Insurance

55) Explain the risk financing techniques and give examples:

- Retention "Retention: the firm retains part or all of the losses that can result from a given loss, provided that: - No other method of treatment is available - The worst possible loss is not serious - Loss are fairly predictable Retention levels: the dollar amount of losses that a firm will retain: - The maximum retention can be set at 5% of the company's earnings before taxes from current operations - The maximum retention level can be set as percentage of the firm's net working capital (between 1 and 5%)- Net working capital is the difference between a company's current assets and current liabilities. => Measure the firm's ability to fund a loss" - Noninsurance transfers "Non-insurance transfer: is a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party. Example: Using Logistics Service Provider, we can transfer the risk during the transportation by truck (if any event that causes loss or damage happens, the LSP who provides the truck shall be liable)" - Insurance

51) Explain meaning of risk control?

Refers to the techniques that reduce the frequency and severity of losses

62) Describe different types of pure risk/loss exposures? Give examples?

"1. Property loss exposures: Building, plants, furniture, computers, vehicles... 2. Liability loss exposures: defective products, environmental pollution... 3. Business income loss exposures: loss of income from a covered loss, continuing expenses after a loss 4. Human resources loss exposures: Death or disability of key employees, retirement,... 5. Crime loss exposures: Robberies, employee theft, fraud & embezzlement, theft of IP... 6. Employee benefit loss exposures: Failure to comply with government regulations, Failure to pay promised benefits... 7. Foreign loss exposures: Terrorism, Foreign Currency Risks, kidnapping of key personnel, political risks... 8. Market reputation and Public image of the company 9. Failure to comply with government laws and regulations"

59) Explain the advantages and disadvantages of using noninsurance transfer in a risk management program?

"Advantages: - The risk management can transfer some potential losses that are not commercially insurable - Noninsurance transfers often cost less than insurance - The potential loss may be shifted to someone whose is in a better position to exercise loss control Disadvantages: - The transfer of potential loss may fail because the contract language is ambiguous. There may be no court precedents for the interpretation of a contract tailor- made to fit the situation - If the party to whom potential loss is transferred is unable to pay the loss, the firm is still responsible for the claim. - An insurer may not give credit for the transfers, and insurance costs may not be reduced. "

26) State content of insurance clause A, ICC 1982?

"A Clause: - B - Auxiliary risks: theft, rain- water, leakage, breakage, dampness, heating, hooking, rusting, malicious damage (not by insured), piracy... "

39) What is scope of coverage of P&I insurance in collision accident?

" *Liability in collision accident: insures for the rest part of collision liabilities that excluded from Hull insurance "

31) State scope of coverage of war risk and SRCC risk, ICC 1982?

"In no case shall this insurance cover loss damage or expense War Exclusion Clause - war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power - capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat - derelict mines torpedoes bombs or other derelict weapons of war. Strikes Exclusion Clause - caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions - resulting from strikes, lock-outs, labour disturbances, riots or civil commotions - caused by any terrorist or any person acting from a political motive."

5) What is insurance premium? What factors affect insurance premium?

"Insurance Premium definition: Payments to the insurance company to buy a policy and to keep it in force. I = V(A) x R " "Factors (?): - Type of property or insured matter - Policy and coverage - Value of the insured matter - Your claims history - Credit record of the insurance company "

25) Present legal issues related marine cargo insurance in England and in Vietnam?

"Insurance clause is a set of terms for cargo insurance policy voluntarily adopted as standard terms by many international marine insurance organizations. Institute cargo clause (ICC): issued by Technical and Clauses Committee of Institute of London Underwriter (ILU) - ICC 1963: + FPA - Free from Particular Average. + WA - With Particular Average + AR - All Risks + WR - War Risks + SRCC - Strikes, Riots, Civil, Commotion - ICC 1982: + C + B + A + WR + SRCC Cargo Clauses in Vietnam: - QTC 1965: FPA, WA, AR - QTC 1990: C, B, A"

35) Explain responsibility of hull insurer in collision accident? Give example?

"Insured vessel: loss/damage of ship itself, machinery and equipment Other vessel: The Underwriters agree to indemnify the Assured for three-fourths of any sum or sums paid by the Assured to any other person or persons by reason of the Assured becoming legally liable by way of damages for: • Loss of/damage to ship itself, machinery and equipment • Loss of/damage to cargo and other property on other vessel • delay to or loss of use of any such other vessel or property thereon • general average of, salvage of, or salvage under contract of, any such other vessel or property thereon, • where such payment by the Assured is in consequence of the vessel hereby insured coming into collision with any other vessel. That above amount of money is not exceeded three- fourth insurance amount of insured vessel. Example: Vessel A and Vessel B come into collision. The damage of Vessel A is 10,000 USD, Vessel B is 15,000 USD, Cargo B is 5,000USD. Proportion of liability: 50% - 50%. Liability of Hull insurance of Vessel A: Insured vessel + Liability to other Vessel 10,000 + 3/4 * 1/2 * (15,000 + 5,000) = 17,500 USD "

18) What is partial loss, total loss? Give examples?

"Partial loss means that the loss or damage dine to the goods is only partial. Partial loss can be either general average or particular average. Ex: During the shipment of 10 tons of rice, 1 ton was damaged due to fire. Total loss means that the loss or damage dine to the goods is 100%. For example: Ship sinks which lead to the loss of whole consignment on board "

3) What is double insurance? Example of double insurance?

