According to Oxford's Dictionary, to insure means to arrange for compensation in the event of damage to or loss of property, in exchange of regular payments to a company. Coverage means, the extent to which something is covered. In German, Auto Insurance Coverage is called Ausmaß der Automobils versicherung. In Russian it is called Various packages of auto insurance are available. The coverage can be partial of full. It depends on the plan or policy. It is better to know about the coverage of any auto insurance before signing its agreement.

 

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REFERENCE TO ADMINISTRATIVE THEORIES:

Herbert Simon is known for his thoughts on decision making. In the context of our topic, a manager has to take decision about selection of appropriate plan of insurance considering the coverage of various risks. On the other hand, a manager of an insurance company has to take decision of assessment of risks.

Henry Fayol is known for his thoughts on the management process. Work of an Actuary, who evaluates the risk and accordingly fixes the rate of insurance premium, is an example of Planning. The planning is there on customer side also. When a vehicle owner accepts an insurance policy, he is also doing the Planning.

F. W. Taylor is known for his thoughts on Scientific Management. He gave emphasis to standardization and quality of machinery. In a transport company, automobiles are the machines. Insurance is a part of maintenance of machines. Secondly, Taylor gave importance to professional training. The professional training of insurance coverage is helpful to the employees of both companies viz. insurance company and transport company.

 

VARIOUS RISKS AND liABIliTIES:

THEFT: Theft is a common risk covered by an auto insurance policy. When this risk is covered by the insurance, the owner gets compensation when the vehicle gets stolen.

FIRE: As the name suggests, fire insurance cover is meant for the risk fire. Fire can occur as a consequence of an accident. Hence this risk is included in the list of coverage.

FLOOD: Heavy Rain and Flood can cause damage to automobile engine. Besides this, other parts also get damaged. But this is not a commonly experienced risk. Hence it is categorized separately.

TSUNAMI: Damages are similar to those of floods. Tsunami causes flooding due to large tides. This risk is related to location. There are certain areas, where chance of occurrence of Tsunami is more.

EARTHQUAKE: Earthquake results in fall of buildings, which can cause damage to vehicles. This risk depends on location of the vehicle. There are certain areas, where chance of occurrence of earthquake is more. Such areas are known as seismic regions.

RIOT: Riots cause great damage to the automobiles. Torching burning of automobiles is there in riots. This fire is considered as different from the accidental fire mentioned earlier.

ACT liABIliTY: This part is the liability towards third party. Vehicle owner doesn't get any compensation in this case. This type of insurance is somewhat like a tax which is compulsory. The rules and regulations differ from country to country.

COMPREHENSIVE: This type of insurance has whole and wider coverage. All the above mentioned risks are included in the comprehensive package. In addition to the above list, there are more items in the package. Different insurers have different offers.

LIMITATIONS AND RESTRICTIONS:

Whole vehicle is not covered by the insurance plan. In case of floods, plastic parts, tyres etc are not covered by the flood insurance. Same is the case with the other risks. It is better to know the covered and uncovered parts before accepting any insurance plan.

There are some restrictions on the insurance cover. Vehicle can not be used for racing and adventure activities. Also the vehicle can be rented out to have multiple users. There are separate insurance plans for such activities.

DEPRECIATION FACTOR:

As a vehicle becomes older, its price decreases due to depreciation. Insurance company considers this factor while making assessment of a vehicle. The value of vehicle is determined by deducting depreciation and then accordingly rate of insurance premium is fixed.

Even if an insurance plan has a full coverage, the compensation may be less than the original value due to the depreciation. Reason is simple. Old vehicle gets low price in the secondhand market. Older the vehicle, lesser the price. This is exactly opposite of the gold business. Price of gold is seen increasing. Old ornament fetches higher price as per current market rate of gold.

EVALUATION OF RISK:

Evaluation of insurable risk is the professional work of Actuaries. They are specialists of Financial Security Systems. Basic planning of an insurance company is done by the Actuary, who is the specialist finance manager of that organization.

Various risks are visualized and their probabilities are assessed. The various risks are listed above in the earlier section. Probability means possibility of occurrence of event of damage. If chance of occurrence is more, then the risk is higher. Hence in such a case, the Actuary recommends higher rate of premium. Risks of earthquake and tsunami depend on geographic region (seismic region). This factor is considered while doing evaluation.

The evaluation work is important as it affects profitability of the insurance company. The work should be done by precision. Customers should find an insurance plan attractive and economic. Actuaries list various risks and their values. The various risks become coverage areas, when an agent sells the insurance plan. Deep and detailed work of Actuaries results in wider coverage of auto insurance.

 

 

SUMMARY:

Different companies have different plans. The auto insurance coverage varies from company to company. Some companies also cover personal risk of driver by including damages due to accident. An insurance policy can be limited or comprehensive. The comprehensive insurance has wide coverage and it covers various risks such as theft, fire, flood, riot, act liability etc. Some risks like tsunami and earthquake are related to particular geographic regions (seismic regions). There are restrictions and limitations, which affect the compensation amount. Depreciation decreases the amount of compensation of old vehicles. Actuaries are the basic planners. They evaluate various risks. Various risks are the various coverage areas of auto insurance.