29/1/2008 - “Claims and Payments”

    Our life is full of uncertainties and we often worried about our future. Insurance is the solution to all our problems as it distributes the risk among many people. Many of you who had your insurance don’t know much about payment and claims. Here I am providing you some information about payment and claim.

  "Ex gratia" payments

     This is a payment out of grace or kindness, and not out of legal
obligation under contract. Sometimes policyholders have no legal right to a claim payment because the event causing loss or the property damaged or lost are out with the scope of the policy. Occasionally, however, where the decision on liability was a borderline one, there was some genuine oversight, hardship would be created, or the case involves a well-valued client or broker, a payment or part payment will be made to ensure the good name of the company.

   Such payments should be made sparingly as the insurer is in a sense a trustee of the common pool to be used for paying claims covered by the policy.

 However, the courts have sanctioned ex gratia payments, likening them to advertising (Taunton v. Royal Ins. Co., 1864).

                            Claims disputes

   It is inevitable that from time to time disputes regarding claims will arise between the insured and the insurer. These disputes can involve:
(a) the question of whether or not the insurer is liable at all; and/or (b) if so, how much that liability is.

     When such disagreements arise, the claimant is usually seen by a claims official or the independent loss adjuster, and in the vast majority of cases the matter can be negotiated or explained to the reasonable satisfaction of both parties. As a last resort in cases of dispute as to liability, the insured may sue the insurer in the courts, where a decision may be made.

                                        Arbitration

       Most property policies, but not those covering life, personal accident or liabilities, contain an arbitration condition which restricts the insured's basic right to go to law on a dispute regarding amount. In such circumstances if liability has been admitted, the case must be heard by an independent arbitrator.         

     Although the case will not be heard in court, nor by a magistrate or judge, the judgment is nevertheless legally binding on both parties, except in rare circumstances which usually involve malpractice regarding the handling of the hearing or in making the decision.

     Most policies incorporating an arbitration condition state that the procedure shall be in accordance with the legislation on the point. In England and Wales this is currently the Arbitration Act 1979 which allows for the parties to agree on a person to act as arbitrator, or if they cannot agree for the courts to appoint a suitable person. Insurers have deemed such a condition desirable on the following grounds:

 (a) Speed: court hearings may not be possible for many months, whereas, arbitration hearings can take place within a few weeks.

 (b) Expert judgment: where a dispute is about amount or value it is unlikely that a judge will be expert in this area, whereas the arbitrator agreed upon is likely to be an expert in the valuation of the type of property involved, and so a fairer judgment is likely.

 (c) Privacy: the hearing will be in private rather than open court and so the insurer is less likely to receive bad publicity in the press.

 (d) Cost: it is often argued that it will be less costly than a court hearing, but counsel will often be employed and the saving may not be great.

 In spite of the aforementioned advantages the system has one major drawback, and that is that the public at large do not trust arbitration and would much prefer to have a court decision. The procedure is seldom used in practice, possibly due to the excellent work done by loss adjusters in arranging amicable settlements in difficult cases, and perhaps to a lack of knowledge on the part of the general public that they can have recourse to such a hearing.

     Occasionally the insurers may waive their rights under the condition and allow the case to go to court, on the question of the legal interpretation of a certain word, e.g. value. In recent years there have been one or two cases which have gone to court on this point, and there may be more in the future, as inflation has created wide gaps between market value and reinstatement costs in building
assurances. This aspect is discussed more fully under "Indemnity" in Chapter Nine.

               The Insurance Ombudsman Bureau

 As an alternative to the arbitration condition, several insurers have joined a scheme whereby policyholders insuring in their personal capacity may have a dispute referred to an independent Ombudsman. Before using this scheme the policyholder must have exhausted the normal channels of negotiation at branch and senior company management level. The matter must be referred within six months of the disagreement and must not be in relation to actuarial matters

     This is a payment out of grace or kindness, and not out of legal Obligation under contract. Sometimes policyholders have no legal right to a claim Payment because the event causing loss or the property damaged or lost is out  with the scope of the policy. Occasionally, however, where the decision on liability was a borderline one, there was some genuine oversight, hardship would be created, or the case involves a well-valued client or broker, a payment or part payment will be made to ensure the good name of the company.

   Such payments should be made sparingly as the insurer is in a sense a trustee of the common pool to be used for paying claims covered by the policy.

   However, the courts have sanctioned ex gratia payments, likening them to advertising (Taunton v. Royal Ins. Co., 1864).

