In Marine insurance this is the right of an insured to abandon lost or damaged property and still claim full settlement from an insurer subject to certain restrictions.
In insurance terms, events that are not deliberately caused by the insured and that are not inevitable. Thus, if you deliberately cause damage by driving your car into a tree, the damage is not insured. Similarly, insurers may argue that if you carry out a large excavation in soft soil without appropriate bracing, damage to surrounding property is inevitable and you may not be able to claim any insurance.
Act of God
Natural occurrence such as earthquake or typhoon. These can be specifically included in most insurance policies contrary to popular opinion.
A professional usually involved in the life insurance industry, who applies mathematical theories of probabilities and statistical techniques in risk calculation. Actuaries are becoming increasingly involved in general insurance in relation to loss reserving and premium calculations.
Sometimes called Special Perils, these may include losses caused by aircraft, explosion, earthquake, storm, tempest, flood, burst water pies, riot, strike, civil commotion, malicious damage. These are extensions that widen the scope of a basic fire insurance policy. Similar extensions may be available for other classes of insurance
Often, the premium on certain policies is based upon estimates of the size of the risk. For example turnover, gross profit or average stock value on your premises over the next twelve months. Under an adjustable policy, these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance, when the actual figures are available.
Advance Profits Insurance
Business Interruption insurance arranged in advance of the commencement of the insured’s business usually in conjunction with a construction all risks insurance. Cover guards against the potential of a delay in putting a plant into operation, caused by loss or damage affecting the buildings or key items of machinery during construction, erection or testing and commissioning. This type of insurance is expensive and difficult to arrange. It is a core competency of RMS. If you are looking to invest substantially in a business expansion, contact us now.
An insurance salesman linked specifically to a single insurance company.policies on behalf of insurers. Agents often obtain their clients from friends and relatives and therefore tend to have a personal knowledge of the client. Unlike insurance brokers, they rarely have high levels of professional expertise or access to worldwide markets. They also represent insurers and not their clients and can do little to assist in the event of a major claim.
An aggregate total limit on claims during a policy period, which applies in addition to a limit per claim. Often this applies to liability and medical policies.
See ‘Additional Peril’ under a Fire policy. Covers not only the unlikely prospect of a plane crashing into your building, but also damage caused by articles falling from aircraft.
A misleading name for an insurance policy, which provides wide cover but does contain a number of exclusions. The term ‘All Risks’ should not be taken too literally and in some jurisdictions the term is no longer used.
This cover is often used for valuable items such as jewellery and other readily portable items. In Marine Cargo Insurance Institute Cargo Clauses (All Risks) has been replaced by a new easier to understand wording known as Institute Cargo Clauses (ICC) ‘A’.
This clause is often found in the Conditions of property insurance policies. Any dispute between insurer and insured in agreeing on the amount or quantum of a claim can be referred to independent arbiters. Most arbitration clauses only apply to dispute over quantum, not to disputes over liability. Arbitration is usually faster and cheaper than going through the Courts.
Architects’, Surveyors’ and Consulting Engineers’ Fees
Professional fees arising from repairing or reinstating damaged buildings are not always automatically covered by insurance policies. This is an extension to cover such costs in respect of building and machinery.
‘Average’ has several meanings in the insurance industry.
In Marine insurance, ‘average’ means loss and ‘particular average’ means partial loss. See also ‘General Average’.
If a policy is ‘subject to average’, then, if the sum insured at the time of a loss is less than the actual value of the property insured, then the amount of claimed under the policy will be reduced in proportion to the underinsurance. In mathematical terms:
Allowable Claim = Loss x Sum Insured
Value at risk
If you do not insure for the full values at risk, then you may not be able to obtain a full settlement of any loss. See also “First Loss”.
Bailee’s Liability insurance covers the bailee’s legal liability for loss, destruction or damage to property whilst in the bailee’s care. As an example, clothes being cleaned are under the temporary control of the bailee (laundry). The bailor (owner) expects the clothes to be returned in good condition. If the clothes are stolen from the cleaners, the bailee’s Liability insurance would cover the liability of the laundry for the loss.
Banker’s Blanket Bond
A wide form of insurance for Banks, which covers Theft and Fidelity risks.
Livestock insurance for horses kept for racing and breeding purposes providing ‘life and health’ cover.
Boilers and Pressure Plant Cover
Boilers and other vessels such as economisers, super-heaters and steam piping are subject to internal pressure and can explode or collapse. A boiler policy can cover explosion and collapse or be extended to cover any type of breakdown. Cover is often extended to cover damage to surrounding property and third party liability arising from explosion or collapse.
