TMAE308 Q- Bảo hiểm

Chapter 1
Q1: What is insurance? State nature of insurance.
Insurance is a contract whereby upon the exchange a amount of money called
premium, the insurer agree to pay for financial loss of the insured as a result of
unforeseen events.

Contract: Agreement between two parties

If nothing happens, the insurer will keep the premium, insured will receive
nothing.

Since the premium is small compared to the potential payout, the insurer will
need to attract a lot of people into buying insurance to contribute to the pool
of funds.

Nature of insurance:

Insurance provide financial protection against a loss from the occurance of

an unforeseen event.

Financial protection only: easier to calculate and pay with, hard to return
the actual subject-matter insured (lives, rare goods)…

Insurance is the risk transferring from the insured to the insurer.

Does not apply to self-insurance.

Risk is transferred to the insurer who is in a better financial position to

pay for the loss.

Insurance contract is validated only when the premium is transferred.

Insurance works based on the principle of risk sharing.

Role of the insurance is to pool funds from all the insured.

The risk is spread over all insured parties, reducing the burden on any
individual party.

Business object of the insurance sector is risk.

TMAE308 Q- Bảo hiểm 1

 Risk: unforeseen event.

Q2: What is insurance amount & insurance value? Relationship between A and
V?

Insurance Amount:

Denoted as “A”

Amount of insurance coverage, can be part or entirety of insurance

value.

Insurance Value:

Denoted as “V”

Value of the property on the same basis used in indemnifying losses,

usually cash value or replacement cost.

Replacement cost: Cost to fully repair or replace the property if it

must be reconstructed to purchase new.

The maximum amount of money insured can receive in case of total loss.

V = Value of Property + Necessary Costs

Need to buy insurance of necessary costs to be fully indemnified for

your losses in reality.

Relationship between A and V:

A ≤ V. You can only receive indemnity up to the insurance value to

prevent profitting from insurance.

A = V: Full insurance coverage for subject matter insured.

Q3: What is double insurance? Give examples?

Double insurance is the situation where the same risk is covered by two
overlapping but independant insurance policy.

It is lawful to obtain double insurance and insured can make claim to both
insurance companies in case of loss. However, insured can’t gain more than
total loss because insurer is lawbound to share only the actual loss.

Not many buy double insurance because you have to pay the premium twice.
However, it can still happen unintentionally or intentionally.

Example:

Both husband and wife unknowingly buy insurance for a car twice.

TMAE308 Q- Bảo hiểm 2

 A person buying insurance at as many place as possible to attempt to exploit
the system.

Q4: What is co-insurance & reinsurance? Give examples?

Co-insurance:

Insurance that is jointly held by two or more insurers.

Co-insurance happens when the insurer’s financial ability isn’t good enough,
thus the insured wants to divide the asset into multiple portions to insure at
another company.

Example: A has a car worth 600m. A buy insurance at 3 companies: X, Y, Z.

X’s coverage is 100m, Y’s coverage is 200, Z’s coverage is 300.

Reinsurance:

Practice when an insurance company transfer part of the risk to another

insurance company called the reinsurer.

When loss event occurs, the reinsurer will also pay the indemnity
proportional to the insurance received.

Reinsurance exists to reduce the burden on an insurance company and to

increase the flexibility in insurance market. If insurer has inadequete
financial ability, they can’t enter contract with insured.

In theory, insurer can transfer 100% of the risk to the re-insurer, but then
they will just become a broker.

If insurer goes bankrupt, in principle the insured can’t ask for compensation
from reinsurer since there is no contract between them, but law of all
countries allow them to claim from reinsurer as long as the term is stated
(Cut-Through Clause)

If reinsurer goes bankrupt and the premium transferred is high, insured can
ask for full compensation. However, insurer may have inadequete financial
ability and won’t be able to pay back in full.

Example: A has a car worth 600m. A buy insurance with full coverage at
insurer X. Insurer X then transfer 50% of the risk to the reinsurer Y.

Difference: Coinsurance and reinsurance

Co-: Insured signs multiple contracts with multiple insurers

TMAE308 Q- Bảo hiểm 3

 Re-: Insured signs one contract with the inusrer, then insurer signs a
contract with reinsurer.

Different: Coinsurance and double insurance:

Co-: There are no overlap.

W: There is overlap.

Q5: What is insurance premium? What factors affect the insurance premium?

Insurance Premium:

Payment the insurer receives from the insured as an agreement to transfer

the risk.

Premium is determined by the coverage of the insurance.

I = V (or A) * R.

Insurance rate (R) is a factor used to calculate the premium, changes based
on the probability of risk occuring.