  Claims disputes

  It is inevitable that from time to time disputes regarding claims will arise between the insured and the insurer. These disputes can involve:
(a) The question of whether or not the insurer is liable at all; and/or (b) if so, how much that liability is.

    When such disagreements arise, the claimant is usually seen by a claims official or the independent loss adjuster, and in the vast majority of cases the matter can be negotiated or explained to the reasonable satisfaction of both parties. As a last resort in cases of dispute as to liability, the insured may sue the insurer in the courts, where a decision may be made.

   Arbitration

      Most property policies, but not those covering life, personal accident or Liabilities contain an arbitration condition which restricts the insured's basic right to go to law on a dispute regarding amount. In such circumstances if liability has been admitted, the case must be heard by an independent arbitrator. Although the case will not be heard in court, nor by a magistrate or judge, the judgment is nevertheless legally binding on both parties, except in rare circumstances which usually involve malpractice regarding the handling of the hearing or in making the decision.

 Most policies incorporating an arbitration condition state that the procedure shallbe in accordance with the legislation on the point. In England and Wales this is currently the Arbitration Act 1979 which allows for the parties to agree on a person to act as arbitrator, or if they cannot agree for the courts to appoint a suitable person. Insurers have deemed such a condition desirable on the

 following grounds:

 (a) Speed: court hearings may not be possible for many months, whereas,arbitration hearings can take place within a few weeks.

(b) Expert judgment: where a dispute is about amount or value it is unlikely that a judge will be expert in this area, whereas the arbitrator agreed upon is likely to be an expert in the valuation of the type of property involved, and so a fairer judgment is likely.

(c) Privacy: the hearing will be in private rather than open court and so the insurer is less likely to receive bad publicity in the press.

(d) Cost: it is often argued that it will be less costly than a court hearing, but counsel will often be employed and the saving may not be great.

   In spite of the aforementioned advantages the system has one major drawback,and that is that the public at large do not trust arbitration and would much prefer to have a court decision. The procedure is seldom used in practice, possibly due to the excellent work done by loss adjusters in arranging amicable settlements in difficult cases, and perhaps to a lack of knowledge on the part of the general public that they can have recourse to such a hearing. Occasionally the insurers may waive their rights under the condition and allow thecase to go to court, on the question of the legal interpretation of a certain word,
e.g. value. In recent years there have been one or two cases which have gone to court on this point, and there may be more in the future, as inflation has created wide gaps between market value and reinstatement costs in building assurances. This aspect is discussed more fully under "Indemnity" in Chapter Nine.

 The Insurance Ombudsman Bureau

 As an alternative to the arbitration condition, several insurers have joined a scheme whereby policyholders insuring in their personal capacity may have a dispute referred to an independent Ombudsman. Before using this scheme the policyholder must have exhausted the normal channels of negotiation at branch and senior company management level. The matter must be referred within six months of the disagreement and must not be in relation to actuarial matters

2/1/2008 - The Functions of Insurance

PRIMARY FUNCTIONS

The principal function of insurance is often expressed as spreading the losses of the few over the many. It is a means whereby the unfortunate personssuffering loss can be indemnified (see Chapter Nine) or compensated from the contributions of others exposed to the risk of similar losses. As the numbers of persons suffering a certain type of loss will be relatively few compared with the numbers at risk to that category of loss, the contribution falling on anyone individual or firm should be relatively light.

The level of compensation is either agreed when the contract is arranged, as in life and personal accident policies, or is a direct measure of the insured's loss, subject to the terms and conditions of the policy, as in fire, marine or motor policies.

Risk transfer

Insurance is a risk transfer mechanism, whereby the individual or the business enterprise can shift some of the uncertainty of life on to the shoulders of others. In return for a known premium, usually a very small amount compared with the potential loss, the cost of that loss can be transferred to an insurer. Without insurance, there would a great deal of uncertainty experienced by an individual or an enterprise, not only as to whether a loss would occur, but also as to what size it would be if it did occur.

For example, a house owner will realize that each year several hundred houses are damaged by fire. His uncertainty is whether in the coming year his house will be one of those damaged, and he is also un-certain whether, given that he will be one of the unlucky ones, his loss will amount to a hundred pounds or so for the redecoration of his kitchen or whether the house will be gutted and cost him thousands of pounds to repair. Even although the probability of his house becoming one of the loss statistics is extremely low, the average house owner will nevertheless elect to spend, say £25 to £30 on house insurance, rather than face the extremely remote possibility of losing a house worth

£20,000.

