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Unit 4 Insurance

The document discusses double insurance and reinsurance. Double insurance refers to insuring the same risk with multiple policies, while reinsurance involves an insurer transferring some risk to another insurer. The key differences are that in life insurance the full amount can be claimed from multiple policies, while in other insurance the amount recovered is usually limited to the actual loss based on the principle of contribution.

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76 views4 pages

Unit 4 Insurance

The document discusses double insurance and reinsurance. Double insurance refers to insuring the same risk with multiple policies, while reinsurance involves an insurer transferring some risk to another insurer. The key differences are that in life insurance the full amount can be claimed from multiple policies, while in other insurance the amount recovered is usually limited to the actual loss based on the principle of contribution.

Uploaded by

Kanishka
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We take content rights seriously. If you suspect this is your content, claim it here.
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INSURANCE LAW

UNIT 4- MUTUAL INSURANCE COMPANIES AND COOPERATIVES

SYNOPSIS
 Introduction
 Re-insurance
 Features of reinsurance
 Merits of reinsurance
 Double insurance
 Features of double insurance’
 Sum recoverable under double insurance
 The principle of contribution

INTRODUCTION
 Double insurance is not exactly same as reinsurance, as it is a transfer of
risk on a policy by the insurance company, by insuring the same with
another insurer.
 Double insurance refers to a situation in which the same risk and subject
matter, is insured more than once.
 Reinsurance implies an arrangement, wherein the insurer transfer a part
of risk, by insuring it with another insurance company.

REINSURANCE
Reinsurance is a contract between two or more insurance companies by which a
portion of risk of loss is transferred to another insurance company.
This happen when an insurance company has undertaken more risk burden on
its shoulders than its bearing capacity. Double insurance is thus a device to
reduce the risk.
When an insurance company is not capable of bearing the entire loss arising out
of the insurance provided to the insured, then it can go for reinsurance, in which
a part of the risk is reinsured, with another insurer.

FEATURES OF REINSURANCE
1. Reinsurance is a contract of indemnity.
2. It is an insurance contract between two insurance companies.
3. The relationship of the assured remains with the original insurer only. The re-
insurer is not liable directly towards the assured.
4. In re-insurance the insurer transfers the risk beyond the risk beyond the limit
of his capacity to another insurance company.
5. Re-insurance does not affects the right of insured.

MERITS OF REINSURANCE
Re-insurance is beneficial to the insurers and the insureds both.
1. Re-insurance is a security for the insurers. He can share his risk with other
insurers.
2. It increases the capacity of the insurer of undertake insurance of larger sums
without any hesitation. Many smaller companies can also undertake heavy risks.
3. It reduces the situation of uncertainty by distribution of risks among other
insurers.
4. It encourages the new and smell insures to undertake more risk and remain in
business.
5. It makes possible for the insurer to insure catastrophic risks like flood,
earthquake, cyclone etc. Normally such risks are not insured.

DOUBLE INSURANCE
Double Insurance or multiple insurances is the method of getting the same risk
or the same subject matter insured with more than one insurance company or
with the same insurance company but by two different policies.
Double insurance is possible in all types of insurance contracts. A person can
insure his life in different policies for different sums.
In life insurance the assured can claim the sum insured with different policies on
the maturity or to his nominee after his death.
This becomes possible in life insurance because life insurance is not an
indemnity insurance.

FEATURES OF DOUBLE INSURANCE


1. More than one policies can be obtained against the same subject matter/life.
2. All the policies relate to the same subject matter.
3. The risk covered in all the policies is the same
4. The risk in all the policies is of the same period.
5. The insured has equal insurable interest in the subject matter.
SUM RECOVERABLE UNDER DOUBLE INSURANCE
In the case of Multiple Insurances, the sum recoverable differs in Life Insurance
and General Insurances.
Since life insurance contracts are not the contract of indemnity and are
contingent in nature, the full amount can be claimed from all the insurance
policies.
But this situation differs in the case of general insurances, as we know that
general insurance contracts are contracts of Indemnity, so nothing above the
actual loss can be recovered.
In such scenarios, the Principle of contribution (discussed below) will be
applied and each insurer will pay their respective share accordingly.
An insured is not entitled to recover in full from all the insurance companies, if
such recovery is allowed then it will be against the public policy.
It must further be noted that if the loss suffered is more than the actual value of
the policies, then full amount can be claimed from all the insurers.
So from a sums recoverability point of view, Life Insurance Policies may prove
to be benefiting. On the other hand, it may prove to be detrimental to the
interest of an insured.

THE PRINCIPLE OF CONTRIBUTION


The principle of contribution focuses on equitable distribution of losses between
different insurers.
As we know that in case of double insurances a claimant is not entitled to
recover more than the actual loss, so this principle helps us in the determination
of the proportionate amount of each insurers who are liable to reimburse the
loss.
Conditions for Contribution:
1. The matter must be related to General Insurance Policies, as in case of
Life Insurances full amount is recoverable.
2. There must be double insurance.
3. All the insurance must relate to the same risk / subject matter.
4. All the policies must be active at the time of claiming the amount.
5. Insurer must have an Insurable Interest in the subject matter and must
suffer some actual loss.
6. The policy concerned must cover the event that caused the loss.
7. The total loss shall be proportionately divided.
8. If in any case, one insurer has reimbursed the claimant in full, he is
entitled to get his proportionate share from the other insurance
companies.
Formula for calculation of Contribution
(Sum assured with one particular insurance company / Total sum assured) x The
Actual Loss

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