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Domestic risks and insurance

Part A: Domestic risks and insurance

Task 1: Moving house

Explain the advice you will give to John and Anne about insurance cover for the risks of moving their contents.

(120 words)

I would advice John and Anne to have insurance cover for the risks of moving their content based on the following facts. First it has to be understood that even if they have an existing homeowner’s insurance in place that would never cover the damage or losses in transit and such mishaps are totally unforeseen. So having a transit insurance would help them to cover all such risks in transit like full value or separate liability protection while shifting from one place to another moreover we have already seen that John and Anne has quite a few very expensive items that would also get shipped from one house to another.

 

Task 2: Risk management

a. Excluding the risks associated with moving house, identify and evaluate the domestic property and liability risks that John and Anne face.

o complete a risk matrix (below):

 

 

High

Moderate Risk

High Risk

     

Low Probability

High Probability

     

High Severity

High Severity

   

Moderate

Mountain bikes

Paintings

     

Low Risk

Moderate Risk

     

Low Probability

High Probability

     

Low Severity

Low Severity

   

Low

Cars

skiing equipments

     

Low           Moderate

 
     

 

High

         
         

 

 

 

You are required to:

o justify your placings in the matrix.

The various domestic properties have been rated as per the risk matrix.The mountain bikes are under moderate risk because they have a low probability of getting damaged but in case they get damaged then the cost of such damage will be huge, similarly paintings are placed at high risk matrix because they are very much prone to get damaged and hence the severity of such damage is also very high, The Toyota car is at the low risk matrix because the probability of it getting damaged and the associated severity both are relatively less compared to other properties and finally the skiing equipments are at moderate risk zone having high probability of risk but the severity of such damage is low.

 

(400 words)

  • b. Identify one risk that could be retained. Give reasons for your answer.

The one risk that could be retained is the liability risk of holding the stock worth $ 80000 because the turnover is expected to grow faster leaving scopes for lesser stock in hand thus his risk quotient would also reduce drastically with such stock reduction.

 

(50 words)

Task 3: Recommending suitable domestic general insurance products

Recommend, with justification, the six general insurance policies John and Anne need to cover the risks you identified in Task 2 (a).

You are required to:

  • • assume John and Anne decide not to retain the risk you identified in Task 2 (b)
  • • state the six domestic general insurance policies that meet their needs
  • • briefly describe what each policy covers
  • • state the sum insured for each policy
  • • explain the type of cover (for example; replacement, indemnity, comprehensive) you are recommending

6

 

  • • explain any extensions, terms and conditions, limits, specified items or imposed terms that will apply (based on information provided in the case study).

 

(700 words)

The 6 general insurance policies that John and Anne need to cover the identified risks are as follows:

  1. Home & contents insurance: It would cover both the houses and the various contents like the valuable paintings, diamond rings and skiing equipments which are part of the content of the house. In addition this insurance should also cover the clauses of insurance against losses arising out of fire and theft. For theft the valuation of the paintings, diamond ring and skiing equipments should be declared in advance while making the insurances. The sum insured amounts to $1.6 million combined for both the houses. The theft and fire policy would be having a replacement clause against the items lost or damaged. This would help to cover the losses as well as would help to gain reimbursement of the losses that may arrive from such calamities like theft or fire and at the same time the entire property is secured against any man made or natural calamities which might damage the properties.
  2. Motor vehicle insurance: The Toyota car worth $ 35000, the mountain bikes having a total value of $21000 and the ZL van worth $39000 all would be covered under this insurance. Total sum insured would be $100000 for all the above vehicles. It would be a comprehensive policy. This would provide a full proof coverage against all the potential damages and losses that may occur related to the use of these motor vehicles.
  3. Business insurance: This is done to safeguard against any unforeseen losses arising out of the normal course of doing business. This would cover all clauses related to property damage, legal liabilities and any risks related to the staffs of the business. This type of insurance is done based on the probable risks which needs to be assessed beforehand to decide what all type of coverage it should include. This insurance is particularly important for smaller businesses as is done by John because in case of any such loss he would have to suffer greater personal loss financially. So a proper coverage of such risks would help John to run his business in a much hassle free manner because otherwise it would not have been possible for him to cover such risks arising out of his business activities on his personal capacity. The sum insured should be $ 100000. It would be a comprehensive policy.
  4. Compulsory third party insurance: This insurance would include the third party liability in case any accident occurs from the motor vehicles owned and used by John for his personal or business purposes. It would cover any liability arising from the death or injury of any third party caused by the vehicles registered in the name of John irrespective of whether the vehicle is being driven by John or by anyone else. It is also a compulsory insurance coverage to be taken as per the legislations of the country. This is a comprehensive policy having sum insured worth $ 100000.
  5. Boat insurance: The yacht is to be insured under the marine insurance policy. The yacht is an expensive item and needs protection against any damage when sailing or is in mooring. To be booked under comprehensive marine policy having a sum insured of $125000
  6. Public & product liability insurance: This is one of the most crucial and useful insurance coverage that John must take to safeguard his business activities. He is dealing with products related to sports and exercise equipments. Knowingly or unknowingly the use of such equipments might cause physical or any other types of damages to the end users. A proper public and product liability insurance coverage would help him to get cover against the injury or property damage by using such equipments even when they are not under the control of John after being supplied or sold to the end user. This insurance should also take care of the stock in hand and the office equipments. Would be taken as a comprehensive policy this would have a sum insured value of $125000.