These are a guarantee issued by a bank or insurance company that an individual or company will meet various obligations.
Under a construction contract a contractor may be required to obtain:
A bid bond. – This will protect the developer against the failure of the contractor to proceed with a project at his bid price.
Prepayment bond. – This guarantees any advance payment made by the developer for the contractor’s mobilisation.
Performance bond. – This guarantees that the contractor carries out the project properly and the developer will be compensated for any breach of contract.
Retention bond. – Often a developer will retain a small amount from the contract price for a period to ensure that any defects in the project discovered after completion are corrected in a timely manner. This can adversely effect the contractor’s liquidity. A retention bond will guarantee that any corrective work is carried out and allow the developer to settle in full with the contractor immediately the project is complete.
Other bonds may also be required in business, such as customs bond.
Book Debts Insurance
Also known as Accounts Receivable insurance, this covers any debit balances that you are unable to collect because the books have been destroyed. Backup records obviate the need for this cover.
In insurance, a professional intermediary representing the client’s interests, not the interests of the insurance company. The professional standards of insurance brokers varies from country to country and from firm to firm. For truly professional advice, some research regarding their levels of expertise and experience may be necessary.
RMS is the largest insurance broker in Oman and can offer truly professional advice to clients on a wide spectrum of risk related issues.
A marine policy that covers a ship during construction until possession passes to owners.
An outdated legal term refering to theft involving forcible or violent entry to or exit from the premises.
Bursting or Overflowing of Water Tanks, Apparatus and Pipes
See ‘Additional Peril’ under a fire policy. This covers damage resulting from a plumbing accident but does not strictly cover the cost of repairing the burst tank or pipe. Often household insurers will settle a claim in full, including the damage to the tank or pipe.
An insurance policy covering a business will only provide cover in respect of the ‘businesses’ described in the policy.
Business Interruption Insurance
See also ‘Consequential Loss’ or ‘Loss of Profits’ insurance. This insurance is intended to maintain the profit from your business at budgeted levels even though revenue may be adversely effected an insured catastrophe. For example, if a factory is badly damaged in a fire, the owner may expect insurers to pay the cost of replacing the building and equipment. However, work may take 12 months or more to complete and during this period, the factory will not be able to continue production and will produce no revenue. Costs such as payroll, etc may well continue and shareholders will still wish to receive a dividend from their investment. A business interruption policy will ensure that ongoing expenses are paid and profits are maintained.
Correctly setting up a business interruption policy can be complicated. Premiums will vary greatly with the ability of a business to function after a loss has occurred. Business interruption is a core competency of RMS. Our advice is essential to ensure appropriate protection and competitive premiums.
Business Travel Insurance
Travel insurance, provides companies and their employees with a variety of covers raging from damage to baggage, loss of deposits on flights and hotels, liability, loss of cash, tickets or passports to the cost of further airfares to send a replacement if an executive travelling abroad falls ill.
With a few exceptions, notable construction insurance policies, insurers have the right to cancel a policy at any time. If they do so they must give the period of notice required stated in the policy and refund a pro-rata premium. If the insured cancels, then insurers may charge short period rates which will cost considerably more.
This is an in-house insurance company used by a corporation to insure the risks of the parent company. There may be significant tax advantages in locating a captive off-shore or the parent company may experience difficulty with the traditional insurance market’s reluctance to underwrite certain hazardous types of risk.
This is usually covered under a Marine Insurance policy, whether for domestic or international journeys, by sea, air or land. There are three internationally recognised types of cover, known as ‘Institute Cargo Clauses A, B and C’. These have replaced three old covers with antiquated wordings known as All Risks, With Average (WA) and Free of Particular Average (FPA).
Certificate of Insurance
A piece of paper not to be confused with an insurance policy. It is issued mainly to comply with certain statutory requirements as evidence of cover. A certificate is issued to motor vehicle owners and also to employers under Workman’s Compensation laws. Another type of certificate can be issued under a Marine Cargo Open Cover as evidence that Cargo insurance has indeed been arranged.
Chartered Insurance Institute
The UK based insurance education body, which also operates through world-wide affiliates. This is the main professional examining body for the insurance industry outside the USA. Insurance personnel who have passed their insurance examinations can qualify as Associates or Fellows of the Institute.