Factors affecting insurance premium:

Scope of coverage of insurance:

Higher coverage means higher premium

Probability of event occuring:

Higher premium for more likely risk

Characteristics of subject-matter insured

Competition from other insurers:

Normally lower than competitors to attract customers

Q6: What is insurer, insured, subject-matter insured?

Insurer/Underwriter: Party agree to pay for the loss

Insured/Policyholder: Party whose risk is transferred to insurer

The buyer and the person receiving the compensation may not be the
same.

Subject-matter insured: The object being insured

Subject = property

Matter = life, liability

TMAE308 Q- Bảo hiểm 4

 Chapter 2
Q7: Analyze the principle of utmost good faith. Give examples?
A higher degree of trust is placed on both parties of an insurance contract
compared to other contracts.

Buyer should declare all material fact to the insurer before entering an insurance
policy. Material facts are information that are used by the insurer to determine
whether he will enter the contract, and if yes, to determine what the insurance
rate is going to be.
Example for material facts: Cars - age, brand, condition, owner’s information,
past incidents…

If the principle is breached, either through non-disclosure or misrepresentation

whether intentional or not, the insurer can refuse to indemnify the insured.
Example: A person stated he hasn’t visited a hospital in 5 years, but had surgery
6 months earlier.

Q8: Explain the following doctrines: Misrepresentation/Concealment/Warranty

Misrepresentation

Statements made by applicant of insurance that are false, material and

relied upon by the insurer.

Innocent misrepresentation, though unintentional, can make the contract

voidable.

Concealment

Failure of applicant to disclose a material fact to the inusrer.

Insurer needs to prove the concealed fact was material and the applicant
was trying to defraud the insurer to refute claim.

Warranty:

A statement made that becomes a part of the insurance contract ans is

guarateed by the maker of the statement to be true in all aspects.

Used in exchange for lower premium as it promises lower risk.

Q9: Analyze the principle of subrogation. Why is subrogation used?

Subrogation is the substitution of the insurer in place of the insured in order to
claim 3rd parties for a loss recovered by insurance.

TMAE308 Q- Bảo hiểm 5

 To perform subrogation, insurer needs a set of document that is usually given by
insured when they claim.
Insurer can choose not to exercise the right of subrogation.

Purpose:

Insured may find it hard to claim 3rd parties, and may require professional
service from the insurer.

To prevent the insured from claiming both the insurer and the 3rd party.

The recovery amount from subrogation is taken into account when

calculating insurance rate and can reduce the premium.

Q10: Analyze the principle of indemnity. Give examples?

The principle of indemnity states that under the insurance policy, 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 loss.
Purpose:

Prevent insured from profitting from insurance.

Prevent moral hazard.

Basic method to indemnifying the insured is based on actual cash value of the
damage at the time loss.

Applicability:

When the losses suffered by the insured can be measured in terms of

money.

It it practicable to place the insured in the same financial position which he

occupied before the loss.

Final Indemnity = Value of property + Necessary Costs

Example: Fire causes $1000 damage, takes $50 to put out fire. Indemnity will be
$1050.

Q11: How is actual cash value calculated? How does the concept of actual cash
value support the principle of indemnity?

Replacement cost less depreciation

TMAE308 Q- Bảo hiểm 6

 Replacement cost: Current cost of restoring the damaged property with new
materials of similar quality. Depreciation is the deduction for physical wear
and tear, age, and economic obsolescence.

Example: A sofa brought 5 years ago has been burnt in a fire. It is 50%
depreciated and a similar sofa today would cost $1000. Owner can collect
$500 from insurer.

Fair market value:

Price a willing buyer would pay a willing seller in a free market.

Sometimes more accurately reflects the value of the loss.

Example: Building valued at $170000 at time of construction has a market

value of $65000 due to poor neighborhood and bad location.

Broad evidence rule:

The determination of actual cash value should include all relevant factors an
expert would use to determine the value of a property.

Include: Replacement cost less depreciation, fair market value, opinion of

appraisers…

Actual cash value support the principle of indemnity, as it allows insurer to

accurately determine the loss and prevent them from over-compensating the
insured.

Q12: Analyze the principle of insurable interest. Why is an insurable interest

required in every insurance policy?

The principle of insurable interest states that the policyholder must be in a

position to lose financially when the covered loss event occurs in order to
receive indemnity from the insurer.
The insured need to have insured interest at the time the loss occurs.

No insurable interest at time of loss ⇒ Not allowed even if there is at time of

signing contract.

Purpose:

To prevent gambling contract

(Example: Buy insurance for someone else and hope for early death)

To prevent moral hazard

(Example: Buy insurance for someone else’s property and deliberately

TMAE308 Q- Bảo hiểm 7

 destroy it)

To measure the amount of the insured’s loss in property insurance.