 

Task 4: Comparing the cover offered by different providers

Select three of the policies you recommended in Task 3 – ensure that each one covers different risks. Choose two general insurance providers that offer these policies - ensure their products are underwritten by different insurers. Identify and explain the similarities and differences between the cover offered by the two providers in terms of the extensions, terms and conditions, limits, specified items or imposed terms you explained in Task 3.

You are required to:

  • • clearly state the name of each provider’s products and provide a URL link to the policy documents

The name of the 2 providers is NZI and AMI

Name of the policy and URL link to the policy documents are as follows:

 

 

NZI content insurance documents

https://www.nzi.co.nz/en/documents-forms.html?tagsMatch=all&df=asc&tags=nzi:documents-and-forms/category/nzi&tags=nzi:documents-and-forms/insurance/contents-insurance

NZI car insurance documents

https://www.nzi.co.nz/en/documents-forms.html?tagsMatch=all&df=asc&tags=nzi:documents-and-forms/category/nzi&tags=nzi:documents-and-forms/insurance/car-insurance

NZI boat insurance documents

https://www.nzi.co.nz/en/documents-forms.html?tagsMatch=all&df=asc&tags=nzi:documents-and-forms/category/nzi&tags=nzi:documents-and-forms/insurance/boat-insurance

 

AMI content insurance documents

https://www.ami.co.nz/contents-insurance

AMI car insurance documents

https://www.ami.co.nz/car-insurance

AMI boat insurance documents

https://www.ami.co.nz/boat-insurance

 

  • for each of the three policies, identify and explain two similarities and/or differences in cover between each provider’s policies

Similarities between content policies of NZI and AMI are as follows:

  • Liability for injury or damage is covered under both the policies which cover the legal liabilities in case someone gets injured or their property is damaged in home of the policy holder.
  • Jewellery and watch coverage including multiple and unspecified items of jewellery and watches.

Difference in cover in content insurance is that:

  • AMI offers coverage on illegal use of debit and credit card which NZI does not cover.
  • NZI offers coverage on lifestyle block contents and professional tools including equipments of trade, plant and machinery, seed, grain and baled hay at lifestyle block which is covered by NZI which AMI does not offer in their content coverage.

Similarities between Car policies of NZI and AMI are as follows:

  • Both of them cover claims out of accidental damage to cars
  • Both of them cover cost of towing after an accident

Differences between Car policies of NZI and AMI are as follows:

  • NZI covers the option to choose any licensed repair as per the wish of the policy holder which AMI does not cover.
  • Young drivers under the age of 25 years are covered under AMI but the same option is not available with NZI.

Similarities between boat policies of NZI and AMI are as follows:

  • Both cover legal liabilities to others covering property damage, death and injury.
  • Both covers while towing the water skiers and other boats

Differences between boat policies of NZI and AMI are as follows:

  • AMI covers yachts while racing which NZI do not offer in their coverage plans.
  • AMI offers to cover up to 50 km off shore in New Zealand coastal waters while no such coverage is provided by NZI.

 

select each of the following areas at least once across your range of products: o standard cover

Both have standard coverage of liability covers

o automatic benefits/extensions

Both range of products cover accidental breakage in case of their respective products related to home and content, both covers racing cover for boat insurance and approved legal loss arising out of a covered loss in case of car insurance.

o scope/flexibility of cover (as determined by the policy terms and conditions, limits or specified items)

Covering motor burnout for home and content insurance, covering water skiing for boat insurance and cost of choosing any licensed repairer in car insurance.

o excesses.