In many British-type insurance markets, co-insurance means the sharing of one insurance policy between two or more insurers. Usually, this entails each insurer paying directly to the insured their respective share of the loss. In other words, the insured has an insurance contract with more than one insurer. This arrangement is cumbersome to administer and is used only on very large risks.
Collision Damage Waiver
Cover that can be purchased by someone renting a car where the rental company waives any right to recover the amount of damage to the car from the individual regardless of fault.
A relatively new type of insurance specially geared to cover delicate and high value computer equipment. Cover is usually on an All Risks basis and can be extended to include the costs of reinstating data, and business interruption cover such as increased costs of working, or loss of revenue/gross profit.
Computer Systems Records
Cover for these is often not available under basic Fire and Burglary policies. You can either extend your cover specifically to protect such records or, alternatively take out a special Computer insurance.
A special policy taken out by owners or management corporations designed to cover the buildings of a condominium, sometimes carrying other benefits, such as Liability insurance for the management corporation or committee, plus Errors and Omissions cover.
An alternative name for Business Interruption or Loss of Profits insurance.
Constructive Total Loss
Partial loss of such significance that the cost of restoring damaged property would exceed its value after restoration. For example, a car is so badly damaged by fire that repairing it would cost more than the repaired vehicle would be worth.
This is where a liability is incurred by a business for acts other than those of its own employees. If an independent contractor is hired to carry out some work, then the business may be held liable for the negligent acts of the contractor if the contractor is acting under the direction or control of an employee of the business.
Contract of Indemnity
Property insurance that restores the insured to his original financial condition after suffering a loss. The idea is that the insured cannot profit by his misfortune. Personal Accident insurance, where a pre-agreed lump sum payment is made, is not a Contract of Indemnity.
Contractor’s All Risks
Sometimes called ‘Contract Works Insurance’, this is an insurance policy which covers contract works, such as new buildings in the course of construction, and engineering projects, on an All Risks basis. This policy would usually include Public Liability cover as well. It is often arranged in the joint names of the principal and the contractors.
Where someone is holding two or more insurance policies covering the same interest in the same property for the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to recover a loss under both policies and so make a profit out of the misfortune he has insured against. Instead, the insurers concerned share in the loss proportionately. This is known as contribution.
A principal of law recognising that injured persons may have contributed to their own injury. For example, by agreeing to be a passenger in a car being driven by someone that you know to be drunk. If you are subsequently injured you may be said to have been contributorily negligent.
Cost Insurance and Freight
If you import or export your goods on a ‘CIF’ basis, then insurance is included in the deal. ‘C & F’ excludes insurance – in this case, the buyer has to make his own insurance arrangements.
Covers various growing crops in the event of loss or damage caused by insured perils, notably fire, flood or hailstorm. In many countries this is available through government bodies.
If an insurance company issues a Bond, then it will usually ask for either cash collateral or a counter guarantee from a surety or directors of the company to whom it issues the Bond. If insurers make payment, then redress will be sought against such sureties under a counter guarantee.
Debris Removal Clause
The basic cover under a fire or industrial all risks policy does not automatically extend to include the cost of removing debris, shoring up buildings or dismantling machinery. These costs are insured under a separate “debris removal” clause. It is important to note that the standard debris removal clause does not extend to cover the removal of stock debris.
See adjustable policies.
The amount of any claim which is the responsibility of the Insured and which the insurer will deduct from any claim payment. Often this is referred to as an excess. Sometimes deductibles are voluntary and a premium discount allowed. Sometimes they are imposed by insurers as an underwriting requirement to avoid large numbers of small claims and their associated administration costs.
Demurrage is the loss of use a vessel owner incurs if his vessel is restricted to port as a result of damage to the vessel or delays in loading or unloading.
Denial of Access
A company’s business could be affected by a nearby fire (or other loss) which restricts access to the company’s premises. As a result, although the company’s own premises are undamaged, they suffer a reduction in turnover and a loss of gross profit. This type of loss is not covered under a basic business interruption policy but can be covered if the policy is appropriately extended.
A public liability policy provides cover for liabilities an Insured may incur as a result of business activities. This policy may be extended to include “goods sold or supplied” or “products liability”. Even when so extended, a basic policy will not cover losses incurred by third parties due to the defective design in the products. To provide such defective design cover a further design extension is required.