"Situation in which the same risk is insured by two overlapping but independent insurance policy - It is lawful to obtain double insurance, and the insured can make claim to both insurers in the event of a loss. - The insured, however, cannot profit (recover more than the loss suffered) from this arrangement because the insurers are law bound only to share the actual loss in the same proportion they share the total premium => base on the rate of premium - For high valued assets/ unintentional losses" Example: Mr A involves in 3 insurance policies for his car at 3 insurance companies X, Y, and Z with insurance amounts are 300, 400, 500 million VND (insurance for physical value of car); Assuming that the value of the car is 500 million VND

54) Explain the meaning of risk financing?

Risk financing: refers to techniques that provide for the funding of losses

46) What is meaning of risk management?

Risk management is a process that indentifies loss exposures faced by an organization and selects the most appopriate techniques for treating such exposures. A loss exposure is any situation or circumtance in which loss is possible, regardless of whether a loss actually occurs

61) What are major advantage and disadvantage of using the technique of avoidance in a risk management program?

"* Advantage: - The major advantage of avoidance is that the chance of loss is reduced to zero if the loss exposure is never acquired. - In addition, if an existing loss exposure is abandoned, the chance of loss is reduced or eliminated because the activity or product that could produce a loss has been abandoned. Abandonment, however, may still leave the firm with a residual liability exposure from the sale of previous products. * Disadvantage: Avoidance has two major disadvantages. - The firm may not be able to avoid all losses. For example, a company may not be able to avoid the premature death of a key executive. - It may not be feasible or practical to avoid the exposure. For example, a paint factory can avoid losses arising from the production of paint. Without paint production, however, the firm will not be in business"

57) Explain the advantages and disadvantages of using insurance in a risk management program?

"* Advantages of Insurance - The firm will be indemnified after a loss occurs. The firm can continue to operate and may experience little or no fluctuation in earnings. - Uncertainty is reduced, which permits the firm to lengthen its planning horizon. Worry and fear are reduced for managers and employees, which should improve performance and productivity - Insurers can provide valuable risk management services, such as loss-control services, loss exposure analysis, and claims adjusting. - Insurance premiums are income-tax deductible as a business expense * Disadvantages of Insurance - The payment of premiums is a major cost, because the premium consists of a component to pay losses, an amount for expenses, and an allowance for profit and contingencies. There is also an opportunity cost. Under the retention technique discussed earlier, the premium could be invested or used in the business until needed to pay claims. If insurance is used, premiums must be paid in advance, and the opportunity to use the funds is forgone - Considerable time and effort must be spent in negotiating the insurance coverages. An insurer or insurers must be selected, policy terms and premiums must be negotiated, and the firm must cooperate with the loss-control activities of the insurer. - The risk manager may have less incentive to follow a loss-control program, because the insurer will pay the claim if a loss occurs. Such a lax attitude toward loss control could increase the number of noninsured losses as well. "

17) Distinguish between particular average and general average?

"*Particular Average: -Cause: losses of each insured interest individually due to acts of god or perils of the sea -Contributing liability: each interest shall be liable for his own losses -Insurer's liability: The risk is insured or not depend on insurance's scope of coverage agreed upon insurance policy. *General Average: -Cause: special expenses and sacrifices that intentionally and reasonably conducted to save the vessel, cargo and freight from a threat in the common sea voyage => for common safety -Contributing liability: Require contribution from all other interests involved in the marine adventure to make good the sacrifices or expenses -Insurer's liability: The risk is insured under any clauses (even under minimum one - clause C)"

7) Analyze the principle of ut most good faith? Give example?

"- A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contract - Good faith - Let the buyer beware - Declaration of all material Information about the subject mater of insurance - Material Information is that information which enables the insurer to decide: • whether he will accept the risk and; • if so, at what rate of premium and subject to what terms and conditions - Breach of duty of utmost good faith arises in two ways: • Non-disclosure of material facts - oversight, proposer thought it's not essential etc. • Misrepresentation - Intentional. " "- Example: The insured misrepresent that she had no traffic violation convictions in the prior three- year period. After an accident, a check of her record revealed that she had two speeding tickets in that period. The insurer denied coverage. "

33) What is marine hull insurance? Subject/matter insured in marine hull insurance?

"- Hull insurance is the insurance that covers material loss of or damage to hull and machinery, a portion of costs for collision liability, and other reasonable costs. - Subject/matter insured: a, Hull and machinery insurance is to protect the shipowner's investment in the ship. It is basically a property insurance which covers the ship itself, the machinery and equipment. The owner will be protected to losses caused by loss of or damage to the ship and its equipment. b, Furthermore, the insurance covers some liabilities, normally collision liability with another ship (known as RDC - "Running Down Clause") and sometimes also liability for colliding with other objects than another ship (known as FFO - "Fixed and Floating Objects). c, The third part of the insuracne is cover for salvage and general average contributions."

6) What is insurer, insured, subject/matter insured?

"- Insurer: The party to an insurance arrangement who undertakes to indemnity for losses - Insured: an insured or policyholder is the person or entity buying the insurance and receiving indemnity on happening of unforeseen events - Subject - matter: The person, group, or property for which an insurance policy is issued "

56) What conditions should be fulfilled before retention in used in a risk management program? Explain?

"- No other method of treatment is available. Insurers may be unwilling to write a certain type of coverage, or the coverage may be too expensive. Also, non-insurance tranfers may not be available. In addition, although loss prevention can reduce the frequency of loss, all losses cannot be eliminated. In these cases, retention is a residual method. If the exposure cannot be insured or transferred, then it must be retained. - The worst possible loss is not serious. For example, physical damage losses to cars in a large firm's fleet will not bankrupt if the cars are separated by wide distances are not likely to be simultaneously damaged. - Losses are highly predictable. Retention can be effectively used for workers compensation claims, physical damage losses to cars, and shoplifting losses. Based on past experience, the risk manager can estimate a probable range of frequency and severity of actual losses. If most losses fall within that range, they can be budgeted out of the firm's income."

