Contribution is the right of an insurer to call upon others similarly, but not necessarily equally liable to the same insured to share the cost of an indemnity payment. This principle of contribution enables the total claim to be shared in a fair way. The doctrine of contribution operates as a corollary of the doctrine of Indemnity and hence is applicable in case of general insurance. As per the doctrine of contribution the indemnity provided for the loss occurring on the asset, which is insured with several insurers has to be proportionately shared among them according to the ratable proportion of the loss. The amount of total compensation or indemnity provided to the insured by all the insurers should not exceed the amount of loss. Sometimes when the value of the asset is very high the amount of risk involved is higher and that particular asset if insured by the company forms a significant portion of the total risk.
Mr. X has taken two health policies for 10,000 & 5,000 respectively from two insurance companies.
ReplyDeleteSuppose he has suffered as loss of 20,000, whether he is eligible to claim 15,000 from both the insurers or
he will be getting the highest sum insured of 10,000 from any one insurer or both the insurers together.
Mr X will get 10,000 from the first insurance company, 5000 from the second insurance company and the remaining 5000 he has to bear by himself.
DeleteWhen there are more than one insurance companies involved each insurer will.pay equal amounts until its policy limits are exhausted. The remaining insurers then continue to share equally in the remaining amount of the loss until each insurer has paid its policy limit in full or until the full amount of the loss is paid. This is called contribution by equal shares.
example:
ReplyDeleteMr.XYZ have a car for $ 10,000 USD
insured with an insurer A: $ 10,000 USD
and also a company car is insured to the insurer B Rp.100.000.000, -
If the car is lost due to theft, with the contribution of this principle, the insured may not get reimbursed $ 20,000 USD, - (from A $ .10.000 USD, + $ 10,000 insurance USDdari B).
When multiple insurance policies are covering the same property or loss, the Principle of contribution is implemented the total payment for actual loss is proportionally divided among all insurance companies.
ReplyDeletewhere insured take out money insurance with Insurer A for sum insured of $ 50,000 and Insured B with Sum Insured of $30,000. the loss occurred and proximted at $31,000. So how loss could be share between this two Insurance Companies?
ReplyDeletegreat information thanks for sharing.
ReplyDeleteNew India Health Insurance