2.16 Severity of Risk
Severity is the magnitude of the consequences of a loss. The severity of a risk is used in calculating the retention of an insurer before the use of reinsurance. For this there are three definitions: Estimated maximum loss (EML): The estimated maximum loss is the estimated amount of a loss that could occur as the […]
2.15 Risk
Risks can further be divided into particular and fundamental risks. A. Fundamental risk Fundamental risks are generally impersonal in origin and affect large parts of society or even the population of the world and are regarded as commercially uninsurable. However, in some cases insurance is available for risks that are outside the control of a […]
2.14 Perils and Hazards
A peril is something that causes a loss and a hazard is something that influences the damage caused by a peril, for example, accident damage to your car is a peril, but the heavy traffic and dangerous road conditions are hazards. The table below provides examples of perils and hazards. Perils versus Hazards Peril Hazard […]
2.13 Excess
An excess, or first amount payable as it is sometimes called, is an amount of money that the insured must pay each time there is a claim. This helps to avoid small claims and provides the insured with a reason to prevent losses. These may be voluntary or compulsory. Many insurers offer a discount in […]
2.12 Contribution
Where the same risk is insured by two different insurers, contribution will apply in the event of a claim, in respect of that particular occurrence. The definition of contribution is the right of an insurer to call upon other insurers similarly (though not necessarily equally) liable to the same insured to share the cost of […]
2.11 Proximate Cause
In an insurance contract, it is necessary to state the perils that are covered or excluded, so that all parties to the contract know exactly what perils are covered. It is necessary, therefore, to examine the cause of loss in some detail because the insurer is only liable for losses proximately caused by an insured […]
2.10 Subrogation
Subrogation is the legal provision under common law by which one party, usually an insurer, stands in the place of the insured, so as to have the benefit of the insured’s rights and remedies against a third party. Subrogation therefore means the right of one person to take over, or assume, the legal rights of […]
2.9 Average
Average is a concept used by insurers to deal with underinsurance. If a policyholder is under-insured, he will not be paid in full when a loss occurs. The amount of any loss will be divided between the insurer and the insured, based on the full value of the property. Underinsurance occurs when an item is […]
2.8 Underinsurance
Underinsurance refers to inadequate insurance coverage held by a policyholder. In the event of a claim, underinsurance may result in economic losses to the policyholder, since the claim would exceed the maximum amount that can be paid out by the insurance policy. While underinsurance may result in lower premiums paid by the policy holder, the […]
2.7 Third-Party Iinsurance
Third party insurance covers injury to other parties and damage to their property. This is the most basic form of cover, which provides no cover for the policyholder’s own loss or damage. There are several important exclusions to this cover. Such exclusions may include the following Death or injury to members of the insured’s household. […]