11) How is actual cash value calculated? How does the concept of actual cash value support the principle of indemnity?

"- Replacement cost less depreciation: Replacement cost is the current cost of restoring the damage property with new materials of like kind and quality Depreciation is a deduction for physical wear and tear, age, and economic obsolescence - Fair market value: is the price a willing buyer would pay a willing seller in a free market - Broad evidence rule: the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property. (actual cash value, fair market value, present value of expected income from property,...) " "- The principle of Indemnity states that under the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss. The insurer agrees to pay no more than the actual amount of the loss. - Basic method to for indemnifying the insured is based on the actual cash value of the damage at the time loss - Purposes: To prevent the insured from profiting from a loss To reduce moral hazard "

49) Identify the sources of information that a risk manager can use to identify loss exposures?

"- Risk analysis questionnaires: The risk manager has to answer numerous questions to identify major and minor loss exposures) - Physical inspection: A physical inspection of the company plants and operations - Flowcharts: Show the flow of production and delivery that can reveal bottlenecks where a loss can have severe financial consequences for the firm - Financial statement: Identify major assets that must be protected, loss of income exposures, and key customers and suppliers - Historical loss data: Historical and departmental loss data in the past"

12) Analyze the principle of insurable interest? Why is an insurable interest required in every insurance policy?

"- The legal right enjoyed by the owner of a property to insure is called 'Insurable Interest'. - The insured must be in a position to loose financially if a covered loss occurs. Insurable risk: - Capable of financial measurement - A large enough amount of similar risks - Not be against public policy - Reasonable premium Insurable interest is where you have a valid reason to insure and stand to suffer a direct financial loss if the event insured against occurs. Insurable interest exists when an insured derives a financial or other benefit from the continuous existence of an insured object In property insurance, the insurable interest must exist at the time of the loss: -The insured must incur his financial loss -You may not have an insurable interest in the property when the contract is first written but may expect to have one in the future, at the time of possible loss " "The insurance will become null and void, without the insurable interest. Purposes: - To prevent gambling (gambling contract) - To reduce moral hazard - To measure the amount of the insured's loss in property insurance"

50) What is the difference between the maximum possible loss and maximum probable loss? Give examples?

"- The maximum possible loss is the worst loss that could happen to a firm during its lifetime - The maximum probable loss is the worst loss that is likely to happen For example, if a plant is totally destroyed by a flood, the manager estimates that replacement costs, demolition cost, and other costs will sum up to $50 million. This is the maximum possible loss. However, the manager also estimates that the flood causing more than $40 million of damage to the plant is so unlikely that it would happen once in 100 years. Thus, for this risk manager, the maximum probable loss is $40 million."

60) What are benefits of risk management?

"- The pre-loss and post- loss risk management objectives are more easily attainable - The cost of risk is reduced => increase company's profit (a risk management tool that measures certain costs- includes premiums paid, retained losses, loss control expenditures, outside risk management services, financial guarantees, internal administration costs, and taxes, fees, and certain other expenses - A firm may be able to enact an enterprise risk management program that treat both pure and speculative loss exposure "

10) Analyze principle of indemnity? Give example?

"- The principle of Indemnity states that under the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss. - The insurer agrees to pay no more than the actual amount of the loss. - Purposes: • To prevent the insured from profiting from a loss • To reduce moral hazard - Basic method to for indemnifying the insured is based on the actual cash value of the damage at the time loss. - Methods to determine actual cash value: • Replacement cost less depreciation + Replacement cost is the current cost of restoring the damage property with new materials of like kind and quality + Depreciation is a deduction for physical wear and tear, age, and economic obsolescence + Example: A sofa, which was bought 5 years ago, has been burnt in a fire. It is 50% depreciated, and a similar sofa today would cost $1,000. Under the actual cash value, how much that the owner can collect from insurer? + Replacement cost = $1,000 Depreciation = $500 Actual cash value = Replacement cost - Depreciation = $500 • Fair market value: is the price a willing buyer would pay a willing seller in a free market • Broad evidence rule: the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property. (actual cash value, fair market value, present value of expected income from property, ...) - Applicability: • When the losses suffered by the insured can be measured in terms of money • It is practicable to place the insured in the same financial position which he occupied before the loss - In Marine Cargo where valued polices are issued, there is only commercial indemnity- the value declared for insurance is accepted at the time of loss. "

9) Analyze the principle of subrogation? Why is subrogation used?

"- Transfer of rights and remedies from the insured to the insurer who has indemnified the insured in respect of the loss. - The right of an insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim. The insurer's subrogation rights may be qualified in the policy. - Subrogation means substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third person for a loss recovered by insurance. - The principle of subrogation strongly supports the principle of indemnity - The insurer is entitled to recover from a negligent third party any loss payment made to the insured - Example: a negligent motorist fails to stop at a red light and smashes in to Mergan's car, causing damage in the amount of $5000. If she has collision insurance on her car, her company will pay the physical damage loss to the car and then attempt to collect from the negligent motorist who caused accident. Alternatively, Mergan could attempt to collect directly from the negligent motorist for the damage to her car. " "- Subrogation is used to: • Prevent the insured from collecting twice for the same loss • Hold the negligent person responsible for the loss • Help to hold down insurance rate "

19) Distinguish between actual total loss and constructive total loss? Give examples?