(Loss payment not exceeding the amount of one’s insurable interest,
supporting the principle of indemnity).

Q13: Analyze the principle of “Insurance is a repayment of random loss”. Give

examples?

The timing or the occurance of the loss must be uncertain.

If the event is certain:

Probability for loss is 100%

Insured still get compensated and every insured also suffer loss
⇒ Insurance company won’t have enough funds due to the premium being
much smaller than the indemnity.

To fully service major claims, small claims are not covered. Only damage or loss
over the amount of the deductible is covered by the insurance policy.

Example: You can’t know your house is going to be destroyed ina week and still
get home owner’s insurance.

Chapter 3
Q14: What is marine insurance? Different types of marine insurance?
Marine insurance covers the loss or damage of ship, cargo, terminal and any
transport or property by which cargo is transferred, acquired, or held between
the points of orgin and final destination.
Types of marine insurance:

Marine Cargo Insurance

Insurance for cargo & reasonable costs

Hull Insurance
Insurance for hull, machinery, collision liability and reasonable costs

Protection & Indemnity Insurance

Cover shipowners against liabilities from third parties

Freight Insurance

TMAE308 Q- Bảo hiểm 8

 Q15-16: State different types of risks in marine insurance? State relatively
excepted risk and absolutely excepted risk in insurance?

Based on causes:

Acts of God: vile weather, lightning, tsunami, earthquake…

Perils of the sea: sinking, collision, striking upon the rocks…

Social-Political actions: War, SRCC

Particular action of people: theft, piracy, robbery

Other sources

Based on insurance techniques:

Insured Common Perils:

Risk that are normally insured in original insurance clauses

Main risk:

Stranding

When in consequence of accidental or unusual occurance, ship

comes in contact with the ground or other obstruction and
remain hard and fast upon it.

Requires external force to get off the stranding

Safety taking aground does not count as stranding

Sinking

Part of or the entire vessel has sunk underwater and remain

unoperable

Fire or explosion

Collision

Jettison

Throw part of cargo or gear of the vessel overboard to lighten

the load and save the vessel.

Different from other risks: Certain loss intentionally caused to

prevent total loss.

Order to jettison has to be reasonable.

Missing

TMAE308 Q- Bảo hiểm 9

 British: 3 times itinery (port of loading to port of destination),
3<months<6

Vietnam: 3 times itinery (lost contact to port of destination), >3

months, >6 if ship goes through a war zone

Auxiliary Risk: theft, piracy, heating, hooking, dampness, leakage, rain

Relatively Excluded Perils

Risks that are not included in standard insurance clauses

Include War and SRCC, independant from C, B, A. Need to buy at least

C to buy WR SRCC.

Separate because probability of risk occuring is low. If included by

default the premium will be higher, causing it to be less attractive.

Absolutely Excluded Perils

Risks that are not insured in any circumstances

Loss and damage caused by…

willful misconduct of the Assured

ordinary leakage, loss of volume or weight, wear and tear

insufficiency or unsuitability of packing and preparation

inherent vice or nature of the goods

proximately by delay even if caused by a risk insured against

insolvency or financial default of the owners, charterers or operators of

the vessel

use of any weapon of war employing nuclear or atomic fusion or fission

or other like reaction like radioativce force or matter.

Q17: Distinguish between particular average and general average?

Both PA and GA are used to describe partial loss (loss or damage to the goods
is only partial).

Particular Average:

Loss or damage of each insured interest individually due to acts of God or

perils of the sea without effect on other interests.

Insurer’s liability: Compensate for both the losses and reasonable cost
caused by PA. Reasonable costs are cost used for saving cargo or reducing

TMAE308 Q- Bảo hiểm 10

 its damaged measurement.

General Average

Loss or damage caused by special expenses and sacrifices that was made
intentionally and reasonably to save the vessel, cargo and freight from a
threat in common ocean voyage.

Insurer’s liability: Compensate for GA sacrifices, expenditures and

contribution to GA.

Q18: What is partial loss & total loss? Give examples.

Partial Loss:

Loss or damage to the goods is only partial.

Includes PA and GA.

PA: Loss or damage individually without effect on other interests

GA: Loss or damage caused by special expenses and sacrifice made

intentionally and reasonably to save all interests.

Example:
(PA) Ship striked a rock, damaged the hull by $5000 and got stranded.
(GA) To get the ship out of stranding, captain ordered the engine to be
overworked, breaking it.

Total loss:

The whole lot of the consignment has been lost or damaged or found
valueless.

Include ATL & CTL

ATL: Whole lot of consignment has been lost or damaged or found

valueless upon arrival at port of destination

CTL: Actual loss of insured goods is unavoidable upon arrival, or

ship/consignment has to be abandoned because the cost of recovery
would exceed the value or consignment in sound condition upon arrival.