Adjustable Excess, Option to increase the insurer’s excess which may reduce his premium in case of NZI.

 In case of AMI is a one-off amount that the insurer needs to pay each time he makes a claim. Let’s say his excess is $500 but a repair job for a dinged-door only costs $350 – that cost is up to him. Any repair work that will cost above $500 is covered by AMI.

(300 words)

 

 

 

 

 

 

Task 5: Choosing a provider

Recommend, with justification, which of the two providers’ products you discussed in Task 4 is the most suitable for John and Anne.

You are required to:

  • • justify your choice in terms of the features and benefits you discussed in Task 4 and at least two other relevant factors.

I would recommend AMI based on the better offerings in terms of standard covers, automatic benefits, flexibility of cover and excesses in all the 3 segments of house and content insurance, car insurance and boat insurance along with easy documentation and a very user friendly claim settlement process.

(100 words)

Task 6: Policy ownership

For each of the six policies you recommended in Task 3, recommend the most suitable policy ownership structure and accurately state how the policy owner and any interested parties will be shown on the policy schedule.

(100 words)  

For all the six policies that have been recommended the policy ownership structure should be on self ownership basis. The insurer himself has to pay the premium so that the insurable interest between the 2 parties is properly established. Other than the insurer his nominee name will be shown in the policy schedule.

 

 

 

 

 

 

Part B: Business risks and insurance

Task 1: Risk management

a. Identify and evaluate the business property and liability risks John faces. o complete a risk matrix (below):

 

 

 

High

Moderate Risk

High Risk

     

Low Probability

High Probability

     

High Severity

High Severity

   

Moderate

Contingency Fund

Operating expense

     

Low Risk

Moderate Risk

     

Low Probability

High Probability

     

Low Severity

Low Severity

   

Low

Leased office

Stock

     

       Moderate

Low                     

                                 High

     

 
         
         
         

 

o justify your placings in the matrix.

Contingency fund has been shown under moderate risk because although his contingency provision is very low compared to his turnover and assets but still there is a low probability that he would need the fund in near future but if it is required then it will definitely fall short of the required amount causing severe impact.

His operating expenses are at high risk zone because they are eroding his profit. He needs to control his operating expenses to maximize his profit margin.

Among his business property his leased office is at low risk zone because he has just shifted to his new office and business is on the rise.

His stocks are again at moderate risk zone because although the volume of his stocks are high but considering the boom in his business the stocks are supposed to be cleared fast.

 

 

 

You are required to:

(250 words)

b. Based on information provided in the case study, evaluate, with justification, John’s business risk tolerance and business risk capacity.

o rate John’s business risk tolerance (for example; high, moderate, low)

John’s business risk tolerance is moderate at present because he is holding a fair volume of stock on the assumption that his business will have a fast turnover of stocks but only when the market will dip we will get to know how he reacts then.

o rate John’s business risk capacity (for example; high, moderate, low)

John’s business risk capacity is high because he is adding more money to his business investments.

 

 

o give example from the case study to support your assessment of John’s business risk tolerance

John’s business risk tolerance is moderate because now when his business is growing he is holding stocks worth $80K but only when the market goes down we will be able to know how he reacts then.

o give example from the case study to support your assessment of John’s business risk capacity.

John is having a high business risk capacity because he is constantly adding to the money to his investments in form of new office, office equipments and stock.

 

 

You are required to:

(50 words)

Task 2: Recommending suitable business general insurance products

Recommend, with justification, the six business insurance policies John needs to cover the risks you identified in Task 1.

You are required to:

  • • state the six business general insurance policies that meet John’s needs

            Six business general insurance policies to meet John’s needs are as follows:

  1. Public and product liability
  2. Product recall
  3. Professional indemnity
  4. Car
  5. Home and contents
  6. Compulsory Third party
  • • briefly describe what each policy covers
  1. Public and product liability: A public and product liability insurance would cover          against the injury or property damage by using such equipments even when they are not            under the direct control of the seller after being supplied or sold to the end user.
  2. Product recall: This would cover the expenses related to recalling a product from the      market. This would help to cover various expenses related to shipping or disposal.
  3. Professional indemnity: To cover the legal expenses if any legal suit is filed against the insured for providing inadequate product or service to the end user.
  4. Car insurance: To provide cover for loss or damage to any vehicle like car.
  5. Home and contents: It would cover the various contents of the business like office          equipments and the stock in hand.
  6. Compulsory Third party: This insurance will cover the compensation expenses for        injured or killed people when the vehicle of the insured is involved in it.