"-Actual total loss: the whole lot of the consignment has been lost or damaged or found valueless upon arrival at the port of destination. For example: Ship sinks which lead to the loss of whole consignment on board -Constructive total loss: is found in the case where the actual loss of the insured goods is unavoidable, or the ship or the consignment has to be abandonded because the cost of recovery would exceed the value of the ship and the consignment in sound condition upon the arrival of the port of destination. For example: old ship was damaged and the expense to fix is more expensive than the value of the ship. "

1) What is insurance? State nature of insurance?

"-Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. -A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event Principle of Insurance - Risk Sharing - large number law - risk premium: I = RxV " " Nature of insurance: -Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company. -Insurance is the risk transferring from the insured to the insurer -Insurance works on the basic principle of risk-sharing. -The business object in the insurance sector is risk. - Three type of Insurance : Life Insurance, Asset Insurance, Third party"

41) How does rate making, or the pricing of insurance, differ from the pricing of other products?

"-Rate making which refers to the pricing of insurance and the calculation of insurance premiums differs from the pricing of others products in several ways. a.A rate is the price per unit of insurance. b.An exposure unit is the unit of measurement used in insurance pricing. c.Total premiums charged must be adequate for paying all claims and expenses during the policy period. d.Rates and premiums are determined by an actuary, using the company's past loss experience and industry statistics"

16) State relatively excepted risks and absolutely excepted risks in marine insurance?

"-Relatively expected risks are perils that are not included in standard insurance clauses -> can be insured but with condition. For example, War and SRCC. -Absolutely expected risks are perils that are not insured in any circumstances -> never be insured in original clauses. It includes: +loss damage or expense attributable to wilful misconduct of the Assured (belong to shipowner/carrier fault) +ordinary leakage, ordinary in weight and volume, or ordinary wear and tear of the subject-matter insured (nature of consignment) +loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured (belong to cargo owner) +..."

40) What is scope of coverage of P& I insurance?

"1. Liability in collision accident 2. Dead and personal injury +Any person injured on your ship - crew, stevedores, pilots or passengers, for example may allege that your ship was unsafe. The injured person could decide to sue the ship and her owners and demand huge sums of money as compensation +It is necessary for a Master and his senior officers to have a good idea of what his P&I club's rules state on the insurance cover for personal injury, illness and loss of life. 3. Repatriation of sick or injured crew and hospital expenses +P&I insurance also covers a shipowner's liability to pay for the costs of repatriating crew members who become sick or are injured on board. The insurance also covers the crew's hospital bills and costs of sending replacement personnel to the ship if necessary 4. Loss of crew member and personal's effect +P&I insurance also covers the owner's liability for loss of crew belongings in cases of shipwreck or fi re on board. +The cover only applies to items which are deemed to be reasonable for any crew member to have with him on board. A crew member travelling with unusually expensive items, such as laptop computers, gold watches etc should make sure that he has such items separately insured. 5. Stowaways, refugees and persons saved at sea 6. Pollution Oil from your ship which pollutes a harbour, dock or waterway will have to be cleaned up. Clean-up costs will be charged to the ship and fines may be imposed on the ship, the Master, and the Chief Engineer. Your ship could be arrested, and the owners required to establish some form of security acceptable to the port authorities. 7. General average contributions - cargo The standard insurance shall cover the member's loss in respect of general average expenditure and special charges which should be paid by the cargo interest or some other party to the maritime adventure but which are not legally recoverable solely by reason of a breach of the contract of carriage 8.Fines + breach of immigration laws +inaccuracies in cargo documentation + accidental pollution + smuggling or infringement of customs laws "

44) Describe the steps involved in the settlement of a claim?

"1. Notice of loss must be given: (usually stated in policy) to notify the insurer of a loss immediately or as soon as possible. The notice must also include the names and addresses of any injured persons and witnesses. 2. The claim is investigated: a covered loss has occured and amount of loss are determined. A seris of question must be answered before claims. Failture of this may result in denial of the claims 3. A proof of loss may be required: An adjustor may require a proof of loss before the claim is paid 4. A decision is made concerning payment: - The claim can be paid - The claim can be denied - The claim may be valid, but there may be a dispute (between insurer and insured over the amount to be paid => consumers may file a complaint with the state insurance department)"

47) Explain the objectives of risk management both before and after a loss occurs.

"1. Pre-loss objectives: - Economy: the firm should prepare for potential losses in the most economical way. ( Includes analysiss of the cost of safety programs, insurance premiums paid, the costs asociated with the different techniques for handling losses) - Reduction of anxiety - Meeting legal obligations 2. Post-loss objectives: - Survial pff the firm: After loss occurs, the firm can resume at least partial opreations within some reasonable period of time - Contined operations - Stability of earnings - Continued growth - Social resposibility: to minimize the effects of that a loss will have on other persons and on society"

34) What is the scope of coverage of ITC 1995?

"1. This insurance covers total loss (actual or constructive) of the subject-matter insured caused by 1.1. perils of the seas rivers lakes or other navigable waters 1.2. fire, explosion 1.3. violent theft by persons from outside the Vessel 1.4. jettison 1.5. piracy 1.6. contact with land conveyance, dock or harbour equipment or installation 1.7. earthquake volcanic eruption or lightning 1.8. accidents in loading discharging or shifting cargo or fuel. 2. This insurance covers total loss (actual or constructive) of the subject-matter insured caused by 2.1. bursting of boilers breakage of shafts or any latent defect in the machinery or hull 2.2. negligence of Master Officers Crew or Pilots 2.3. negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder 2.4. barratry of Master Officers or Crew 2.5. contact with aircraft, helicopters or similar objects, or objects falling therefrom provided that such loss or damage has not resulted from want of due diligence by the Assured, Owners, Managers or Superintendents or any of their onshore management."