Difference in Conditions Insurance / Difference in Limits Insurance
Multi-national companies often arrange their insurance programme centrally on a global basis so that the risk manager will know exactly what levels of cover operate and can ensure these offer appropriate cover for the organisation. However, the legislation in individual countries, the existence of joint venture partners or other circumstances may require local insurance to be arranged. In such circumstances, the global programme will cease to operate for those risks covered by the local policy, but will continue to operate for those areas not covered by the local programme but included in the global programme. If the standard of the cover is different, then the “top-up” cover provided by the global programme is called Difference in Conditions Insurance. If the sum insured or policy limits are different, then the “top-up” cover provided by the global programme is called Difference in Limits Insurance.
Directors and Officers Insurance
Legislation in many countries makes directors and senior officers personally responsible for wrongful acts they commit as representatives of the company. If poor management decisions are made and the company loses business, if investors are given inaccurate information or if an employee believes he has been unfairly dismissed, personal action may be taken and the company may be prohibited from paying costs or damages on the directors behalf. Extremely large personal claims have been seen in the USA and they are becoming more frequent in Asia. For more information on Directors and Officers Insurance, see our separate article.
Driving Under the Influence of Alcohol or Drugs
Although laws vary greatly, it is now a criminal offence in most countries to drive while under the influence of alcohol or drugs. However, not only do you commit a criminal offence, but if you should have an accident while driving under the influence of alcohol or drugs you will find your insurer will refuse to settle your insurance claim.
Dual Basis Payroll
See Business Interruption. Payroll is normally included as part of the Gross Profit insured under a business interruption policy. In some cases however, an Insured may feel it unnecessary to insure full payroll and wish to insure on a more restricted basis. Dual basis payroll cover allows the Insured to cover 100% of payroll for an agreed initial period say three months with cover then dropping to say 25% of payroll. This allows the Insured to perhaps pay all appropriate redundancy money to staff as they are laid off following a catastrophic loss, but to retain certain key staff (in this case up to 25% of the payroll) until the business is fully recovered. Dual basis also allows an “option to consolidate”. If this option is elected, the Insured can extend the initial period of full cover by a small additional period after which all cover for payroll ceases.
Dual basis cover provides a flexible and low cost method of insuring payroll. It does however provide only partial cover.
See ‘Additional Peril’ under a Fire policy.
The date upon which cover under an insurance policy becomes effective. Usually this will not be until an insurer has accepted the proposal and confirmed cover in writing by issuing a cover note or cover confirmation.
The legal rights of an employee are usually defined in law under a country’s Employment Code or Workmen’s Compensation Acts. Usually these laws provide for certain fixed sums to be paid by a government body to an employee if the employee is injured in the course of his work. The sums are usually funded by a government levy imposed upon all employers. This may be the only compensation employees are entitled to and is usually payable without any need to prove negligence on the part of the employer. However, in some territories it is possible for the employee to take legal action in common law to recover damages for injury if the accident occurred as a result of the negligence of the employer. Negligence on the part of the employer could come about for example by the employer providing unsafe equipment, an unsafe system of work or perhaps through the negligence of another employee.
Any damages awarded and the legal costs of defending any claim can be covered under an Employer’s Liability Policy.
Also known as Machinery Breakdown or Plant All Risks Insurance, this type of insurance provides very broad cover for damage to electrical and mechanical machinery.
An endorsement is a special amendment to a policy wording. It may be attached to the policy from inception or it may be added to the policy mid term. Mid term endorsements are often issued at the request of the Insured. For example an endorsement may be issued to note a change of address of the Insured.
Erection All Risks
An erection all risks policy offers cover very similar to a contractors all risks or construction all risks policy. It is however aimed more at erection of plant and machinery rather than the construction of buildings.
Errors and Omissions Insurance
Engineers, architects, lawyers, accountants and even insurance brokers hold themselves out as professionals capable of offering accurate and well considered advice. If they fail in their duty to provide “best” advice they leave themselves exposed to claims for errors and omissions or professional negligence. There have been some spectacular claims in recent years with accountants failing to provide accurate reports on the financial status of companies, which are involved in takeovers. Losses also occur when insurance brokers fail to properly carryout instructions of their client and perhaps leave parts of the client’s business uninsured. For this reason you should always ensure that your insurance broker carries appropriate levels of Errors and Omissions or Professional Indemnity insurance.
At RMS we offer a professional service from a highly qualified team but we know that mistakes can happen. To protect your business and ours we carry appropriate levels of insurance.
The amount of any claim which is the responsibility of the Insured and which the insurer will deduct from any claim payment. Often this is referred to as a deductible. Sometimes excesses are voluntary and a premium discount allowed. Sometimes they are imposed by insurers as an underwriting requirement to avoid large numbers of small claims and their associated administration costs.