Example:
(ATL) Ship sinking.
(CTL) During carriage of fruit, the cooling system broke. Some is still fresh
but the entire consignment will be unusable upon arrival at the port of
destination.

TMAE308 Q- Bảo hiểm 11

 (CTL) Old ship in severe damage after a collision, but repair is expensive
and exceed the value of the ship.

Q19: Distinguish between actual total loss and constructive total loss? Give
examples.

Actual Total Loss:

Whole lot of consignment has been lost or damaged or found valueless upon
arrival at port of destination

Example: Ship sinking.

Constructive Total Loss:

(1) Actual loss of insured goods is unavoidable upon arrival, or (2)

ship/consignment has to be abandoned because the cost of recovery would
exceed the value or consignment in sound condition upon arrival.

Example:
(1) During carriage of fruit, the cooling system broke. Some is still fresh but
the entire consignment will be unusable upon arrival at the port of
destination.
(2) Old ship in severe damage after a collision, but repair is expensive and
exceed the value of the ship.

With constructive total loss, goods are not lost right away. Insurer can find a
nearby ship that can take over the consignment. Insured can abandon the goods
to receive indemnity immediately as if total loss occured. Then, insurer can take
over the consignment and sell to a thrid party for more money.
A Notice of Abandonment can be used by the insured to give up all rights related
to the subject-matter insured to be fully compensated.

NOA is irrevocable.

NOA is unnecessary when the consignments have already reached final

destination and are in actual total loss.

If NOA is not accepted:

immediate compensation: receive money proportional to loss at that

moment

total compensation: wait until the ship arrives at port of destination.

Q20: What is general average? Characteristics?

TMAE308 Q- Bảo hiểm 12

 General average is special expenses and sacrifices made intentionally and
reasonably to save all interest on the ship (vessel, cargo, freight) from a threat in
common ocean voyage.

Characteristics:

loss must be voluntary

must be properly made (disposible goods are thrown away first)

must be extraordinary in nature (due to extreme conditions, not normal

conditions)

objective of sacrifice must be nothing other or less than the common safety
of ship and cargo

there must be imminent danger and the objective must be the attainment of
safety

loss must be the direct result or reasonably the consequence of the act
causing it

Q21: State the legal system that adjusts general average?

Legal systems:

York Rules 1864

York-Antwerp Rules 1924

York-Antwerp Rules 1950, 1974, 1990, 1994, 2004

Amendment of York-Antwerp Rules 2004:

Rule VI: Salvage renumeration is not included in GA expenditure

Rule XI: Wage and maintenance of masters, officers, crew while the vessel
is being repaired at the port of refuge is not included in GA. Fuels and stores
consumed will still be allowable expenses.

Rule XX: A commission of 2% on GA disimbursements is not included in GA

Rule XXI: Interest shall be allowed on expenditure, sacrifices and

allowances in GA until 3 months after date of issue of GA adjustment. Each
year the Assembly of the Comittee Maritime International shall decide the
rate of interest which shall apply. This rate shall be used for calculating
interest in the following calendar year.

TMAE308 Q- Bảo hiểm 13

 Rule XXIII: Limitation of claims: 1 year after the date GA adjustment was
issued or 6 years from the date of termination of common maritime
adventure. Can be extended if the parties so agree after the termination of
common martime adventure.

Q22: State content of general average? Responsibilities of related parties in a

general average case?
Content of GA:

GA Sacrifices: Properties used to save all interests

GA Expenditures: Consequent costs of GA act or expenditures concerning

GA act.

Salvage cost

Temporary repairs cost

Cost at port of refuge (docking, unloading, loading, warehousing, fuel)

Wage 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 of 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 3 months after the date of issue of
GA adjustment.

Liability of ship owner

Form GA notice

Arrange survey service to assess the measure of damage

Send average bond and average guarantee

(Bond to cargo owner, guarantee to insurer)

Arrange GA adjuster
(Independant party, responsible for calculating the responsibility of each
party in GA)

Form sea protest if applicable

(Protect ship owner and cargo owner from liabilities to loss and damage)

Liability of cargo owner:

Declare value of goods

TMAE308 Q- Bảo hiểm 14

 Receive average bond and guarantee

Q23: What is marine cargo insurance? What is the necessity of marine cargo
insurance?

Marine cargo insurance provides insurance cover in respect of loss of or

damage to goods during transit by rail, road, sea, or air

It should cover from seller’s premise to buyer’s premise (optional) or at

least from port to port.

Not only used for sea

Why cargo needs to be insured:

High probability of risk occuring in voyage

Slow speed ⇒ Higher chance of risk occuring

Carrier’s liability is very limited

Marine cargo insurance is a custom in international trade

Q24: State different types of marine cargo insurance policy?