43) Explain the basic objectives in settlement of a claim?

"1. Verification of a covered loss: Determine whether a specific person or property is covered under the policy, and the extent of the coverage 2. Fair and prompt payment of claims: the insurer shouls avoid excessive claim settlements and should resist the payment of fraudulent claims 3. Provide personal assistance to the insured: The insurer should provide it after a loss occurs"

24) State different types of marine cargo insurance policy?

"1. Voyage Policy - Definition: A kind of marine insurance policy which is valid for a particular voyage. - Validation: from one port to another and from one place to another and for a particular voyage. - Is illustrated by insurance policy or insurance certificate 2. Open cover policy - Definition: Open cover is a type of marine insurance policy in which the insurer agrees to provide coverage for all cargo shipped during the policy period -> send notification before each shipment. - Large export/import oriented industry usually prefer open cover agreements as they have to make numerous regular shipment. Therefore, they would otherwise find it very inconvenient to obtain insurance cover separately for each and every shipment. - Save time and negotiating cost. 3. Valued Policy - Definition: The insurance policy in which the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment. - Pros: the compensation amount is fixed -> for the sake of cargo owner when the loss occurs. - Cons: if the price fluctuates through time, the cargo owner may suffer loss -> should be used for short voyage and cargo with little fluctuation in price. 4. Unvalued Policy - Definition: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss of the cargo and consignment is inspected and valued. -> Insured first deposit an amount of money other than the Insurance premium in order to make the insurance policy effective. After the consignment is completed, the insured either pay the rest or get reimbursed. - Should be used for cargo whose price is not stable. "

38) State the principle of mutuality in P&I insurance? Give example?

"1.In respect of the organization of insurance - Members of P&I Clubs have a dual role as both assureds and insurers - P&I Insurance is not profit-making, all the money raised is from the members and will be used for the members as well 2. It is the members themselves to share the losses - The operational principle of P&I Clubs is to balance all the calls received from the members and the liabilities the members incur in each policy year - P&I Club would not operate on borrowing, the payment by the members is very important to P&I Clubs the clubs also take strict measures to the member: i.e.the club will refuse to provide guarantee, or decline the settlement of claim, even more cancel the insurance contracts in the case that the member fails to pay his member fee in time 3.The fund of the club - The club fund plays a very important role in the operation of P&I Insurance, and it is usually collected by levying calls from the members - The "calls" are used in P&I Insurance instead of the "premiums"- an agreement that each member should bear his aliquot share of the losses of the year covered by the policy "

37) What is P& I insurance? History of P&I insurance?

"1/ What is P& I insurance? - Protection and Indemnity insurance, or "P&I" as it is usually called, is shipowner's insurance cover for legal liabilities to third parties. "Third parties" are any person, apart from the shipowner himself, who may have a legal or contractual claim against the ship. - P&I insurance is usually arranged by entering the ship in a mutual insurance association, usually referred to as a "club". Shipowners are members of such clubs. Legal liability is decided in accordance with the laws of the country where an accident takes place - The P&I insurance cover for contractual liability is agreed at the time the owner requests insurance cover from the club and is usually in accordance with the owner's responsibility under crew contracts or special terms relating to the trading pattern of the vessel. 2/ History of P&I insurance? -Protection & Indemnity Insurance (P&I Insurance) developed from the old Hull Clubs in England in the eighteenth century -One century later, With the increase of liabilities arising from shipping activities which were unfortunately excluded by the hull clubs, it was the result of an urgent need for shipowners to seek some new mechanism to protect their potential liabilities in their business activities =>P&I club came into the world in order to dealt with those things that excluded from Hull insurance: i.e. third party liabilities and the rest part of collision liabilities =>P&I Club has become one kind of mutual insurance with its own legal capacity. Modern P&I Insurance not only covers the part of collision liabilities which had once been excluded by the hull insurers but also includes liabilities relating to cargo claims, liabilities relating to personal injury, oil pollution liabilities, as well as some costs and expenses arising from the relevant casualties "

58) Explain the advantages and disadvantages of using retention in a risk management program?

"Advantages of Retention: - Save on lost costs: The firm can save money in the long run if its actual losses are less than the loss component in a private insurer's premium - Save on expenses: The services provided by the insurer may be provided by the firm at a lower cost. Some expenses may be reduced, including loss-adjustment expenses, general administrative expenses, commissions and brokerage fees, loss control expenses, taxes and fees, and the in surer's profit. - Encourage loss prevention: Because the exposure is retained, there may be a greater incentive for loss prevention. - Increase cash flow: Cash flow may be increased because the firm can use the funds that normally would be paid to the insurer at the beginning of the policy period. Disadvantages of retention: - Possible higher loss: The losses retained by the firm may be greater than the loss allowance in the insurance premium that is saved by not purchasing insurance. Also, in the short run, there may be great volatility in the firm's loss experience. - Possible higher expenses: Outside experts such as safety engineers may have to be hired. Insurers may be able to provide loss control and claim services less expensively. - Possible higher taxes: The premium paid to an insurer are immediately income-tax deductible. However, if retention is used, only the amounts paid out for losses are deductible, and the deduction cannot be taken until the losses are actually paid. Contribution to a funded reserve are not income-tax deductible."

30) What are auxiliary risks in marine insurance

"Auxiliary risks: theft, rain- water, leakage, breakage, dampness, heating, hooking, rusting, malicious damage (not by insured), piracy... "

27) State content of insurance clause B, ICC 1982?

