be covered. However, he decides not to tell the insured, hoping to find other details that will confirm his first impression. Later, the insurer officially notifies the insured that the policy does not apply to the loss. Unfortunately, the insured has already started the repairs. What is the legal position of the insurer? Explain why.
4.Identify and explain five benefits of an insurer obtaining reinsurance to further spread their Financial Risk.
1.There are various rules and regulations attached to the automobile coverage of the people. The insurer has to make sure about the number of things while dealing with an insured vehicle. The date of insurance, the person who has taken the insurance, the indemnity amount of the insurance, the date of accident, the reason for accident, the people driving the automobile, etc. everything should be taken care of. According to the insurance act, it is necessary to be sure that the person who is the true owner of the vehicle (the person on whose name the automobile is registered) has to file to the insurance company for the insurance company, if he has a policy too (Hanif, 2013). Otherwise, the filed complaint would be considered as misleading.
2.The alarm system at a home or business house can help in raising alarm at a very quick pace at time of burglary. The insurance act states that every house or business place should have a ‘functioning’ alarm system, failure to which could not lead to liability on any other party. Hence, the ABC insurance company can escape or save themselves from paying the insurance sum if the house had an alarm system but wasn’t working. The presence of alarm system but not in working condition cannot make the insurance company liable for the amount. But if the house doesn’t have alarm system, the company needs to pay the insurance amount to Mr. White as law doesn’t hold it mandatory necessity (Annoynomous, 2000).
3.Disclosure of the material facts is a necessary obligation from both the sides. The insurer doesn’t make the insured know about the flaw he has found in the forms and hence the insured is not aware about the things and starts the repairs to be done. Under this, when the insurer was aware but doesn’t confide to the insured, the insurer is held liable and has to pay the amount to the extent of the repairs done or the extent to which the expenses have been occurred but not the whole insurance amount.
4.Reinsurance is done by the insurance company when they have to cover something which carries a large amount. The company if not so financially strong wraps up another company to which it pays premium and they jointly are held liable if any loss is occurred and the money has to be paid to the insured. Advantages of reinsurance are-
- Not only one company is held liable for such a big sum. The liability of the insurance company is hence divided.
- It brings stability as the large losses can be transferred to the reinsurance.
- It leads to flexibility as the insurance company can easily take up more loans.
- No fear of being under large debt at any given time as the loss can be divided.
- Because of reinsurance, the insurer can take up more loans and hence the business is more and not limited or less due to fear of loosing money.
Annoynomous. (2000). The Insurance Regulatory and Development Authority Act, 1999.
Hanif, M. (2013). Advanced Accounting: For CA Intermediate (IPC) Examination. London