 

 

 

 

(150 words)

 

 

 

Task 3: Required information for underwriting 8

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The Open Polytechnic of New Zealand

 

 

The underwriter requires a range of information about John’s business in order to assess the risk to the insurer. For each of the six policies you recommended in Task 2, identify and explain one piece of information you will need to collect from John for underwriting purposes.

You are required to:

  • • identify six different pieces of information

The 6 different pieces of information are as follows:

Public and product liability: Feedback about the sports equipments sold by John

Product recall: feedback about the segment of sports equipments business

Professional indemnity: Information about post sales service provided by John

Car insurance: Frequency of using the car

Home and contents: Information on value of the contents

Compulsory Third party: Information on past accidents if any and car condition

  • • give reasons why the underwriter needs each piece of information

Feedback about the sports equipments sold by John: Whether any user got injured by using such products sold by John or not.

Feedback about the segment of sports equipments business: What is the trend of product recall in the sports equipment segment.

Information about post sales service provided by John: Do John and his sports equipment company provide sufficient post sales service to address any post sales complaints.

Frequency of using the car: To determine the wear and tear of the car for assessing its depreciated value.

Information on value of the contents: So that an estimate can be made for provisioning of coverage amount.

Information on past accidents if any and car condition: Any past history of car accidents in past and how well maintained the car is.

  • • For each piece of information, explain the potential impact on the terms, conditions and price of cover.
  • Whether any user got injured by using such products sold by John or not: If the answer is zero or very less then conditions will be lenient and price would be less as scope of claim is very less.
  • What is the trend of product recall in the sports equipment segment: For a low trend the terms and conditions will be favorable and price of cover will be less.
  • Information about post sales service provided by John: A good post sales service would have less scope of claims or else the premium would go up.
  • Frequency of using the car: High wear and tear will have more depreciation and premium will be charged higher
  • Information on value of the contents: If the items are very costly then premium to be priced considering the coverage amount.
  • Information on past accidents if any and car condition: To provide the maximum coverage because this is a compulsory clause and hence price will be also on a bit moderate side.

 

(200 words)

 

 

Task 4: Policy ownership

For each of the six policies you recommended in Task 2, recommend the most suitable policy ownership structure and accurately state how the policy owner will be shown on the policy schedule.

For all the six policies that have been recommended the policy ownership structure should be on self ownership basis. The insurer himself has to pay the premium so that the insurable interest between the 2 parties is properly established. Other than the insurer his nominee name will be shown in the policy schedule.

 

Part C: Application, policy review and claims

Task 1: Applying for insurance

a. Explain the process you would follow to obtain a quote and then ensure the required insurance is in place for John and Anne.

 

(300 words)

The process to obtain a quote is as follows. We would consider that no single company is giving the lowest offers so we will approach all insurance companies including the big names and the local insurers as well. For every product we must tell them to mention the discounts in clear terms and ask for a comprehensive policy quote only and can increase mu deductibles. So after analyzing all the quotes final decision would be taken.

 

 

b. Explain the purpose of the declaration and consent section of the application form.

The insurance declaration page is most vital because it narrates the main coverage to explain how a claim will be paid and also states the limits set for each section of the policy and the premiums charged for that specific policy. The consent section is actually the place where the customer agrees to allow using all information provided by him for checking about his credit worthiness.

 

(100 words)

c. Explain why a certificate of currency may be required in this situation, and describe the information it provides.

A certificate of currency confirms that the insurance policy is correct and provides all the correct details about the sum insured, the type of the policy and the validity of the policy. It provides current information at the time and day when the request is made.

 

(100 words)

 

Task 2: Policy review

Identify four changes in the West’s domestic circumstances and four changes in their business circumstances that would trigger a review, and determine the action to be taken in each case regarding their insurance cover.

The four changes in West’s domestic circumstances are as follows;

  • They move to a better locality in a new house: need for higher coverage of house and contents
  • Renting out their old house at a very good weekly rate of $ 520: Third party liability to be covered
  • Took loan from XYC bank for both the properties: Must take a consumer credit coverage for emergency situations
  • Made a trust in their name for managing their rental property: Insurance of this property to be assigned to this trust.