"B clause - C - earthquake volcanic eruption or lightning - Washing overboard - entry of sea, lake or river water into vessel craft hold conveyance container liftvan or place of storage - total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft. "

15) State different types of risks in marine insurance?

"Base on the causes - Acts of God: vile weather, thunderstorm and lightening, tsunami, earthquake, flood, volcanic eruption, etc. - Perils of the sea: ship striking upon the rocks, ship sinking, ship collision, colliding with iceberg or other objects - Risks caused by Social- political actions: war, SRCC (strikes, riots, civil, commotions) - Risks caused by particular actions of people: thieve, robber - Risks caused by other sources " ". Base on the insurance technique a)Insured common perils: the risks that are normal insured in original insurance clauses: Main risks: - Stranding: a vessel is stranded when, in consequence of some accidental or unusual occurrence, she comes in contact with the ground or other obstruction, and remains hard and fast upon it. The vessel needs an external force in order to getting off the stranding. - Sinking - Fire or explosion - Collision - Jettison: To throw part of the cargo or gear of the vessel overboard to lighten the load and save the vessel. The owner of the jettisoned goods is entitled to a ""general average,"" i.e., the loss is shared by the owners of the vessel and the owners of the cargo which was not thrown away. - Missing: British law: 3 times of ship's itinerary in normal conditions (no longer than 6 months, no shorter than 3 months) * Auxiliary risks: theft, rain, leakage, breakage, dampness, heating, hooking, rusting b) Relatively Excluded Perils: risks that are not included in standard insurance clauses: War, SRCC c) Absolutely Excluded Perils: risks that are not insured in any circumstances: - loss damage or expense attributable to wilful misconduct of the Assured - ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject- matter insured - loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured - loss damage or expense caused by inherent vice or nature of the subject-matter insured - loss damage or expense proximately caused by delay, even though the delay be caused by a risk insured against - loss damage or expense arising from insolvency or financial default of the owners managers, charterers or operators of the vessel - loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. "

32) Analyze "Such proportion of losses sustained by ship owners as is to be reimbursed by the cargo owners under the contract of affreightment "Both to blame Collision" clause"? Give example?

"Both to blame collision: if the carrying ship (ship A) comes into collision with another ship (ship B), the cargo owner A in ship A shall compensate ship A for any loss and liabity that ship B has compensated to cargo owner A. Insurer of cargo owner A in this case will pay for the liability of cargo owner A with his carrying ship (Ship A). This insuarance is extended to indemnify the Assured against such proportion of liability under the contract of affreightment ""Both to Blame Collision"" Clase. Example: When collision accident happens, the apportionment of blame is 50/50, the value of cargo A is 10000$. So, the insurer of cargo owner A has to compensate for ship A (1/2 x10000$) as it is liability of cargo owner A with his carrying vessel. "

28) State content of insurance clause C, ICC 1982?

"C clause: this insurance covers loss of or damage to the subject- matter insured reasonably attributable to: - Stranding, sinking, fire or explosion, collision - discharge of cargo at a port of distress - overturning or derailment of land conveyance - Sacrifice in and contribution to GA and reasonable expenditures (salvage - Jettison - Missing - Such proportion of losses sustained by ship owners as is to be reimbursed by the cargo owners under the contract of affreightment "Both to blame Collision" clause "

4) What is co- insurance, reinsurance? Give examples?

"Co-insurance: Insurance held jointly by two or more insurers. Example: A property is assured under 3 policies covering 30%, 40%, 30% of the value of the property respectively" "Reinsurance: - Definition: Practice where an Insurance company (the insurer) transfers a portion of its risks to another (the re-insurer). - Legal right of the policyholders (insureds) are in no way affected by reinsurance, and the insurer remains liable to the insureds for insurance policy benefits and claims. - Max percentage of transfering = 100% ( in reality < 100%) - Cut-through clause: If insurer goes bankrupt => Insured can be compensated with the proportion shared by the reinsurer Example: A - an insurance company - issued a policy for a property with the value of 1000000$. However, recently, the company has been in financial recession. Therefore, to reduce risk, A buys a reinsurance policy from a bigger insurance -B - company and agrees that A will covers 70% of the value of the property whereas B will cover 30% remaining."

22) State content of general average? What are responsibilities of related parties in a general average case?

"GA Sacrifices: to sacrifice properties for the rest ones. GA Expenditures: consequent costs of GA act or expenditures concerning GA act: - Salvage cost (not applied in York Antwerp 2004) - Temporary repairs cost - Cost at port of refuge - Wages and maintenance of master, officers and crew reasonably incurred and fuel and stores consumed during the prolongation of the voyage occasioned by a -ship entering a port or place of refuge or returning to her port or place of loading - Interest of 7% shall be allowed on expenditure, sacrifices and allowances in general average until three months after the date of issue of the general average adjustment Ship-owner/ master's liabilities: - Form GA Notice - Arrange survey service to assess the measure of damage - Send average bond and average guarantee - Arrange GA adjuster - Form Sea Protest (if applicable) Cargo owner's liabilities: - Declare value of the goods (the value of goods determines the amount of contribution) - Receive average bond and average guarantee "

20) What is general average? Characteristics of general average?

"General Average: the losses/ damages caused by special expenses and sacrifices that intentionally and reasonably conducted to save the vessel, cargo and freight from a threat in the common ocean voyage. There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure. => General Average are for the common safety of all of the interests (cargo, vessel, freight) " "Essential features: - The loss must be voluntary - It must be properly made - It must be extraordinary in its nature - The object of the sacrifice or expenditure must be nothing other or less than the common safety of ship and cargo - There must be imminent danger, and the object must be the attainment of safety - The loss must be the direct result or reasonably the consequence of the act causing it "

36) Explain responsibility of marine cargo insurer in collision accident? Give example?