In the case of business enterprises, the values exposed to loss are usually much higher, but in addition the hazards inherent in their operations are often higher than those of the house owner, and so the premium charged is likely to be substantially higher than that for a house. Even in these circumstances the majority of firms prefer to pay a known cost or premium for the transfer of risk, rather than face the Uncertainty of carrying the risk of loss.

The common pool

In the previous chapter it was seen that in the early days of marine in- surance, the merchants agreed to make contributions to those suffering loss after the loss had taken place. This practice did not fully transfer the cost of uncertainty, it merely reduced it. A merchant undertaking a voyage would have the risk of a total loss removed from him, but the exact amount of his share of a loss could not be determined until after the event had taken place.

This state of affairs is not ideal and modern insurance practice fixes the insured's contributions (the premium) at the inception of the contract, so that he knows the full extent of his required share of losses for that year. It may, of course, vary in the light of the claims' costs for future years.

The insured's premium is received by the insurer into a fund or pool for that type of risk and the claims of those suffering losses are paid out of this pool. An insurance company will pay its motor claims out of the monies it has received from those insuring motor cars, and so on. Because of the large number of clients in any particular fund or pool the insurance company can predict, with reasonable accuracy, the amount of claims likely to be incurred in the coming year. There will be some variation in claims costs from year to year and the premiums include a small margin to build up a reserve upon which the company can draw in bad years. Therefore, subject to the limitations of the type of cover bought, the insured will not be required to make further contributions to the common pool after the loss.

Equitable contributions or premiums

Assuming that a risk mechanism has been set up through a common fund or pool, the third primary function is that the contributions paid into the fund should be fair to all the parties participating.

Each party wishing to insure will bring to the fund differing degrees of risk of loss to the fund. For example, a timber-built house presents a different hazard from that of one of standard brick construction; an 18year-old driver is more hazardous than one aged 35; two 35-year-old drivers, one with a family saloon and one with a high-powered sports car, present different hazards; someone gross.

19/12/2007 - THE INTER NATIONAL ROLE OF INSURANCE

INTERNATIONAL INSURANCE

So far, the emphasis has been firmly on the transaction of insurance within the United Kingdom. Passing reference has been made to foreign premiums when we discussed the balance of payments, but in the main we have concentrated on domestic insurance transactions.

What we must move on to look at finally is the international role which insurance plays. Britain has played a major role in the development of international insurance, in the main due to the strength and importance of London in terms of international finance and banking.

Since the start of international trading the need for insurance cover has related to risks external to national boundaries, although initially the insured was based in the country of origin of the venture and any cover required was arranged there. The risks to be insured related to goods and their means of transport. As trade developed, the trading nations established agencies and branches in foreign countries, and brought to these countries the customs of trade and commerce including insurance.

The London insurance market, although by no means the largest in premium income, is, however, the leading market of the world, and at this point it is appropriate to examine the reasons for its growth and Importance.

The development of international business

During the seventeenth, eighteenth, nineteenth and early part of the twentieth centuries Britain was a great trading nation, and various explorers and merchants opened up many countries. We saw earlier how these maritime ventures led to the establishment of Lloyd's. This was paralleled by the growth of insurance companies to cope with increasing losses, mainly through fire, in Britain. The expansion of marine insurance and other classes were complementary to each other, in that when trading companies established premises abroad they insured them in the same market which was used for their UK risks-London.

As nationals of the developing countries established businesses it was natural, in the first instance, for them to follow the lead of the early settlers and seek insurance in the London market. International trade required other help by way of finance and banking facilities, so that London developed as the leading centre for these facilities also.

The provision by Lloyd's of international news and information services was of considerable advantage to the traders and these services were expanded as a deliberate aid to their international insurance trade. We shall look later at the style or form which the development took, but the branch offices and subsidiary companies established abroad by British insurers gave this country a unique knowledge and expertise of insurance requirements and operations worldwide.

London had become a strong and developed centre for trade, banking, finance and insurance by 1800, and it was in the nineteenth century that the greatest expansion of international insurance took place. Before looking at this development, let us consider the advantages and disadvantages of an international insurance facility. London still survives as the leading world centre for insurance, in security, prestige and expertise if not in volume. One of the reasons for this is the manner in which British insurers met their liabilities abroad at the height of world expansion in insurance business when local companies failed. The Hamburg fire of 1842, the Chicago fire of 1869 and the San Francisco earthquake of 1906 saw the London market meeting its losses, while sectors of the German and American markets failed in the wake of these catastrophes. The reputation and security established at that time, and maintained since, have sustained our position as world leaders.

