Under what circumstance is an insurer entitled to make a profit following an insured loss?

An insurer is entitled to make a profit following an insured loss when the insured abandons the damaged property. This situation can occur particularly under certain types of insurance policies, such as property or maritime insurance. When the insured abandons the property, often the insurer can take possession of what remains of the property and determine its salvage value.

The insurer then has the opportunity to recover part of the loss by selling or using the abandoned property. In this case, the insurer may profit from the salvage value of the abandoned property after settling the claim with the insured. This highlights the principle of indemnity in insurance, where the goal is to restore the insured to their pre-loss financial position, and any abandonment grants the insurer further rights to the remaining asset.

The other options do not directly lead to a situation where the insurer is entitled to profit from an insured loss. Settling a claim typically involves compensating the insured without the insurer retaining any right to profit. Additional compensation to the claimant generally doesn’t affect the insurer's profitability, and additional expenses incurred by the insured do not provide the insurer with opportunities to profit following a loss.