"If cargo owner has not received compensation: • Loss/ damage in collide accident • proportion of liability under the contract of affreightment "Both to Blame Collision" Clause If cargo owner has already received a portion of compensation: • The rest part of Loss/ damage in collide accident • proportion of liability under the contract of affreightment "Both to Blame Collision" Clause Example: Vessel A and Vessel B come into collision. Cargo A suffer from a 10,000USD damage. Proportion of liability: 50% - 50%. If cargo owner has not received compensation: • Loss/ damage in collide accident: 10,000 USD • proportion of liability under the contract of affreightment "Both to Blame Collision" Clause: 5,000 USD If cargo owner has already received a portion of compensation: (Vessel B already compensate for 3,000 USD) • The rest part of Loss/ damage in collide accident: 7,000 USD c proportion of liability under the contract of affreightment "Both to Blame Collision" Clause: 5,000 USD. "

21) State the legal system that adjusts general average?

"Legal system: - York Rules 1864 - York- Antwerp 1924 - York- Antwerp 1950, 1974, 1990, 1994, 2004 Amendments of York- Antwerp Rules 2004 (compared to 1994): - Rule VI: salvage remuneration is not included in GA - Rule XX: A commission of 2 per cent. on GA disbursements, other than the wages and maintenance of masters, officers and crew and fuel and stores not replaced during the voyage is not included in GA - Rule XXI: Interest shall be allowed on expenditure, sacrifices and allowances in GA until three months after the date of issue of the general average adjustment. Each year the Assembly of the Committee Maritime International shall decide the rate of interest which shall apply. This rate shall be used for calculating interest accruing during the following calendar year. - Rule XXIII: limitation of claims: 1 year after the date upon which GA adjustment was issued or 6 years from the date of termination of the common maritime adventure. These periods may be extended if the parties so agree after the termination of the common maritime adventure "

23) What is marine cargo insurance? What is the necessity of marine cargo insurance?

"Marine cargo insurance: It provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea, or air Cargo needs to be insured because of: - High probability of risk occurring in voyage - Carrier's liability is very limited - Marine cargo insurance is a custom in international trade "

8) Explain the following doctrines: - Misrepresentation, - Concealment, - Warranty

"Representations (khai báo gian lận - the material facts are false) - Are statements made by the applicant for insurance. - The insurance contract is voidable at the insurers option if there is a misrepresentation - a statement which is: + Material: if the insurer knew the true facts, the policy would not have been issued or it would have been issued on different terms + False: the statement is not true or is misleading + Relied on by the insurer: the insurer relies on the misrepresentation in issuing the policy at a specitied premium. - Example: Joseph applies for life in insurance and states in the application that he has not visited a doc tor within the last 5 years. However, 6 months earlier, he had surgery for lung cancer. In this case, he has made a statement that is false, material, and relied on by the insurer. Therefore, the policy is voidable at the insurer's option. If Joseph dies shortly after the policy is issued, say 3 months, the company could contest the death claim on the basis of a material misrepresention. - The insurer has the right to void the contract when: + An applicant for insurance states an opinion or belief that later turns out to be wrong (the insurer must prove that the applicant spoke fraudulently and intended to deceive the company before it can deny payment of a claim) + There is an innocent misrepresentation of a material fact (unintentional), if relied on by the insurer + After a loss occurs, the insured submits a fraudulent proof of loss or misrepresents the value of the items damaged " "Concealment (Che giấu thông tin - the material facts are silent) - A concealment is intentional failure of the applicant for insurance to reveal a material fact to the insurer. Concealment is the same thing as non-disclosure; that is, the applicant for insurance deliberately withholds material information from the insurer. - The legal effect is the same as a misrepresentation - the contract is voidable at the insurers option. - To deny a claim based on concealment, a non-marine insurer must prove two things + The concealed fact was known by the insured to be material + The insured intended to defraud tl the insurer - Example: Joseph DeBellis applied for a life insurance policy on his life. He had an extensive criminal record. Five months after the policy was issued, he was murdered. The death certificate named the deceased as Joseph DeLuca, his true name. The insurer denied payment on the grounds that Joseph had concealed a material fact by not revealing his true identity and that he had an extensive criminal record. In finding a for the insurer, the court held that intentional concealment of his true identity was material and breached the obligation of good faith " "Warranty (Cam kết) - A warranty is a promise by the insurance applicant to do certain things or to satisfy certain requirements, or, it is a statement of fact that is attested by the insurance applicant. The warranty becomes part of the insurance contract. If the insured breaches the warranty, the insurer can void the contract and deny payment of a claim. - Based on common law, in its strictest form, warranty is a harsh legal doctrine. Any breach of the warranty, even if minor or not material allowed the insurer to deny payment of a claim. During the early days of insurance, statements made by the applicant for insurance were considered to be warranties. If the statement were untrue in any respect, even if not material, the insurer could deny payment of a claim based on a breach of warranty => So strict that harmed the insured - Some modifications: + Statements made by applicants for insurance are considered to be representations and not warranties => the insurer cannot deny liability for a claim if a misrepresentation is not material + Statutes have been passed that allow the insured to recover for a loss unless the breach of warranty actually contributed to the loss - Example: A business firm may warrant that an automatic sprinkler system will be in working order throughout the term of the policy -> insurance company will calculate the lower amount of insurance premium. "

48) Describe the steps in the risk management process.

