Property insurance, Content and basic rules of property insurance...

CHAPTER 8. Property Insurance

8.1. Contents and basic rules of property insurance

8.1.1. Property insurance and reimbursement concept

In accordance with the Law on the Organization of Insurance, property insurance includes:

- property insurance, the objects of which are property interests related to the ownership, use and disposal of property;

- insurance of civil liability, the objects of which are property interests related to the obligation to compensate for harm caused to others;

- insurance of business risks, the objects of which are property interests related to the implementation of entrepreneurial activities.

Under the contract of property insurance, the insurer undertakes to reimburse the insured or the beneficiary for losses incurred to their insured property interests upon the occurrence of a certain insurance event within the sum insured specified in the contract.

The main difference between property insurance contracts is the compensatory nature of the insurance coverage. The Policyholder acquires a guarantee of reimbursement of real losses that have been incurred by them (or the beneficiary) having a specific material assessment of damages.

The concept of reimbursement, > which assumes that the main purpose of providing insurance coverage is to ensure that the policyholder after the loss was returned to the same financial (financial) position in which he was directly before the occurrence of the insured event. The concept of compensation does not provide any benefit from the insured. The insurer can only reimburse material damage to insured objects.

This provision is a fundamental difference between the property insurance of excellent insurance, in which the concept of insurance coverage operates, and the assessment of damage to life and health is the subject of an agreement between the insurer and the insured.

The concept of compensation in insurance practice is realized through the organization of certain insurance systems and compensation for damage.

1. Insurance and compensation for damage at the actual value of the insured object (full insurance). The policyholder declares to the insurance the actual value of the object and pays respectively the premium for the full risk. The insurer at occurrence of an insurance case guarantees payment of insurance compensation at a rate of a damage:

Q = T ,

where Q - the amount of insurance compensation; T is the magnitude of the actual damage.

Example of calculating insurance compensation

Insurance value = insured amount = 100 thousand rubles.

T = 20 thousand rubles.

Accordingly, Q = 20 thousand rubles.

2. Insurance in the system of proportional liability (the "average" clause is used abroad) presupposes the operation of the strict relationship between the claimed insurance sum of the object and its real value with regard to determining the amount of insurance compensation. If the policyholder declares incomplete value of the object for insurance and pays respectively the premium for incomplete risk, the insurer guarantees payment of insurance compensation in the amount of the damage reduced in proportion to the ratio of the insured amount and the actual value of the insured object:

Q = T · S/W ,

where S - the insured amount specified in the contract; W is the actual cost of the object.

In the United States, the reservation of proportional compensation of losses for incomplete insurance is confirmed in art. 949 of the US Civil Code.

Example of calculating insurance compensation

W = 100 thousand rubles.

S = 75 thousand rubles.

T = 20 thousand rubles.

Accordingly, Q = 20 o 75/100 = 15 thousand rubles.

3. Insurance under the first risk system. Payment of insurance compensation is carried out in the amount of damage, but within the limits of the insurance amount established in the contract (the first risk):

Q = T S.

Typically, under the first risk insured property, property that has a special assessment, such as cash, jewelry, etc. Insurance for first risk is similar to the insurance system with the condition of establishing an "insurer liability limit", which is applied in the insurance of civil liability risks.

Example of calculating insurance compensation

W = 100 thousand rubles.

S = 75 thousand rubles.

T = 20 thousand rubles.

Accordingly, Q = 20 thousand rubles. (within 75 thousand rubles.)

4. Insurance with the condition of replacement for a new one. Under this system, the insurer, in the event of full damage, undertakes to replace the affected insured object with a similar new one. Usually, this method is used in the insurance of new equipment, computers and household appliances, sometimes - new cars, when the insured object during the validity of the contract can quickly lose the real value, expressed by a high initial price at the time of acquisition.

The basis of insurance compensation systems used by insurers, is the assessment of the ratio of insured value and the insured amount. In real practice, the insurance amount may be less, equal to or even greater than the insured value, for example, goods in the warehouse, goods in transit, which change the insured value every day, and in the master contract if the amount is indicated, this is their limit value. The insurance amount is the limit of liability of the insurer. However, it should be noted that the insurer may be obliged to pay the insurance indemnity more than the sum insured specified in the contract, if the insured has taken reasonable measures to reduce the loss that caused additional expenses, such expenses are reimbursed in proportion to the ratio of the insured amount to the insured value, compensation of other losses, they may exceed the insured amount (Article 962 of the Civil Code of the United States). Therefore, the maximum value of insurance compensation is not the insurance amount specified in the contract, but the amount of losses incurred by the insured for the insured objects: Q T .

The insurance value is the valuation of the insurance object taken to determine the value of insurable property interests. In accordance with the US Civil Code, the insurance value is:

- for property - its actual value at the place of its location on the day of conclusion of the insurance contract;

- for entrepreneurial risk - losses from entrepreneurial activity, which the insurer, as can be expected, would have been incurred in the event of an insured event.

The insurance value can most often be expressed (the list is not exhaustive):

- the book value (for legal entities);

- the replacement cost, which is determined by the costs necessary to purchase the object lost as a result of the insured event or restore the damaged object to its previous state;

- the market price, which is determined on the basis of the current level of prices for objects of similar quality existing on the given territory;

- the specific price of the acquisition of the object by the insured;

- exchange quotations - for goods and other objects in respect of which exchange trades are carried out;

- the agreed value, the amount of which is agreed by the insurer and the insured as a full assessment of the insured risk.

With respect to the insured value of property used by the insured for a long time (equipment, transportation, etc.), the fundamental issue in determining the insurance value is "wear and tear". Insurance can be carried out at a replacement cost taking into account depreciation or without taking into account the wear of the object. In the first case, when replacing certain damaged parts of the insured object, the cost of their acquisition is reduced by the amount of depreciation. For example, when replacing a damaged engine as a result of a motor vehicle with a wear of 30%, the recoverable value of the new installed engine is reduced by 30%. In the second case, wear of the object does not affect the amount of insurance compensation, and the new engine will be paid by the insurer in the amount of the full cost.

If the insured amount established by the property insurance contract or entrepreneurial risk exceeded the insured value, the excess amount is not taken into account when determining the insurance compensation. The premium paid to the insured in accordance with the US Civil Code is not refundable. The responsibility for determining the insured value lies with the insured.

If the overstatement of the insured amount in the contract was a consequence of fraud on the part of the insured, the insurer has the right to demand recognition of the contract as invalid and even claim compensation for losses caused to him by this circumstance in an amount exceeding the amount of the insurance premium received.

If during the validity period of the insurance contract the insured (beneficiary) became aware of the circumstances that significantly increased the degree of the insured risk, then the policyholder must immediately inform the insurer about it. Usually such circumstances include facts that are indicated by the insurer in the contract and insurance rules, and also reported by the insured when filling out the insurance application in writing.

Forms of insurance compensation:

- cash payments - getting the amount of insurance compensation in cash at the insurer's cash desk (usually used for small payments to individuals);

- non-cash settlements - transfer of money to bank cards or bank accounts;

- repair service - is used by insurers with their own services and repair shops or paying repair services directly to third-party service providers, with whom contracts for servicing insured customers were previously concluded. It is used mainly in motor insurance, technical risks insurance;

- replacement - the insurer replaces the damaged object with a similar one (for example, replacement of glasses, display windows, household appliances and some other objects). The insurer as a permanent wholesale buyer is cheaper to replace, than the payment of compensation.

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