Voyage policy: an insurance policy or insurance certificate for one shipment
from one port to another port
→ 1 policy for each shipment
Open cover policy: an agreement between a merchant and an insurance
company to insure all goods in transit within the agreement, until either party
cancel the agreement

Large export/import oriented industry usually prefer open cover agreement as

they have to make numerous regular shipment who would otherwise find it very
inconvenient to obtain insurance cover separately for each and every shipment
Total duration can be extended by notifying the insured and pay additional
premium.
→ 1 policy for numerous regular shipment
Valued policy: the insurance value is clearly defined in policy

suitable for short voyage and goods with unchanged value.

easier to calculate indemnity later on, but may not reflect the true price of
cargo if it fluctuates.

property insurance

TMAE308 Q- Bảo hiểm 15

 Unvalued policy: the insurance value is not defined in policy. The insured just
pays a deposit and the policy just regulates the rule to calculate insurance value
after a loss occurs

suitable for long voyage and goods with changeable value.

liability & personal insurance

Q25: Present legal issues related to marine cargo insurance in England and in
Vietnam?
ICC 1963:
+ FPA - Free from Particular Average

+ WA - With Particular Average

+ AR - All Risks
+ WR - War Risks

+ SRCC- Strike, Riot, and Civil Commotion

Evaluation:
Clause names can lead to misunderstanding, especially AR - All Risk.

ICC 1982:
+ C (minimum coverage)
+B

+ A (maximum coverage)
+ WR

+ SRCC
ICC 2005: Not used by many countries
Cargo Clauses of Vietnam: based on ICC, issued by Ministry of Finance

QTC 1965: FPA, WA, AR (no War SRCC)

QTC 1990: C, B, A

Evaluation:

No official document that accepts ICC

QTC coverage is exactly the same as ICC

TMAE308 Q- Bảo hiểm 16

 Q26-27-28: State content of insurance clause C-B-A, ICC 1982. What are
exclusions?

Clause C:

Stranding, sinking, fire, explosion, collision

Discharge at port of refuge/distress

Overturning or derailment of land conveyance during two sub-periods:

seller’s premise to port of loading

port of unloading to buyer’s premise

Sacrifice in and contribution to GA and reasonable expenditures

Jettison

Missing

Proportion of losses sustained by ship owners as is to be reimbursed by

cargo owners under the contract of affreightment “Both to Blame Collision”
Clause.

Clause B:

Earthquake, volcanic eruption, lightning

Washing overboard

Entry of sea, lake, river water into vessel, craft, hold, conveyance, container,
liftvan or place of storage

Total loss of any package loss overboard or dropped whilst loading onto or
unloading from vessel or craft.

Clause A:

Auxiliary risks: theft, rain-water, leakage, breakage, dampness, heating,

hooking, rusting, malicious damage (not by insured), piracy…

Can buy B or C + auxiliary risk, no need to buy full A.

War + SRCC

Independant from other 3 clauses

TMAE308 Q- Bảo hiểm 17

 Buy if want, otherwise excluded.

Has to buy at least C in order to buy war + SRCC insurance.

Exclusion:

loss or damage attributable to willful misconduct of the Assured

ordinary leakage, loss in weight or volume, wear and tear of subject-matter

insured

loss or damage caused by insufficiency or unsuitability of packing or

preparation of subject-matter insured

loss or damage caused by inherent vice of the subject-matter insured.

loss or damage proximately caused by delay, even if caused by a risk

insured against

loss or damage arising from insolvency or financial default of owners,

managers, charterers or operators of the vessel

loss or damage arising from unseaworthiness of vessel or craft

loss or damage 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.

loss or damage caused by deviation of the vessel

contraband

Q29: Analyze transit clause, ICC 1982.

“From Warehouse to Warehouse”

From the time the goods leave the warehouse or place of storage at the
place named herein from the commencement of transit

Continues during the ordinary course of transit

Terminate either:

On safely delivery to the final warehouse, or

On the expiry of 60 days after completion of discharge

Final warehouse:

Final warehouse owned or managed by the insured

Store other than in ordinary course of transit

TMAE308 Q- Bảo hiểm 18

 Store used for allocation and distribution

Store named in insurance policy.

Q30: What are auxiliary risks in marine insurance?

Auxiliary risk are unpopular and uncommon risks, including theft, entry of
rainwater, leakage, breakage, dampness, heating, hooking, piracy, rusting,
malicious damage (not by insured)
Auxiliary risk is included in Clause A ICC 1982. Buyer of insurance do not need
to buy insurance for every auxiliary risk and can only buy for a few risks.