"Step 1: Identify loss exposures: - This step is to identify all major and minor loss exposures, it involves an analysis of all potential losses (Property loss exposures, liability loss exposures, business income loss exposures, human resources loss exposures, crime loss exposures, employee benefits loss exposures, foreign loss exposures, market reputation and public image of the company, failure to comply with the laws and regulations) - Sources of information to identify loss exposures: Risk analysis questionnaires, Physical inspection, Flowcharts, Financial statement, Historical loss data (Question 49) Step 2: Analyze the loss exposures: - This step involves an estimation of the frequency (the probable number of losses that might occur over a period of time) and severity (the probable size of the losses that might occur) of loss. - Various loss exposures can be ranked according to their relative importance. Then, the risk manager can select the most appropriate technique, or combination of techniques to handle each exposure. Step 3: Select the appropriate technique for treating loss exposures - Risk control: Refers to techniques that reduce the frequency and severity of losses (Question 51 52 53) - Risk financing: Refers to techniques that provide the funding of losses (Question 54 55 58 59) - Combination of risk control and risk financing techniques Step 4: Implement and monitor the risk management program"

42) Briefly describe the sales and marketing activities of insurers?

"The term production refers to the sales and marketing activities of insurers. Agents who sell insurance are producers. Business is produced only when a policy is sold. The key to the insurer's financial success is an effective sales force. In addition to development of an effective sales force, an insurance company engages in a wide variety of marketing activities. The modern agent should be a competent professional who has a high degree of technical knowledge and places the needs of cilents 1st."

13) Analyze the principle of "Insurance is a repayment of a random loss"? Give example?

"The timing or occurrence of the loss must be uncertain. .  To be able to fully service major claims, small claims are not covered. This is what the deductible is for. Only damage or loss over the amount of the deductible is covered by the insurance policy. " For example, you can't know your house is going to be destroyed in three weeks by a demolition team and still get home owner's insurance

29) Analyze transit clause, ICC 1982? Give example?

"Transit Clause "from warehouse to warehouse" - Stage from port of discharge to final warehouse: insurance policy terminates either: + On safely delivery to the final warehouse, or + On the expiry of 60 days after completion of discharge -> Limit the time of liability -> reduce risk for the insurer because many accidents occured from port of discharge to warehouse. - Departure warehouse: place of storage at the place named herein for the commencement of the transit - Final warehouse: + Final warehouse owned or managed by the assured, or + Store other than in the ordinary course of transit, or + Store using for allocation or distribution, or + Store named in insurance policy "

2) What is insurance amount? Insurance value? Relation between A and V/

"V: The term "value" refers to the value of the property, on the same basis used in indemnifying losses; that basis is usually actual cash value or replacement cost. The replacement value of property is equal to the amount it would cost to fully repair or replace the property if it must be reconstructed or purchased new Value = current value - depreciation = subject + fee + charges Eg: V consignment = FOB + freight + Insurance premium +Expected profit - actual value: for high valued assets, long term, depreciable - replacement cost: for low valued assets, short term " "Insurance amount: a certain amount of insurance coverage that the insured requires in the insurance policy, it can be a part or an entire of insurance value " "A <= V "

53) Explain the following risk- control techniques and give examples:

- Duplication "Duplication: refers to having back-up or copies of important documents or property available in case a loss occurs. Example: We can keep a back-up of our precious documents by uploading them into Google Drive or Dropbox" - Separation "Separation: dividing the assets exposed to loss to minimize the harm from single event. Example: A university might have multiple campuses with gymnasiums on each campus. If one campus is destroyed by a natural disaster, the gymnasium on another campus can be used for all activities." - Diversification "Diversification: refers to reducing the chance of loss by spreading the loss exposure across different parties (customers and suppliers), securities (stock and bonds), or transactions. Example: By having many suppliers, we can avoid relying on 1 supplier only which can lead to monopoly price and insufficient material situtation as well as we can choose the ones who offer the most competitive price"

45) Briefly describe the following insurance company operations:

- Information system Depend heavily on computers and new technology - Accounting Responsible for financial accounting operations of an insurer (prepare financial statement, develop budgets, analyze operations,...) - Legal services Do all the legal things ( draft the legal language and policy provisions, review new policies related, provide legal assistance, keep abreast of frequent change, give advice on out-of-court settlements,..) - Loss control Help individual and firms reduce frequency and severity of losses (advice on alarm systems, assist underwriters when new insurance is underwritten,...)

14) What is marine insurance? Different types of marine insurance?

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination "- Marine cargo insurance: covers export- import goods carriage by sea and related- reasonable costs - Hull insurance: covers material loss of or damage to hull and machinery, a portion of costs for collision liability, and other reasonable costs. - Protection and indemnity insurance: provide cover to shipowners against third- parties liabilities in connection with the operation of vessels "

52) Explain the following risk- control techniques and give examples:

a. Avoidance "Avoidance: a certain loss exposure is never acquired, or an existing loss exposure is abandoned => the firm may not be able to avoid all losses, it may not feasible or practical to avoid the exposure Example: We can avoid the risk of getting a car accident just by staying in our house" b. Loss prevention "Loss prevention: refers to measures that reduce the frequency of a particular loss Example: Auto accidents can be reduced if motorists take a safe-driving course and drive defensively The number of heart attacks can be reduced if individuals control their weight, stop smoking, and eat healthy diets " c. Loss reduction "Loss reduction: refers to measures that reduce the severity of a loss after is occurs Example: A department store can install a sprinkler system so that a fire will be promptly extinguished "