Excess of Loss Reinsurance
Insurance companies can rarely bear a total loss on the business that is offered to them. They usually choose to share the risk with other insurers through co-insurance or re-insurance. Excess of Loss Reinsurance is a form of reinsurance whereby the original insurer decides the amount that it is prepared to bear on any one loss, and the reinsurer pays the amount of any claim in excess of this retention.
Also known as Exceptions. All contracts contain certain conditions and it is important that you are aware how these affect your rights under a contract. An insurance policy is no different in this respect. You should review any policy with your professional adviser to fully understand what areas are covered and what claims will not be paid.
Some exclusions are very standard for example, war risks on land, nuclear radiation and the deliberate acts of the Insured. However some are imposed in exchange for premium discounts for example health insurance may exclude elective treatment in the USA where medical costs are very expensive.
Ex Gratia Settlement
A claim settlement made by an insurer even when the loss is not covered by the policy. Usually made for commercial reasons where the claims experience has otherwise been good.
Costs incurred in returning a business to its normal trading status in the minimum possible time, following a loss for example, overtime, express freight and premium prices paid to secure replacement plant at short notice. Expediting expenses are not automatically covered and your policy should be appropriately extended.
See ‘Additional Peril’ under a Fire policy. A standard fire policy usually insures against fire that results from an explosion, but not the shock and concussion damage that can result. This should be covered under an explosion extension. UK policies do extend to include shock damage caused by explosion of domestic boilers and gas used for domestic purposes.
Export Credit Insurance
See Trade Credit Insurance.
See Political Risks Insurance.
Insurance companies can rarely bear a total loss on the business that is offered to them. They usually choose to share the risk with other insurers through co-insurance or re-insurance. Facultative Reinsurance is a form of reinsurance whereby the original insurer decides what level of risk it is prepared to retain on any one policy and offers to share the risk (for a premium) with a reinsurer. The reinsurer will then decide whether the reinsurance premium is adequate and how much of the risk he wishes to reinsure, according to the merits of the individual case. See also Treaty Reinsurance.
An all risks, theft or burglary policy will usually exclude losses due to theft by people legally on the premises. This obviously excludes losses caused by employee theft. Such losses are covered under a Fidelity Guarantee policy. Usually such policies are subject to deductibles or coinsurance by the Insured to ensure that recruiting policies are maintained and references properly followed up.
Fire and Theft
A limited form of cover for motor vehicles offered as an extension to a basic third party only policy.
Depending upon the individual territory, a standard Fire policy usually covers fire, lightning and explosion of gas or boilers used for domestic purposes. Fire means “actual ignition”. Scorching or charring is not covered. Cover will sometimes extend to cover fire arising from any cause, but more often it is subject to policy exclusions for example fire damage caused by a riot may not be covered unless the policy is extended to include Riot. It is important to consult your insurance professional, RMS to be sure you have the correct level of cover.
A fire policy is usually extended to include Additional Perils.
First Loss Policies
This is a form of partial insurance where the Insured decides he could not suffer a total loss and selects a maximum sum to insure for any loss. First Loss Policies are often used in Theft insurance high-value goods which would be physically impossible to steal in a single burglary. It is most important that first loss sums insured are only used on first loss policies where “Average” does not apply. Otherwise the sum insured should represent the full value or you will not obtain a full settlement of any loss.
A single policy covering a number of vehicles usually issued to a company operating a large fleet of vehicles. Premiums are usually calculated on the basis of historic claims or a straight discount allowed for the reduced administration costs in combining several policies into one.
See ‘Additional Peril’ under a Fire policy.
“FOB” or Free on Board is a contractual basis for the sale of goods internationally. On an FOB basis the seller’s interest in the goods ceases when they are loaded onboard the carrying vessel. This is usually an appropriate time, as the ship’s representative will normally inspect the goods on loading to ensure they are in good condition and record any damage. Once loaded onboard the carrying vessel, the buyer takes over responsibility for the goods and is responsible for any necessary insurance.
A franchise is similar to a deductible in that the insurer makes no settlement if the total claim is below the franchise figure. However, if the claim is above the franchise figure, the claim is paid in full. Franchises are very unusual in modern insurance practice though machinery breakdown covers sometimes use time franchises.
