The language of insurance of often alien to the ordinary person. We know that it’s important for you to understand the meaning of certain terminology commonly used in the insurance industry.
Who is an Insurance Broker?
An insurance broker is a professional body providing insurance advice, consultancy and placement of insurance on behalf of clients. Insurance brokers fall into the category of Insurance Intermediaries which has a wider meaning and includes independent agents, employees of insurance companies and their tied agents.
Insurance brokers bring together many insurance companies and those who want insurance products. Brokers are an essential part of the insurance industry these days as insurance products become more sophisticated and those who are not experts in the field may find it difficult to choose the right product. Brokers are also very useful for those who need to divide their large risks among many insurers.
There are obvious advantages of using an insurance broker. It is common practice that large and complex risks require participation of more than one underwriter. A person who needs insurance would therefore needs to talk to more than one underwriter and might not be able to negotiate on an equal footing.
Using an insurance broker breaks this difficulty. A broker will have knowledge of policy wording, standard practices of insurance market. Brokers will also be aware of suitable underwriters for a particular coverage, will know the strengths and weaknesses of underwriters.
Insurance Brokers often control significant amount of businesses and will be aware of market prices and market intelligence. Brokers would therefore be in a better position to negotiate better deals.
Last, but not least, insurance brokers act as advisors, assisting customers with obtaining appropriate types of risks, reviewing the coverage and formulating claims.
Is there a cost in appointing an Insurance Broker?
Insurance Brokers do not usually charge any fee for consultation. However, there may be circumstance when a fee will be charged, for insurance consultation in case of a claim.
Who is an insurance agent?
An insurance agent is person or company selling insurance products or represent insurance products of a particular insurance company. In an agency relationship, agents are usually authorized to establish privity of contract between the insurance company and customers.
Who governs the business of Insurance Brokers in Maldives?
Maldives Monetary Authority regulates insurance brokers in the Maldives.
What’s the difference between Hazard and Peril?
Hazard is something that affects the probability of a risk occurring. For instance, if a vehicle has a defective brake, the probability of a collision is increased and is a hazard.
Perils are the means by which risks arise. For instance, fire, flood, storm and earthquakes are all perils.
What is an “Endorsement” of an insurance policy?
Whenever there is a change in the coverage of insurance during the validity of the policy period, instead of reissuing the entire insurance policy, an endorsement may be issued varying the original coverage and its provisions will override any prior agreement.
What is “Takaful”?
Takaful insurance is viewed as form of insurance permitted in Islam and emerged in 1979 in Sudan. It comprises of three main characteristics; (a) a co-operative system (b) payment based on charitable principle and (c) Sharia compliant.
What is covered under an insurance policy?
It depends solely on the insurance policy purchased. There are however there are certain standard coverages common in the following insurance coverages: –
- Marine Insurance
Marine insurance is the oldest form of insurance in the world. Marine insurance cover risks related to carriage of persons and goods at sea and liabilities to passengers. Marne polices may be time based, voyage based or open policies.
Protection and Indemnity Clubs – P & I Clubs are associations established to extend coverages not traditionally covered by a hull insurance policy. It includes liability for damage to other property, liability for damage to cargo and other property in the vessel and liability for loss of life, personal injury or illness including crew and passengers are included.
Hull – hull policies cover the physical structure of ships including passenger vessels, cargo vessels and dredgers and tugs. Hull policies could also cover machinery and freight charges. Coverages under such policies include perils of the sea, fire, lightning and explosions and piracy.
Cargo – the cargo carried on board a vessel can be separately insured by the shipper or the owner of the cargo. Such covers would usually include fire, explosions, sinking, capsizing, collusion and during discharge of cargo. It also extends to earthquakes, lightening, total loss and washing overboard.
Aviation policies cover hull, cargo and liabilities. Such hull policies will cover the aircraft hull itself, machinery and equipment on board an aircraft on an All Risk basis and includes parts of machinery temporarily removed.
Aviation liability covers usually include liability of the operator to passengers and goods on board an aircraft limited to international aviation conventions on liability. Aviation liability is also available to airport operators and manufacturers of aircraft products.
- Liability Insurance
Liability insurance has various categories and covers liability for personal injury, property damage, financial loss together with legal costs associated with such claims.
Public Liability – under public liability insurance, the costs associated with legal liability to members of the public will be compensated. It would include bodily injury, loss and damage to property and financial loss and all legal fees associated with such incidents.
Product Liability – such policies will cover to the extent of legal liability to third parties related to bodily injury and accidental damage to property caused by products of the insured.