18/10/2007 - Collective Insurace Policies

Collective policies

Our discussions so far have been confined to policies issued by one insurer only. Sometimes, particularly in the case of industrial fire risks, the values at risk and/or the potential hazards are too great for one company to cover by itself. In these cases the broker will approach several companies in much the same manner as the Lloyd's broker approaches the underwriters in "the Room" (see Chapter Five). When he has obtained agreement from the companies to cover 100 per cent of

value, the leading office (usually the one carrying the highest percentage of cover) will carry out the survey and prepare the specification on behalf of all the insurers. Details of each company's share of the sums insured, first and renewal premiums, together with a copy of the specification are sent to them. If the following companies or co-insurers agree to the terms of the policy, they issue a "signing slip" to the leading office giving it authority to sign on their behalf.

The leading office will then prepare and sign a "collective policy" on behalf of all the insurers on the risk. This policy is identical to any other policy with three exceptions:

(a) there is no heading, i.e. the company's name and address does not appear on the front of the policy;

(b) wherever the word "company" would normally appear in the clauses, the word "insurers" is used;

(c) included in the policy is a page listing all the companies on risk with their percentages of the total amounts and their individual reference numbers. These numbers are usually the policy numbers they would have used if each had issued a policy, as a record sheet must be filed in their policy registers to complete their records.

 Endorsements

From time to time it is necessary to make alterations in the wording of a policy to take note of changes in sums insured, substitution of one item by another, etc. It would be costly and time-consuming to issue a new policy each time, so a sheet of paper called an endorsement slip is issued noting the alterations and any additional or return premiums involved. It usually shows the "future annual premium" or new renewal premium also. In the case of collective policies one endorsement is prepared on behalf of all the insurers by the leading office.

Many companies now issue a new schedule (see above) showing the up-to-date position, instead of an endorsement slip, particularly for policies which have several items or sections, and for motor vehicle policies.

Trends for the future

Much criticism has been levelled at the insurance industry over the years on the grounds that policies used language which the layman could not understand, and that there were many restrictive clauses in small print. Many of the criticisms were justified and attempts are being made to redesign policies. Some companies are issuing policies in booklet form instead of on foolscap or A4 paper. Most companies are printing a heading in bold type to each section of the policy and even to each condition. The layman can then see which part of the policy deals with exclusions or claims instead of having to read right through closely typed paragraphs which were only numbered.

The criticism about the form of language used is more difficult to overcome, as most of the phrases used have been interpreted by the courts at one time or another, and any change may again need a series of court cases to settle disputes on interpretation. However, several companies have made attempts to make their policies more intelligible to the layman and no doubt this trend will continue.

RULES OF CONSTRUCTION

The drafting of an insurance policy should be carried out with care as the document is the evidence of a legally binding contract. Rules of construction relate to the manner in which a contract should be construed.

Intention of the parties

The general rule in all contracts is that the intention of the parties to the contract should prevail, and this rule is also applied to insurance contracts. There is no legal requirement that the majority of contracts, including those relating to insurance, need be in writing. In other instances, however, there may be difficulty in knowing afterwards just what the intention of the parties was at inception. Insurance contracts are normally evidenced in writing by a policy so that the intention is normally much easier to establish.

Disputes do occasionally arise, usually about the meaning of a word, e.g. value. It is assumed that the policy expresses the views of both parties and the courts will interpret the policy accordingly.

10/10/2007 - Types Of Insurance

Types Of Insurance

The property insured

                      In most commercial policies the insured will require cover for buildings, machinery and plant, and stock. These are the three main headings Under which property is insured and in some cases a list of such items can run to many pages depending upon the size of the insured company.

Theft insurance

                     Theft policies have the same aim as the standard fire policy in that they intend to provide compensation to the insured in the event of loss of the property insured. The property to be insured, for a commercial venture, will be the same as under the fire policy except of course for the build¬ings. The theft policy will, in addition, show a more detailed definition of the stock. The reason for this is that fire is indiscriminate and a thief is not, so the insurers charge a greater premium for stock which is attractive to thieves.

The law relating to theft was brought up to date by the Theft Act 1968. This had an immediate impact on insurance companies as it defined the term "theft". The legal definition was wider than that which the companies were prepared to offer, especially for business premises, as the definition did not mention any need for there to be force and violence in committing a theft. This meant that shop-lifting, for example, was "theft" and this kind of risk had traditionally been uninsurable. To remedy the problem insurance companies included in their policies a phrase to the effect that theft, within the meaning of the policy, was to include force and violence either in breaking into or out of the premises of the insured.

