Insurance

Question 3 (27 marks) a. What is contribution in insurance? In what circumstances does the right to contribution arise? 6 marks b. A fire has caused stock loss of $100,000. The insured, Blue Raspberry Group, has bought Property All Risks insurance policies from two insurance companies. The extracts of the two Property All Risks insurance policies are as follows: Farmland Insurance Co. Subject matter of insurance: Stock-in-trade Sum insured: $2,000,000 Harvest Insurance Co. Subject matter of insurance: Building and the Stock-in-trade Sum insured: $6,000,000 Building: $3,000,000 Stock-in-trade: $3,000,000 Assume that the value-at-risk (VAR) of the stock-in-trade at the time of loss was: (i) $2,000,000 (ii) $2,500,000 (iii) $5,000,000 (iv) $6,000,000 In each of the above cases, use the independent liability method to calculate the contributions to be made by each insurance company. Show all your calculations. 15 marks c. What are the contributions to be made respectively by each insurer if the 'sum insured' method is used in (b) above? Show all your calculations. From the insurers' perspective, what is the problem created by the sum insured' approach? 6 marks Question 3 (27 marks) a. What is contribution in insurance? In what circumstances does the right to contribution arise? 6 marks b. A fire has caused stock loss of $100,000. The insured, Blue Raspberry Group, has bought Property All Risks insurance policies from two insurance companies. The extracts of the two Property All Risks insurance policies are as follows: Farmland Insurance Co. Subject matter of insurance: Stock-in-trade Sum insured: $2,000,000 Harvest Insurance Co. Subject matter of insurance: Building and the Stock-in-trade Sum insured: $6,000,000 Building: $3,000,000 Stock-in-trade: $3,000,000 Assume that the value-at-risk (VAR) of the stock-in-trade at the time of loss was: (i) $2,000,000 (ii) $2,500,000 (iii) $5,000,000 (iv) $6,000,000 In each of the above cases, use the independent liability method to calculate the contributions to be made by each insurance company. Show all your calculations. 15 marks c. What are the contributions to be made respectively by each insurer if the 'sum insured' method is used in (b) above? Show all your calculations. From the insurers' perspective, what is the problem created by the sum insured' approach? 6 marks