Q31: State scope of coverage of war risk and SRCC risk, ICC 1982.
War Risk:
Coverage: loss or damage caused by

war, civil war, revolution, rebellion, insurrection or civil strife arising

therefrom, or any hostle act by or against a belligerent power

capture, seizure, arrest, restraint or detainment (piracy excepted) and the

consequence thereof

derelic mines, torpedoes, bombs or other derelict weapons of war

sacrifices, expenses and contribution to GA

Duration: From port to port

from when goods are loaded on board

to when goods are unloaded at port of destination or 15 days counting

from midnight of the day of arrival at port of destination

SRCC Risk:
Coverage: loss or damage caused by

strikers, locked-out workmen or persons taking part in labor disturbances,

riots or civil commotions

any terrorist or any person acting from a political motive.

sacrifices, expenses and contribution to GA

Duration: From warehouse to warehouse

(like usual)

TMAE308 Q- Bảo hiểm 19

 Q32: 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?
Under the excepted perils of Hague-Visby rules, carriers are not liable for loss or
damage to cargo on the vessel arising from nautical fault.
When two vessels collide, the cargo owner will ask the non-carrying vessel for
compensation. Non-carrying vessel will fully compensate for loss or damage to
the goods of the cargo owner.

Non-carrying vessel will ask the cargo vessel for money proportional to the fault
rate. This includes the compensation for the lost and damaged goods, which
goes against Hague-Visby excepted perils.
Cargo vessel will ask for this amount back from the cargo owner.

Q33: What is marine hull insurance? Subject/matter insured in marine hull

insurance?
Marine hull insurance covers material loss of or damage to hull and machinery, a
portion of costs for collision liability and other reasonable costs.

Subject-matter insured

Hull, machinery and equipment of the ship

3/4 collision liability with another ship

(RDC - Running Down Clause)

Liability for colliding with other objects other than normal ships
(FFO - Fixed or Floating Objects)

Fixed: Non-floating structure that is not designed to move or be moved

Floating: Structure other than ship which has buoyancy

Salvage cost and general average contributions.

Q34: What is the scope of coverage of ITC 1995?

Coverage:

1. Covers total loss of subject-matter insured caused by

perils of the seas, rivers, lakes or other navigable waters

fire, explosion

violent theft from person outside the vessel

TMAE308 Q- Bảo hiểm 20

 jettison

piracy

contact with land conveyance, dock or harbor equipment or installation

earthquake, volcanic eruption or lightning

accidents in loading, discharging or shifting cargo for fuel

2. Covers total loss of subject-matter insured caused by, provided such loss or
damage is not due to lack of due dilligence of the Assured, Owners,
Managers, Superintendents or any onshore management:

bursting of boilers, breakage of shafts, latent defect in machinery or hull

negligence of Master, Officers, Crew or Pilots

negligence of repairers or charterers provided such repairers or

charterers are not an Assured hereunder

barratry of Master, Officers or Crew

contact with aircraft, helicopters or similar objects, or objects falling

therefrom

3. GA

4. Pollution hazard

5. 3/4 of liability to other vessel in a collision accident

Q35: Explain responsibility of marine hull insurer in collision accident?

To insured vessel:

100% of loss or damage to ship or its machinery and equipment

To other vessel: 75% of:

loss or damage to ship or its machinery and equipment

loss or 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, salvage of or salvage under contract of any such other

vessel or property thereon

Total amount of compensation to other vessel does not excced 75% of

insurance amount of other vessel.

TMAE308 Q- Bảo hiểm 21

 Responsibility does not extend to any sum which the insured shall pay for or in
respect of:

Removal or disposal of obstructions, wrecks, cargoes or any other thing

whatsoever

Any real or personal property or thing whatsoever except other vessels or

property on other vessels

The cargo or other property on, or the engagements of the insured vessel

Loss of life, personal injury or illness.

Pollution or contamination of any real or personal property or thing

whatsoever

Q36: Explain responsibility of marine cargo insurer in collision accident?

If cargo owner has not received compensation from other vessel:

Loss/damage in collision accident

Proportion of liability under the contract of affreightment “Both to Blame

Collision” Clause

If cargo owner has received a portion of compensation from other vessel:

The remaining part of loss/damage in collision accident

Proportion of liability under the contract of affreightment “Both to Blame

Collision” Clause

Q37: What is P&I Insurance? History of P&I Insurance?

Protection & Indemnity Insurance:

Ship owner’s insurance cover for legal liabilities to third partites.

Third parties are any person other than the ship owner himself, who may
have a contractual or legal 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. Ship owners are members of such
clubs.

Legal liability is decided in accordance with the law of the country where an
accident takes place.

Contractual liability is agreed at the time the owner requrest insurance cover
from the club and is usually in accordance with the owner’s responsibility

TMAE308 Q- Bảo hiểm 22

 under crew contracts or special terms relating to the trading pattern of the
vessel.