Free of Particular Average (FPA)
Particular Average means partial loss so Free of Particular Average means excluding partial losses or Total Loss only. FPA is a set of marine cargo insurance conditions providing very narrow cover (though not limited to total loss only!). FPA conditions have now generally been replaced by the more modern “Institute Cargo Clauses C”.
Full Theft Cover
Most Theft or Burglary policies cover theft only if it involves forcible or violent entry to or exit from the premises. Full theft cover extends this cover to any dishonest appropriation. Full theft cover is not normally available to shops or hotels, which are susceptible to casual theft.
In some territories this may mean merely an insurance agency involved in all types of insurance. In other territories it may mean an insurance agency for an overseas insurer and empowered to underwrite risks and settle claims on behalf of that insurer.
In order to save a ship in peril of sinking during a storm, some of the cargo may have to be thrown overboard. The ship owner and the owners of the saved cargo obviously benefit at the expense of the owners of the jettisoned cargo. This was deemed unfair and the principal of “General Average” evolved so that all parties would contribute in such a situation.
Thus if you ship cargo on a vessel that is involved in a loss, you may face a claim against you even though your goods are undamaged. Luckily, your marine insurance policy, if properly arranged, will protect in such cases where General Average is declared .
General Principles of Insurance
Insurance practice has developed over many years in many territories and been added to and amended by the courts or governments. However certain basic principles have been established as the basis on which insurance is written and operates. These principles include Indemnity and its corollaries Contribution and Subrogation, Utmost Good Faith and Proximate Cause.
See territorial limits.
Glass insurance is normally provided as part of a package policy for shops and other small risks but can be obtained a separate policy. The policy covers breakage of fixed glass from any cause but normally excludes damage to frames.
A sportsman’s package policy which covers loss of or damage to golfing equipment, liability to third parties, personal accident and entertainment expenses incurred at the 19th hole celebrating that elusive “hole in one”.
Goods in Transit Insurance
Property, especially stock, does not necessarily remain at your premises alone. It moves around the country and maybe internationally to be delivered from suppliers or to customers. Goods in Transit insurance provides cover for inland transit by road or rail and often extends to include inland and coastal waters. Cover may be arranged by the owner or by the haulier to protect him against his liabilities under the haulage contract.
International transit by sea or air is insured under a Marine policy.
The sum insured under a Business Interruption insurance. Your accountant may regard Gross Profit as being profit before tax, but this is not the insurance definition. Your broker should check through your management reports to ensure that the gross profit is properly defined to protect your business and that you have given your insurer the correct figures.
Gross profit is normally defined by insurers as the amount by which the sum of the turnover and the closing stock shall exceed the sum of the opening stock and the uninsured working expenses. These uninsured working expenses vary from one business to another and should be specified in the policy.
Arranging business interruption insurance correctly and at best terms is a core competency of RMS. Contact us now if you want to ensure your business interests are properly protected.
Hague Protocol 1955
An agreement amending the Warsaw Convention Limits relating to an airline operator’s liability to passengers and goods carried by air.
Referred to in Bills of Lading, the Hague Visby Rules set out the conditions upon which goods are carried by and the obligations and responsibilities of the carrier and ship.
Hazard is another word for risk. Insurers often separate risk into two areas: the physical hazard and the moral hazard.
Physical hazard refers to the physical aspects of the risk that could make a loss more or less likely, or affect the severity of that loss. Moral hazard on the other hand refers to the attitude and conduct of the Insured himself. While physical hazard can nearly always be addressed by insurers through recommended risk improvements, policy conditions and premium rate, moral hazard can only be addressed by declining the risk absolutely.
Highly Protected Risk (HPR)
As the term suggests, HPR risks are those risks that are of the highest quality in terms of physical hazard. Both frequency and severity of loss will have been addressed by the installation of sprinkler systems, haylon systems, water hydrants and fire and smoke alarms. HPR risks enjoy a low premium rating.
Hiring contracts for plant and equipment usually make the hirer-in totally liable for any damage to the plant from the time the plant leaves the hirer-out’s premises until the time it is returned unless it can be shown that a loss is due to bad maintenance by the hirer-out. The hirer-in should therefore arrange appropriate insurance under a hired-in plant policy. This can usually be arranged on an annual basis with the premium based on a percentage of annual hiring charges. An existing policy for owned plant may normally be endorsed to cover any sums you become legally liable to pay under the hiring agreement.
If you do hire in mobile plant, you must insure the road traffic act liabilities if the plant is to be used on the public road.