All risks insurances

                       Uncertainty of loss is not restricted to events brought about by fire or theft, nor is it limited to events occurring on or about the insured's premises. This realization led, as we noted earlier, to the development of a wider form of cover known as "all risks". The term "all risks" is un¬fortunate in the sense that it does not provide cover against all risks as there are a number of exceptions, but it is an improvement on the scope of cover available.

Personal effects

                     All risks policies are very popular with individuals who seek a wider protection than that afforded by the policies available to cover household effects. The all risks policy can be taken out on particularly expensive items such as jewellery, cameras and fur coats, and can also be arranged on unspecified goods for a lump sum. The twin objectives of such policies are to provide cover for the whole range of accidental loss or damage and to do so wherever the goods themselves happen to be at the time of loss.

Business all risks

                    The use of all risks policies in the commercial sector is becoming more Popular as expensive and sophisticated pieces of machinery are introduced to the factory and the office. The advent of the microprocessor and the silicon chip means that comparatively small machines, often desk-top equipment, have replaced larger and bulkier apparatus. It is quite easy for a small desk-top computer to be

accidentally dropped or otherwise damaged.

Goods-in-transit

                    This form of cover provides compensation to the owner of goods if the goods are damaged or lost while in transit. Different policies can be taken out depending upon whether the goods are carried by a company's own vehicles or by a firm of carriers. In the same way the carrier can effect a policy as he is often responsible for the goods while they are in his custody. Most undertakings depend to a great extent on the carriage of goods by road and this form of cover is an important aspect

of industrial activity. (We have dealt with goods-in-transit insurance here under the head- ing of "Damage to property" although according to the latest classification of insurance business by statute it should be handled along with

motor, marine or aviation insurances.)

Contractors' all risks

                      This is one of the newer forms of insurance that has been developed to meet the changing needs of industry. When new buildings or civil engineering projects such as motorways or bridges are being constructed a great deal of money is invested before the work is finished. The risk is that the particular building or bridge may sustain severe damage and this would prolong the construction time and delay the eventual completion date. The risk is all the more acute as the completion date draws near and there are many examples of buildings and other projects sustaining severe damage, and even total destruction, only days before they were due to be handed over to the new owners.

8/9/2007 - Subrogation Rights Related To Indemnity

After the above discussion there is a need for you to know the ways in which subrogation may arise.

Meaning of subrogation

Subrogation occurs when an insurance company which pays its insured client for injuries and losses then sues the party which the injured person contends caused the damages to him/her.Subrogation rights arise in four ways. The rationale behind subrogation is the support of indemnity in order that a person should not recover from two or more sources in the event of him having been already indemnified by an insurer. What we will consider here are the ways in which insurers may find that they have the right to recover their outlays from some party other than the insured.

Right arising out of tort

The briefest definition of "tort" is that it is a civil wrong. Tort forms part of the common law of England and incorporates negligence, nuisance, trespass, defamation and other legal wrongs. Where the insured has sustained some damage, lost rights or incurred a liability due to the tortuous actions of some other person then his insurer, having indemnified him for his loss, is entitled to take action to recover the outlay from the trespasser or wrongdoer involved.

This arises in very many ways. A motorist driving negligently may strike and damage buildings, tradesmen may negligently leave factory doors open allowing thieves to steal some stock, a painter might drop ladders onto a machine and it could be damaged and production lost. In each of these cases the person suffering the loss could have had a policy to indemnify him-a household buildings policy, a theft policy and an engineering extraneous damage policy. In addition to the indemnity from his insurers the insured would have a right, in tort, against the motorist, tradesman and painter. The insurers assume these rights and attempt to recover their outlays from the appropriate party. Any action the insurers take is in the name of the insured and his permission would be sought if legal action was found to be necessary.

Another practical reason for seeking the insured's permission to take legal action is that he may well have an uninsured claim he wants to include. The law does not allow you to sue a person more than once arising out of the same event.

Right arising out of contract

One other part of the common law is contract. In relation to subrogation we are concerned with those cases (a) where a person has a contractual right to compensation regardless of fault and (b) where the custom of the trade to which the contract applies dictates that certain bailees are responsible, e.g. the hotel proprietor or common carrier. The insurers then assume the benefits of these rights.

Right arising out of statute

Under the Riot (Damages) Act 1886, where a person sustains damage mentioned in the Act and is indemnified, his insurers have a right in their own name to recover their outlays from the police authority.