Employers Liability – employers liability insurance will usually cover liability for bodily injury and diseases sustained by employees in the course of employment.
Professional Indemnity – professional indemnity covers usually cover personal injury and damages, but pure financial loss is excluded. Such a policy would extend to legal liability arising from errors and omissions. Such covers are typically taken by lawyers, accountants, doctors and other professionals.
Directors and Officers Cover – such covers are for directors and executive officers of corporations against liability for shareholders, creditors and employees and customers for negligence arising from their work.
- Construction All Risk Insurance
Construction All Risk insurance policies cover elements of property and liability engineering. It includes liability in respect of unfixed materials, plant, machinery and equipment. It would also cover reinstatement of works to their original condition. Such insurance in the Maldives is taken for all construction projects including home construction, commercial construction, hotel and resort construction.
- Motor Insurance
Third party only – it covers only third party claims for personal injury and property damage and would not provide any cover for vehicle damage of the person who purchased the cover.
Comprehensive – it covers malicious and accidental damage to vehicle, third party and things attached to the vehicle.
- Travel Insurance
Travel insurance policies cover medical expenses baggage and personal possessions, money, ticket and passport, personal accident and cancellation of trip. Such policies are issued according to the specified geographical areas.
- Property Insurance
Buildings Cover – building covers normally is issued for the full reinstatement value of the building and covers all types of buildings from homes to commercial structures.
Plant, Machinery and other Contents Cover – such covers could include machinery used in factories, hotels and other types of commercial facilities and its coverage is for permanent physical assets.
Stock Cover – these are coverages specifically for consumables used in businesses such as raw materials and stationery. It is usually limited to replacement value and does not include loss of profits.
Fire Cover – traditionally fire was the only peril covered for commercial properties. In addition to losses arising out of fire such policies now include lightening and explosions. However, fire resulting from other commonly insured perils such as earthquakes and riots are usually excluded.
Explosion Cover – includes risks of explosion caused by materials used in business.
Riot and Civil Commotion Cover – includes arson and physical damage caused by employees as a result of labor disputes but arson by riot is excluded.
Storm and Tempest Cover – such covers include damage as a result of violent wind, usually accompanied by rain, hailstorm or snow.
Flood Cover – it includes flood from lakes, rivers or canals.
Earthquake Cover – generally covers damage as a result of earthquakes and includes structural damage.
Burst pipes Cover – it covers internal leakages and is inclusive of weather related risks.
Aircraft Cover – includes debris from aircraft and other aerial devises including space stations and materials ejected from aircraft.
Impact Cover – impact caused by road vehicles and animals are included in impact covers.
Commercial All Risk Cover – the name “All-Risk” may be misleading as such covers usually specify certain exclusions. Unless excluded all perils should be covered under an all-risk cover.
Theft Cover – theft covers include theft from third parties and does not include theft from employees. It may also exclude pilferage and shoplifting.
- Home Insurance
Home Insurance – usually home insurance will include physical property against risk of perils causing damage. Common coverages include fire, lightening, explosions, earthquake, storm, floods, riots and civil commotion, burst pipes, malicious damage and accidental damage.
Building Cover – it is a requirement for mortgage lending to obtain building cover. Building cover could include the physical structure of a building as well as anything attached to the physical building but does not include things attached to buildings.
Contents Cover – does not include fixtures and fittings but includes movable contents. Some contents policies can be extended to cover those possessions which you can take out of the house such as bicycles.
All risk cover and accidental damage Cover – such a policy will usually cover sudden and unforeseen damage to property. An all policy would not normally have specified perils.
- Pecuniary Insurance
Money – it covers physical loss of cash and includes cheques within the premises covered.
Fidelity Guarantee – is used to cover against dishonesty of employees. It could be purchased to specifically cover individually named employees in specified positions or all employees.
Credit – credit insurance is taken to cover against bad debts due to insolvency or fraud of the debtor.
Business Interruption / Consequential Loss / Loss of Profit – this is a cover that can compensate for loss of expected business profit following damage to insured property.
- War, Terrorism and Political Violence Insurance
Assets that are exposed to war, terrorism and political violence can be covered by an insurance policy which would cover terrorism and sabotage, war and civil war, riots, strikes and malicious damage, chemical, biological, radiological and nuclear and active assailants.
Insurance Coverages mentioned above are only a small introduction of the most commonly used coverages in the market. As an insurance broker, Atoll Insurance Consultants Pvt. Ltd. can assist clients to obtain any type of coverage currently available in the international market. Please feel free to contact us for any assistance.