If you hire premises for meetings, you may be responsible to the owners under the hire contract with them. The contract wording should be checked carefully and your Public Liability policy extended to include the risk of damage to property in your custody or control.
Hoists and Lifts
Your legal liability arising from the operation of lifts or hoists may be excluded from your public liability policy. Check the wording carefully to ensure cover is adequate or ask RMS for a full risk management review of you operations. Machinery Breakdown insurance is available to cover unforeseen damage to lifts and hoists.
By tradition a golfer will buy drinks at the 19th hole (the clubhouse) to celebrate a hole-in-one. A golfer’s policy normally includes cover for these entertainment expenses up to a certain limit.
Household or domestic insurance policies provide a wide range of personal insurance cover. RMS have negotiated very competitive terms for such insurance ad would be delighted to discuss your personal insurance needs with you.
Ships or “Hulls”, like cargo, are insured under marine insurance policies usually based on “Marine Institute Clauses”. In the case of ships, the normal basis of cover is Institute Time Clauses – Hulls. The Institute Clauses are complicated, old-fashioned wordings which, though often difficult to understand by the layman, have been subject to numerous legal precedents and the extent of the liability of insurers in almost all situations has been firmly established.
Complex industrial plant and simple office machinery can be insured not only for fire and allied perils, but also for any accidental damage including mechanical or electrical derangement. Such cover is usually subject to certain levels of maintenance being maintained and is almost certainly subject to a significant deductible. For industrial plant business interruption following breakdown is also usually insured.
The Maintenance Period is the period following completion of a construction project during which the contractor is responsible for certain maintenance issues under the many building or engineering contracts. During this period, the contractor needs to maintain insurance in force, the extent of which will depend on the contract and on his own concern for the risk he is facing. Normally the maintenance period will last for twelve months from the completion of the contract but this may be longer or shorter. Differing levels of cover are available (visits maintenance, extended maintenance guarantee maintenance) depending upon the specifics of the particular contract.
See ‘Additional Peril’ under a Fire policy. Cover against malicious damage provides cover against damage caused by ‘malicious persons’ and is usually only available as part of a riot and strike extension.
Engineers, architects, lawyers, accountants, insurance brokers and the like carry professional indemnity or errors and omission insurance. Doctors, nurses, surgeons and hospitals require the same type of cover, but refer to it as malpractice insurance.
Marine insurance refers to much more than the insurance of ships. The insurance market tends to divide into three areas: Life, Marine and Non-Marine. Marine insurance will include the insurance of hulls, the cargo they carry, liabilities that may devolve upon ships and ship operators, known as “protection and indemnity” and also the insurance of wharves, ports and harbours, container terminals and even oil platforms and drilling rigs.
Material Damage Proviso
All Business Interruption policies contain a requirement that a Material Damage policy remains in force at all times to protect the property, which is the subject of the business interruption policy. This is usually a Fire policy, an Industrial All Risks policy or a machinery breakdown policy. This is to ensure that in the event of a loss, funds are available to repair the damage and thus minimise the period during which the business will be interrupted.
It is important to note that as a result of the material damage proviso, older style wordings may exclude cover under a business interruption policy where the material damage falls below the material damage deductible. Special care is needed and we recommend strongly that your insurance experts, RMS be consulted.
The principle of “utmost good faith” requires anyone seeking insurance to disclose all the material facts about the risk that he knows, or should know. A material fact has been defined in a number of legal cases and broadly is “any fact which may influence the judgement of a prudent underwriter in deciding whether to accept a risk and if so at what rate of premium.” How do you as an Insured know what an underwriter may regard as ‘material’? If in doubt as to whether some piece of information is relevant, tell insurers anyway. While the law has softened in favour of the Insured in many territories, it is still normally possible for the insurer to turn away any claim if there has been a breach of utmost good faith i.e. material facts have been withheld by the Insured.
Maximum Indemnity Period
The Maximum Indemnity Period is a limit under a business interruption policy relating to the maximum period over which the insurer will pay for loss of profit. It is the responsibility of the Insured to decide upon the Maximum Indemnity Period and if the period chosen is inadequate, it can have a very serious effect on the Insured’s business. Professional advice is necessary in deciding this issue and we recommend you contact your professional advisors, RMS.
Maximum Probable Loss
There is no fixed definition for this term, which tends to mean slightly different things to different insurers. It is used along with Estimated Maximum Loss (EML) and Maximum Possible Loss to refer to the largest loss likely, possible or probable under any given insurance policy.
