Course Code and Title: FINE3 Risk Management
Lesson Number: 11
Topic: Types of Insurances
Introduction:
This is a continuation of module about insurances. Identifying types of insurance will provide us a
better understanding in developing strategy in Risk Management Plan.
Learning Objectives:
1. Argue the types of insurance that helps minimize the effect of risks.
2. Differentiate the significance of each type of insurances.
3. Demonstrate ethical standards by being honest and respectful.
Pre-Assessment:
Enumerate five well known insurance companies in our country.
Lesson Presentation:
Types of Insurance:
There are many types of insurance which should be considered to reduce risks to your
organization, and in the case of unincorporated associations, risks to the committee
members personally. Various forms of insurance which could apply to your organization are
described below.
Workers’ Compensation
This is compulsory insurance required by all employers to cover injury, sickness, or death of
their employees regardless of whether the employer is negligent. Failure to take out workers'
compensation insurance will leave the organization open to any claims for compensation by
employees and subject to a fine. In addition, if your employee or contractor claims and
received payment from Workcover when you don't have a policy, Workcover has the right to
recover double your usual premium and one and a half times the amount paid to your
employee.
If your organization employs a self-employed contractor to perform work which does not
involve the supply of materials to you (such as a gardener or cleaner), it is compulsory for
your organization to take out Workcover insurance to cover that contractor. The premiums
are inexpensive, but the penalties for failure to comply are severe. Committee members are
not employees and are therefore not covered by Workcover.
Motor Vehicle Comprehensive
This insurance covers damage to your organization's vehicle and damage to other people's
property of any type, including vehicles. It covers theft, fire, legal costs and may cover towing
costs. These types of policies usually require the claimant to pay an excess on any claim. In
some circumstances the insurer will remove the excess in return for payment of a higher
premium.
Motor vehicle third party property, fire and theft - this is a cheaper type of insurance which
covers damage to other people's property, but only covers the insured's vehicle for fire and
theft. No cover is provided for damage to the insured's vehicle. If the insured's vehicle is
stolen and then later found in a damaged state, this type of insurance will not cover the cost
of repairs.
Building Insurance
This covers damage to structures owned by your organization. Policies may cover damage
caused by fire, storm, tempest, rainwater, lightning, and explosion, impact by vehicles,
animals or aircraft, earthquakes, riots, malicious acts and, if agreed, flood.
A policy usually covers only the depreciated value of the building insured at the time of loss.
This type of "indemnity" insurance will not cover the cost of replacement of the building and
for this reason, reinstatement or replacement insurance is recommended. Consider also
extending your building insurance policy to cover "extra costs of reinstatement", such as
costs of complying with the requirements of public authorities and "removal of debris" which
can be a costly exercise.
If your organization is underinsured, the "co-insurance" or "averaging" clause found in some
policies may operate to leave the insurer liable to compensate you for only a proportion of
your loss which may be a lesser figure than the underinsured figure contained in the policy.
Premium discounts can often be negotiated where firefighting equipment is installed in the
premiums and more generous discounts will usually apply where an automatic sprinkler
system is installed.
Contents Insurance
If your organization is leasing premises the landlord will usually be responsible for building
insurance, but this will not cover contents owned by your organization. Fixtures which have
been installed by your organization in the landlord's building and which remain the property
of your organization to remove when the premises are vacated, are not covered by the
landlord's building insurance. Contents should be insured against damage or destruction by
the same causes set out above in building insurance. The contents policy will also cover theft
and your organization should take care to identify whether the policy provides for indemnity,
in which case only the depreciated value of insured items will be paid, or for reinstatement or
replacement, in which case the new replacement cost will be paid.
Generalization:
Buying insurance is important as it ensures that you are financially secure to face any type of
problem in life, and this is why insurance is a very important part of financial planning. A
general insurance company offers insurance policies to secure health, travel, motor vehicle,
and home.
Activity/Evaluation:
What important assets of the organization should be insured? Enumerate according to
importance and briefly discuss why. (2 pts each – total 10 points)
1.
2.
3.
4.
5.
Reinforcement:
Group work for Risk Management Plan – Incorporate Insurance in your Risk Management
Plan – continuation.
ONLINE RESOURCES : Participant Guide – Risk Management
[Link]
Risk Management Introduction, Queensland
Government. [Link]
Organization and Management
[Link]