protectionchain INsurance solution

Insurance purpose

The main purpose of insurance is to provide a risk transfer mechanism by using a common pool in which each policyholder (the risk owner) must pay a premium equal to the level of risk.

The main purpose should include:
-      Risk Transfer Mechanism
-      Establish Common Pool
-      Equitable Premium

Insurance Principles

1. Insurable Interest

Insurable Interest is a legal right to insure, the financial interests of a legally known among the insured with subject matter of insurance.

Example: The house is insured because the house is owned by the insured.

Four main things that must be contained in the insurable interest:
a.    There must be objects, rights and soul that can be insured;
b.    Objects, rights and lives should be the object of insurance;
c.    Insured will benefit if the insurance object is not damaged, otherwise will suffer losses if the insurance object is damaged;
d.    There should be a legitimate legal relationship between the insured and insurer object.

 2. Utmost Good Faith

Sellers and buyers have the right to know the material fact relating to the binding of insurance and each party is obligated to provide clearly and accurately all facts in connection with the binding of insurance is requested or not.

Example: Mr. X will insure his car; Mr. X must provide a clear data about the car to the insurance company. The Company is obliged to pay claims in case of loss to the automobile owned by Mr. X according to the agreement in the policy.

3. Indemnity

This principle is to set the exact and sufficient compensation to restore the financial position of the insured after the loss, same as financial position prior to the event of loss occurred.

Example: Mr. X has a new home worth Rp.500 million, and insured in 2000. In 2005 the house went up in flames of fire. Because the condition of the house went up in flames then the insurance pays Rp.500 million worth. But when the construction is done, the home of Mr. X does not such as when insured in 2000 due to depreciation and inflation factors. Replacement of insurance is minimal prior to the loss.

Two ways of implementation of the compensation:
•      Cash Payment: this is mostly done by the insurer.
•      Repair: how is widely used in motor insurance.

Type of replacement:
·         Indemnity basis “Old for Old”
·         Reinstatement basis “New for Old”

4. Subrogation

The principle governing the right of the insurer, after giving compensation insured, to sue the party who caused the loss. Insured must submit its rights to the insurer, to claim from another party who caused the loss.

Example: Mr. X is involved in an automobile accident due to fault of third parties, and the insurance company to pay Rp.5 million as the cost of medical care caused by the accident. Mr. X then sue the person who caused the accident and obtain compensation Rp.5 million. Because insurance companies have a subrogation clause, then the insurer is entitled to demand the return of Rp.5 million as reimbursement claims have been paid.

5. Contribution

In case of property insurance coverage by more than one insurance company with the same property insured, the insurer is only obliged to pay compensation is prorated according to the responsibility according to a balanced comparison.

Example: Mr. X has the car insured for Rp.100 million to insurance company A as well as an Rp.100 million to the insurance company B. If the car was lost due to theft, with the principle of contribution, the insured may not obtain reimbursement of Rp.200 million (Rp.100 million from A + to Rp.100 million from insurance B).

6. Proximate Cause

Defined as the dominant cause, that is, when the occurrence of an event was preceded by a few factors or other causes, then considered as the cause of the incident was the cause of the closest.

Example: Mr. X has a Personal Accident Insurance and Mr. X has a heart disease. Mr. X falls in the bathroom and died. Insurance companies will see Mr. X main cause of death: because of a fall (Accident) or heart disease (Sickness). If due to fall (Accident) then claim can be processed, whereas if due to heart disease (Sickness) then the claim cannot be processed

7. Underinsurance

Object of insurance is defined as underinsurance, if the sum insured is lower than the actual value at the time of the loss occurred.
 
Example:
Mr. X insuring homes with a total of Rp.130 million
The market price of the house when insured is Rp.150 million
This means the condition of the sum insured under the policy is underinsurance. In the event of a claim then performed prorated.

Examples of claims:
Filed claims amounting to Rp 10 million
Then the calculation of compensation on claims Mr. X is:
= (Rp.130 million / Rp.150 million X Rp.10 million) = Rp.8.67 million

Basic Insurance

Insurance or coverage is an agreement between two or more parties, with which the insurer is binding to the insured, by accepting the insurance premium, to provide reimbursement to the insured for loss, damage or loss of expected benefits, or legal liability to third parties who may be suffered by the insured, arising from an event that is uncertain.