An absolute must for expatriates where medical facilities may not be as modern or as reliable as they are at home. RMS are experts in this area and operate an independent “Employee Benefits” department under a specialist manager. We can provide programmes tailor made to any situation and employ medical professionals to assist you in the event of a claim.
Cash, bank and currency notes, cheques, money orders, postal orders and current postage stamps are excluded from the cover given by a fire insurance policy and a separate money policy is usually required. This is written on an “All Risks” basis to cover any accidental loss or damage but will exclude or limit cover for employee dishonesty. Cover can extend to money in or out of a safe on business premises, in the home of any director or employee, in a safety deposit box, in transit to or from the bank or in the hands of bill collectors. One particular area that needs to be considered is the definition of money. Does it really include all the financial instruments that you hold?
See “Hazard”. Moral hazard hand refers to the attitude and conduct of the Insured.
Perils specifically stated as being covered on insured property. While a “named perils” policy defines what IS covered, an All Risks” policy defines what is NOT coevered.
A term used in traditional business interruption policies to refer to the revenue or turnover of a business less all expenses. That is, the amount which may be attributable to shareholders.
Non Standard Auto
Insurance for motorists who have poor driving records or have been cancelled or refused insurance.
A contract which cannot be cancelled. IN insurance, a construction insurance programme is usually non-cancellable.
An event that results in an insured loss.
Insurance contract provision that allows policyholders to collect benefits under a personal accident policy if they can no longer work in their own occupation.
The cause of a possible loss. Under a fire and perils policy, these are usually defined as: impact from aircraft or objects dropped therefrom, explosion, storm, tempest, flood, earthquake, bursting or overflowing of pipes or other water apparatus, riot, malicious damage, impact by road vehicles or animals.
Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
The written contract evidencing the insurance and providing all of the terms and conditions. The policy usually contains a preamble, operative clause, schedule, conditions, exclusions, warranties and endorsements. It should be read carefully to ensure that it is in accordance with your requirements. Better still, ask RMS to handle your insurance and ensure the policy really meets your requirements.
Policy or Sales Illustration
Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years. The illustration is rarely guaranteed and actual results may differ from the illustration.
A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
The price of insurance protection for a specified risk for a specified period of time. Often local tax or insurance levy will be added to the insurers premium.
Protected Cell Company (PCC)
A PCC is a single legal entity that operates segregated accounts, or cells, each of which is legally protected from the liabilities of the company’s other accounts. A PCC can provide captive insurance facilities to several operating businesses.
A policy which meets the requirements of the government or revenue department to qualify in some way – normally for tax relief.
Insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy does not fall on one company.
Insurance is often provided by an annually renewable policy. RMS will contact you prior to renewal to discuss changes in your business or personal requirements and ensure cover is updated to reflect latest best practice.
Reinstatement or Replacement Cost
The amount needed to replace damaged property as new without deducting for wear, tear or depreciation.
An amount approximating the estimated total claim cost and representing potential liabilities of an insurer to policyholders.
Management of the risks to which a company might be subject. Risk Management involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
Having sufficient assets–capital, surplus, reserves to be able to meet liabilities. Insurers generally are required to meet onerous solvency requirements in order to be eligible to transact insurance business.
Any provision in a policy designed to cut off an insured’s losses at a given point. For example, an employer may choose to retain the risk of medical insurance up to an aggregate limit of US$1,000,000. Beyond this limit he will arrange a “stop loss” insurance.
The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
The amount by which assets exceed liabilities.
A fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
Term Life Insurance
Life insurance that provides protection for a specified period of time.
A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. Liability insurance is mainly purchased to cover unintentional torts. The most common tort is negligence. Other torts include trespass, defamation and nuisance.
A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
A policy which covers losses above the limit of an underlying policy or policies. An umbrella liability policy may cover losses to an agreed limit in excess of underlying third party liability policies, auto liability policies and employers’ liability policies.
The individual trained in evaluating risks and determining premium rates and cover to be provided.
The process of selecting risks for insurance and classifying them according to their degrees of risk and insurability so that the appropriate premium rates, terms and conditions may be assigned.
That part of the premium applicable to the unexpired part of the policy period. Normally insurers will be required to hold and unearned premium reserve as a liability in their accounts.
The time which must pass after filing a claim before policyholder can collect insurance benefits.
Waiver of Premium
A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury.
Whole Life Insurance
Life insurance which might be kept in force for the whole of an insured’s life and which pays a benefit upon the person’s death, whenever that might be.