History of P&I:

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 ship ownears 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

Q38: Principle of mutuality in P&I Insurance?

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.

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

Example:

TMAE308 Q- Bảo hiểm 23

 The club will refuse to provide guarantee, or decline the settlement of claim,
evencancel the insurance contracts in the case that the member fails to pay
his member fee in time

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

Q39: Scope of coverage of P&I Insurance in collision accident?

For insured vessel:

damage to cargo, people and other properties

For other vessel

1/4 of civil liability to other vessel

liability exceeded 3/4 of insurance amount of insured vessel

Q40: Scope of coverage of P&I Insurance?

Liability in collision accident

Liability for damage to cargo

Death and personal injury

Repatriation of sick or injured crew and hospital expenses

Loss of crew member’s personal belongings

Only cover items which are deemed to be reasonable for any crew member
to have with him on board.

Unusually expensive items should be insured separately.

Stowaways, refugess and persons saved at sea

Pollution (Fines & Clean up costs)

Wreck removal and obstruction

General average contribution

Fines, normally provided for:

Breach of immigration laws

TMAE308 Q- Bảo hiểm 24

 Inaccuracies in cargo documentation

Accidental pollution

Smuggling or infringement of customs law)

Chapter 4
Q41: What is the meaning of risk management?
Risk management is a process that identifies loss exposures faced by an
organization and selects the most appropriate technique for treating such
exposures.
Risk-Loss Exposure is any situation or circumstance in which a loss is possible,
regardless of whether a loss occurs.
One kind of exposure can have many measures, need to find out most suitable
method.

Q42: Objectives of risk management both before and after a loss occurs.
Before:

Prepare for potential losses in the most economical way

Cost of safety programs

Insurance premium paid

Cost associated with different techniques for handling loss

Reduction of anxiety

Certain loss exposure can cause greater worry and fear for risk manager
and key executives

Meeting legal obligations

Example: Govt regulations → firm need to install devices to dispose of

hazardous materials promptly

After:

Survival of the firm

After loss, firm can resume partial operations within some reasonable
time period

Continue operating

TMAE308 Q- Bảo hiểm 25

 To prevent firm from losing to other competitors

Stability of earnings

Continued growth of the firm

Minimize the effects that a loss will have on other persons and on society

Q43: Describe the steps in risk management process

1. Identify risk-loss exposures

Identify all major and minor loss exposures. It involves a painstaking
analysis of all potential losses:

Property

Liability

Business income

Human resources

Crime

Employee benefits

Foreign

Market reputation and public image

Failure to comply with laws and regulations

2. Analyze loss exposures

Estimate frequency and severity of loss.

Frequency: Probable number of loss that may occur within a time period

Severity: Probable size of loss that may occur

Loss exposure can then be ranked according to their relative importance.

Risk manager can select the most appropriate technique of combination of
techniques for handling such exposure.

3. Select appropriate technique for treating loss exposure

Risk control, risk financing or both.

Risk control:

Avoidance

Loss control: Duplication, separation, diversification

TMAE308 Q- Bảo hiểm 26

 Risk financing:

Retention

Non-insurance transfers

Insurance

4. Implementation and monitor

Announce policy, intergrate into departments and periodic review.

Q44: Identify the sources of information that a risk manager can use to identify
loss exposures.

Risk analysis questionnaires

Physical inspection

Flowcharts

Popular

Shows flow of production that can reveal bottlenecks where a loss can have
severe financial consequence 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 over time can be invaluable in

identifying major loss exposures.

Q45: What is the difference between maximum possible loss and maximum
probably loss? Give examples?
Maximum possible loss:

Worst loss that could happen to a firm during its lifetime

Assume that everything is lost or damaged

Maximum probable loss:

Worst loss that is likely to happen

Only items that will definitely be lost or damaged are counted.

Example:

TMAE308 Q- Bảo hiểm 27

 A flood can cause maximum $20 mil worth of damage, but in reality it is only
likely to cause $15 million damage.

$20.000.000 = maximum possible loss

$15.000.000 = maximum probable loss

Q46: Explain the meaning of risk control?

Risk control are techniques that evaluate potential losses and attempt to reduce
the frequency or severity of losses.

Risk control includes avoidance and loss control.

Q47: Explain and give example to risk-control techniques:

Avoidance, loss prevention, loss reduction

Avoidance:

Not performing the activity that carries risk.

May lose out on potential gains that accepting the risk would have allowed.

Example:

Not flying to avoid risk of plane being hijacked

Not going outside to avoid exposure to COVID-19

Loss prevention:

Performing activities that lowers the frequency of loss

Example:

Build houses out of fire-resistant materials to reduce risk of fire

Eat healthy diets to prevent obesity-related illness

Loss reduction:

Performing activities that lowers the severity of a loss after it occurs.

