THE SCOPE OF INSURANCE

There are many business risks which can be insured against. A shopkeeper will usually also want to insure his shop window, if it is a large one, and companies exist which specialize in this branch of insurance. Merchants and manufacturers responsible for the dispatch, by railway, road, sea or air, of large consignments of goods will insure them against damage or loss while they are in transit. If the railway carries goods at “company’s risk”- the charge for which is higher than if the goods are sent at “owner’s risk”- this means that the railway itself is accepting responsibility for the goods arriving at their destination undamaged. Letters and parcels can be sent by registered post, and in this case it is the Post Office which takes responsibility for their safe arrival. In these last two instances the railway and the Post Office respectively are really acting as insurers.

Insurance against fire dates back more than a thousand years. The first company in England to undertake fire insurance was established in London in 1680. It is interesting to note that the early insurance companies operated their own fire brigades in order to try to reduce the damage for which they would have to pay compensation.

To receive compensation in the case of fire only to the value of the premises and goods which have been destroyed may not fully indemnify a trader for his loss. As a result of the fire he may be put out of business until he has acquired new premises and stock. To cover such contingencies, it is possible to insure against loss of profit as a result of fire. Those who own motor vehicles –ships and aircraft can insure them against damage or loss. In the case of motor vehicles the law compels the owner to insure against what is called ”third-party” claims. A third party is any person, other than the insurance company and the insured, who is involved in an accident. For example, a pedestrian who has been knocked down by a motor car might put in a claim against the driver for compensation for injury. In this case the pedestrian is the third party.

Under the Employers’ Liability and Workmen’s Compensation Acts an employee could bring a claim for compensation against his employer if he had suffered injury at work. If the injury was serious a court of law might award compensation to the extent of thousands of dollars. This, however, is now part of the Socso Scheme, but employers can take out insurance policies to cover themselves against at common law which might be brought by an employee who suffers injury while at work and can prove the accident was due to the employer’s negligence. An individual, too, can insure himself against accidents. Many people used to insure themselves before taking a journey by train, and many still do so when they are travelling by air.

Where employees have to handle large sums of money belonging to their employers there is always the risk of loss to the employer if an employee turns dishonest. This risk, too, can be insured against, and is know as Fidelity Guarantee insurance.

Another branch of insurance which is very useful to business is cover against bad debts. All firms sell goods on credit have to face the possibility that some of their customers will not pay what they owe. This is a relatively new from of insurance, although several attempts have been made in the past to provide this kind of cover for businessmen. It was not until the insured was asked to bear a portion of the risk himself that successful schemes were worked out and operated. It is now an expanding branch of insurance provided by the overseas insurance companies. In order to encourage the export trade, many United States import and export companies has taken insurance against the non-payment of debts by foreign import merchants. British exporters can insure against bad debts of this kind through the Exports Credit Department of the Board of Trade, which has opened offices for this purpose in a number of important cities in Great Britain as well as in London. The business is conducted in very much the same way as that of an insurance company, the exporter paying a premium according to the risk involved.

The terms of each item of insurance are set out in a policy, and it is very important, therefore, that the insured should read this carefully, as sometimes there are exceptional circumstances to which the insurance will not apply and of which the insured should be aware.

Some insurance companies undertake all kinds of insurance, although some specialize in life assurance and others in general insurance.

The volume of insurance business has increased enormously during the past fifty years or so the total assets of insurance companies during that period have increased by ten times and their premium income by twenty times.

There are many other risks besides those mentioned above which can be insured against. A society holding an outdoor function and having to incur heavy expenses in its preparation can insure against rain on the day of the event. The organisers of agricultural shows and athletic meetings often cover themselves against possible loss in this way. In the United States it is compulsory for banks to insure their deposits up to a certain amount. This is a very valuable safeguard for small investors, who suffered heavy losses from the many American bank failures of the 1930s. If you wish, you can even insure your holiday against rain!