Right's arising out of the subject matter of insurance

Where an insured has been indemnified in the case of a total loss he, cannot also claim the salvage as this would give him more than indemnity.

6/9/2007 - Value Added Tax

There is one important consideration which we have not taken into account. The price of most goods and services provided in this country is subject to a value added tax (VAT). The repair or replacement values will include, for most trades and commodities, regular VAT. For the private individual, very small traders (turnover under £17,500 per annum), and a few businesses which are "exempt rated", the indemnity value arrived at will be the correct one. In the case of the vast majority of commercial and industrial organizations which submit claims, the full cost of repairs will give them more than indemnity. The reason is that they can offset or recover any VAT paid by them against the VAT which they charge on the sale of their own product, and only pay Customs and Excise the difference. In settling claims in such cases we must deduct the amount of VAT on the repair costs, since they will be able to recover that amount from Customs and Excise. If VAT was not deducted they would be paid twice, once by the insurer and once by Customs and Excise.

4/9/2007 - Reinstatement

You would ask ‘What is Reinstallment?’. It refers to the method used in arriving at the amount payable in respect of a claim under a property policy covering buildings or machinery. The insured can request that his policy be subject to the "reinstatement memorandum" and as a result the method of settlement will provide the insured with an amount that has been calculated without deduction of wear, tear and depreciation. The insurers agree to pay the full cost or' the reinstatement at the time of reinstatement. This would mean that the settlement includes indemnity plus wear, tear and depreciation plus the effects of inflation between date of loss and eventual date of reinstatement. This is a very valuable cover as one can imagine. But the problems posed by betterment still exist, and insurers protect themselves by saying that they will reinstate to the position when new but that the property must not end up in a better or more extensive condition than when new. An element of contribution would be required from the insured in the event of the unavailability of exactly the same machine with available machines being better.

Reinstatement cover is not paid for by an increase in the rate percent but is paid for by the fact that the sum insured has to represent not less than the cost of reinstatement at the time of reinstatement. Sums insured will therefore be substantially higher on reinstatement policies than on indemnity contracts and consequently the premium paid will also be greater.

30/8/2007 - How To Assess Sum Assured

I have always been very curious as to what happens with the large amount of premium we have been paying to these insurance agencies. Are they following the standard rules or am I been cheated???? The article that I am giving here will help all those who are perplexed by the same question.

 A claim under a policy of indemnity has been said, to be a claim for unliquidated damages. This means that the exact amount of the compensation is not known before the loss occurs. This is clear in the case of damage to property, liability insurances and other non-life policies but in the case of life assurance and personal accident policies the amount of money to be paid in the event of a claim is, generally, a liquidated amount, i.e. is known before the claim takes place. The method by which indemnity is to be measured depends on the nature of the insurance involved and the main forms are considered below.

Property insurance

The general rule is that the measure of indemnity in respect of the loss of any property is determined not by its cost but by its value at the date, if the value has increased during the currency of the policy he assured is therefore entitled to an indemnity on the basis of the increased value, subject of course to policy limits such as sum insured or average. In assessing the amount of this value no allowance is to be made for loss of prospective profits or other consequential loss or for mere sentimental value.

These are very general guidelines and examples of their application in specific cases follow.

Buildings and machinery

 In the event of total destruction indemnity will be based on the estimated repair or replacement costs with a deduction for wear and tear and, if applicable, betterment. 

 Note: One practical consideration in today's world of fast-moving technological advances is that the same machine that was purchased five years ago is no longer manufactured, although an improved version is available. In such a case a compromise would have to be reached with the insured, possibly on guidance from the manufacturer, as to the value of any new features on the machine. In partial loss cases the cost of repairs is normally the measure of indemnity but again some consideration must be given to wear and tear and betterment.

Stock

 When stock is destroyed we must be careful to bear in mind that prospective profit from the sale of the stock is not to be included in any settlement. The insurers are concerned only with the property itself and will base their settlement on the purchase price of the stock, at the time of the loss, to the retailer or wholesaler who has suffered the loss and will add to that figure an amount in respect of any handling costs incurred to the date of the destruction or loss. In the case of farmers the marketing expenses saved by the loss of the stock must be deducted from any settlement.

Household goods

 The same considerations as with buildings and machinery apply but one added problem is often encountered where the insured attaches some sentimental value to a damaged or lost article. Sentiment is a subjective value, not capable of any objective measurement, and if the insured is to be placed in the same financial position after a loss then such a settlement must exclude any thoughts of sentiment.