Example:

Installing a sprinkler system to prompty extinguish a fire

Q48: Explain and give example to risk-control techniques:

Duplication, separation, diversification
Duplication:

TMAE308 Q- Bảo hiểm 28

 Having back-up or copies of important documents or property available
when loss happens

Example: Back up in multiple computers, hard drives, internet cloud

services…; spare tires for cars in case one is flattened

Separation:

Dividing the assets exposed to loss to minimize the harm from a single event

Example: Store inventories in different warehouses

Diversification:

Reducing chance of loss by spreading the loss exposure across different

parties, securities or transactions

Example: Production company should have multiple suppliers instead of just

a few

Q49: Explain the meaning of risk financing?

Risk financing are techniques that provide for payment of losses after the event
occurs.

Risk financing includes retention, non-insurance transfers and insurance.

Q50: Explain and give example to risk financing techniques:

Retention, non-insurance transfers, insurance

Retention:

An individual or business firm takes responsibility for part or all of the losses
that can result from a given risk.

Active: Individual or business firm is consciously aware and deliberately plan

to retain.

Passive: Individual or business firm unknowingly retain risk due to

ignorance, indifference, laziness, failure to identify.

Example: Some don’t buy health insurance and prefer to pay with own
money.

Non-insurance transfer:

Methods other than insurance by which a pure risk and its potential financial
consequences are transferred to another party.

TMAE308 Q- Bảo hiểm 29

 Example: Risk of a defective product can be trasnferred to retailer by
purchasing a service contract, making the retailer liable for repairs.

Insurance:

Transfer of risk from one party to another upon payment of a fee called
premium.

Example: Marine cargo insurance

Q51: What condition should be fulfilled before retention is used in a risk

management program?

No other method of treatment is available

Insurance unwilling to cover for certain risk, or the coverage may be too
expensive

Non-insurance transfer is unavailable

Worst possible loss is not serious

Losses are fairly predictable

Estimate frequency and severity, if it falls within a certain range then it can
be paid out with firm’s income

Q52: Advantages and disadvantages of insurance in risk management

Advantages:

Firm will be indemnified after a loss occurs, can continue to operate with
minimum fluctuation in earnings

Reduced uncertainty, worry and fear, improving performance and

productivity

Insurers can provide valuable risk management services (risk control, loss
exposure analysis, claim adjusting)

Insurance premium are income-tax deductible as a business expense

Disadvantages:

High cost of premium & opportunity cost (with retention, premium could be
invested somewhere else until loss occurs)

Time and effort required to negociate insurance coverage

Less incentive for risk managers to implement loss-control measures

TMAE308 Q- Bảo hiểm 30

 Q53: Advantages and disadvantages of retention in risk management

Advantages:

Save of loss costs and expenses if actual losses and other risk management
expenses are less than buying insurance

Encourage loss prevention, due to the firm retaining the loss exposure.

Increase cash flow as funds that would go to insurer can be used

somewhere else if no loss happens.

Disadvantages:

Higher possible loss and expense

Possible higher tax: Insurance are income tax deductible, only the amount
paid out for losses are deductible in retention and not the funded reserve.

Q54: Advantages and disadvantanges of noninsurance transfer in risk

management
Advantage:

Risk manager can transfer some potential losses that are not commercially
insurable

Oftern cost less than insurance

Potential loss is shifted to someone else in a better position to exercise loss

control.

Disadvantage:

Transfer of loss may fail due to ambiguous contract language.

Still have to retain loss if the party to whom the loss is transferred to is
unable to pay.

Insurer may not give credit for transfers, insurance cost may not be reduced.

Q55: Benefits of risk management.

Enables a firm to attain its pre-loss and post-loss objectives more easily.

Cost of risk is reduced, which may increase company profits.

Since adverse financial impact of pure loss exposures is reduced, firm may
be able to implement programs that treat both pure and speculative loss
exposures

TMAE308 Q- Bảo hiểm 31

 Society also benefit since direct and indirect losses are decreased, reducing
pain and suffering.

Q56: Advantages and disadvantages of avoidance in risk management

Advantage:

Chance of loss is reduced to zero if loss exposure is never acquired

If existing loss exposure is abandoned, chance of loss is reduced or

eliminated.

Disadvantage:

Not all losses can be avoided

Not feasible or practical to avoid the exposure

Q57: Different types of pure risk/loss exposures, examples.

Property

Liability

Business income

Human resources

Crime

Employee benefits

Foreign

Market reputation and public image

Failure to comply with laws and regulations

TMAE308 Q- Bảo hiểm 32