 

The four changes in West’s business circumstances are as follows;

  • Shifting from home to leased office: need for higher coverage of house and contents
  • New employee hired in his business: Workers' Compensation coverage to be taken
  • Maintaining a high stock of $ 80K: Must opt for product recall coverage
  • Having office equipment worth $20k:  need for higher coverage of house and contents

 

 

(400 words)

Task 3: Claims

  1.  

(i) Help Anne lodge her claim.

You are required to:

• Explain four key actions you would undertake to help Anne lodge her claim. (100 words)

The four key actions are as follows:

  • call the insurance company to know the time limit for filling the claim and bill      submission
  • Also know the time taken to resolve the claim
  • Make an estimate of the damage
  • Keep all documents related to the insurance ready.

 

(ii) Assess Anne’s claim. You are required to:

Identify and explain the type of damage that has occurred.

It is a water damage that has been caused due to leakage in pipe for a considerable period of time. As per the primary investigation it is the outcome of a gradual leak and has caused the swelling of the vanity cabinet and damage to the particle board.

• Discuss the circumstances in which, given the type of damage, her claim will be accepted and which costs will be covered.

In the given circumstances and considering the type of her damage her claim would be accepted only if it can be shown as the outcome of a sudden and unexpected water damage resulting out of any plumbing fault or broken water pipe. In that case she can get the dwelling coverage that would cover her cost of repairing the damage to her home done by such water leakage or else if she is having personal property coverage then she would get paid for the damages to her belongings that took place due to such covered risks.

 

• Discuss the circumstances in which, given the type of damage, her claim will be declined.

In most home owners policy water damage due to unforeseen plumbing fault or broken pipe are covered but in this case primary investigation states that this leakage was a gradual one which was happening for a considerable period of time and such slow, constant leaks are generally not covered under insurance policies. So considering the type of her damage there is high probability that her claim will be declined.

 

(350 words)

b. 18 months after taking out insurance, John’s office is broken into and equipment and stock is stolen along with a significant degree of malicious damage at his leased business premises. He lodges a claim with the insurer, who is a member of the Insurance Council of New Zealand. Because the circumstances are suspicious, the insurer appoints a loss adjuster. This delays assessing the claim and the insurer is unable to determine whether or not to accept the claim within 10 business days.

(i) Detail activities that the loss adjuster may carry out in this situation.

Four activities that the loss adjuster may carry out in this situation are as follows:

  • To check that all conditions and approval in the policy have been met
  • To check that the damage or loss of the property are well within the policy terms
  • To check that the claim amount is within the permissible limits
  • To check that all the items on whom claims are made are valid under the coverage

(ii) Explain the insurer’s obligations under the Fair Insurance Code regarding the delay in determining whether or not to accept the claim.

As per the insurer’s obligations under the fair Insurance Code regarding the delay in determining whether or not to accept the claim the insurer needs to do the following because owing to the complex nature of the claim the decision of whether to accept or not accept the claim within 10 days is not possible so they will explain the reason for such delay to the client and inform him that how long it will take to decide about the fate of the claim and will keep on updating the client at least once in every 20 days or they can mutually set up a time frame for informing the client about the progress of the claim.

(iii) Records show that John hadn’t ensured the security system was fully functional and operating at the time he closed the office. It transpires that the alarm hasn’t ever functioned properly since he moved into the premises. John acknowledges this oversight. He had been extremely busy and never got around to getting a technician in to fix it. Will this affect his claim? Support your decision with reference to the insured’s duty of disclosure, the Fair Insurance Code and the Insurance Law Reform Act 1977.

 

Yes this will affect his claim because as per the insured’s duty of disclosure the insured must disclose all information, facts or circumstances to the insurer which are material to the risk and has to be provided even before entering into     the contract of insurance which was not done in this case by John during the time of taking the insurance. As per the fair insurance code if the insured has failed to report any material information that might affect the validity of a claim because material information is of paramount importance to influence the decision about what should be covered and on what terms, in case such undisclosed information might impact the decision of the insurer regarding the terms of the insurance then the insurance company reject the claim partially or fully or may even cancel the entire insurance policy with effect from the date of inception of the policy.

However as per the Insurance law Reform Act 1977 there are certain exclusions under 3 section 11 of the said act. It says that even for not disclosing such material facts the claim cannot be rejected on the ground that the breach of such a warranty could not have aggravated the risk of the event would have happened anyway irrespective of whether the material information would have been disclosed or not. So under this clause this claim can be passed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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