Risk Management and Insurance Planning
What CF6 tests
Risk management and insurance planning tests risk identification, treatment and policy interpretation: insurable interest, indemnity, disclosure and claim calculation.
Core rules
- Risk treatments: avoid, reduce, retain, transfer and share.
- Insurance requires insurable interest, utmost good faith, legal purpose and measurable loss.
- Indemnity restores the insured to the pre-loss position; life and personal accident policies are benefit policies, not indemnity.
- Read the sum insured, excess or deductible, exclusions, waiting period, average clause, subrogation and contribution.
- Liability and compulsory covers, such as motor third-party insurance, need separate attention.
- NAICOM licenses insurers; brokers and agents have different roles.
Worked example
Property replacement value is 10m, sum insured 8m, loss 2m, with an average clause and a 50,000 excess. Claim = 2m x 8/10 = 1.6m; less excess = 1.55m. Reasoning: underinsurance shares the loss proportionately, then the excess is deducted. If the loss were total, the maximum indemnity is the sum insured, subject to excess and policy limits.
Traps
Treating the sum insured as the premium; ignoring the average clause; non-disclosure of material facts; assuming all policies are indemnity; forgetting exclusions and waiting periods.