A rainstorm has caused stock loss of $1,000,000. The insured, Whole Grain Store, has purchased Property All Risks insurance policies from two insurance companies.

The extracts of the two Property All Risks insurance policies are as follows:

Townsville Insurance Company Ltd.

-Subject matter of insurance: The building and Stock-in-trade. Sum insured: $45,000,000 (Building: $30,000,000 & Stock-in-trade: $15,000,000)

Farm Insurance Company Ltd.

-Subject matter of insurance: Stock-in-trade Sum insured: $ 10,000,000

Assume that the value-at-risk (VAR) of the stock-in-trade at the time of loss was:

Case (1) $10,000,000 Case (2) $25,000,000 Case (3) $30,000,000

i. 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. 11 marks

ii. What are the contributions to be made respectively by each insurer if the 'sum insured' method is used in 2(b)(i) above? Is there any problem created by the 'sum insured' approach? Show all the calculations

Answer rating: 100% (QA)

i Using the independent liability method we calculate the contributions to be made by each insurance company in each case Case 1 Townsville Insurance Company Ltd covers the entire stock loss of 100000... View the full answer