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KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING

CMS101:INTRODUCTION TO INSURANCE

DR
...
OGUTU

OVERVIEW
The study of introduction to insurance has a vital role in explaining and conveying the
underlying principles of conducting insurance business
...
It is in itself an investment
...

This module consists of nine lessons
...
There are a number of questions and activities for selftesting at the end of every lesson, to boost the learning process
...
Lesson two covers the functions of insurance
...
Lesson four entails the
practice of general insurance including the demand and supply of insurance in the market
...
Lesson six
covers five insurance and policy drafting
...
Lesson eight is on motor
insurance, including the policies covered
...


ii

Table Of Contents
LESSON 1
...
1
1
...
1
1
...
2
1
...
2 Insurance: Nature And Sources Of Risks
...
3
...
4
1
...
4 Classification Of Risk
...
6
1
...
8 Risk And Economic Burden
...
4 Types Of Preventive And Protective Efforts
...
5 Insurer And Prevention Of Risk
...
6 Risk Management
...
7 Principles Of Risk Management
...
8 Future Of Risk Management
...
29
Functions Of Insurance
...
0 Introduction
...
2 Definitions Of Insurance
...
3 Functions Of Insurance
...
3
...
31
2
...
1
...
37
LESSON 3
...
41
3
...
41
3
...
41
3
...
42
3
...
0 Utmost Good Faith
...
1
...
44
3
...
3 Indemnity
...
1
...
49
3
...
5 Proximate Cause
...
60
Practice Of General Insurance
...
0 Introduction
...
1 Objectives
...
2 The Insurance Market Structure
...
3 Price Elasticity Of Demand For Insruance
...
4 Income Elasticity Of Demand For Insurance
...
0 Introduction
...
2 Fire Policy Drafting
...
5 Types Of Life Insurance Offered In Kenya
...
71
5
...
72
5
...
73
Common Diseases
...
75
Fire Insurance
...
1 Introduction
...
2 Objectives
...
3 Fire Policy Drafting
...
5 Standard Contract Or Policy
...
80
LESSON 7
...
108
7
...
108
7
...
108
7
...
108
7
...
2 Special Characteristics Of Marine Insurance Contract
...
3
...
110
7
...
114
7
...
115
8
...
120
8
...
2 Insurable Interest
...
4
...
122
8
...
5 Proximate Cause
...
5 Types Of Motor Vehicles
...
5
...
123
8
...
2 Classification Of Vehicles
...
6 Extent Of Cover
...
8 Discounts
...
10 Motor Claims
...
135
General Insurance Miscellaneous Insurance
...
0 Introduction
...
2 Miscellaneous Insurance
...
136
(B) Product Insurance
...
137
(D) Public Insurance
...
3 Development Of Miscellaneous Insurance
...
6 Insurances Of Property
...
7 Insurances Of Interest
...
9
Burglary
...
0 Introduction
This lesson is intended to help the student in understanding the meaning of insurance and
the concept risk in any going concern
...

The lesson also highlights the major functional organization chart indicating the possible
scope of the risk management department in an organization
...
1 Objectives

At the end of this lesson the learner should be able to:
(i)

Conceptualize risk management and insurance
...


(iii) Understand the scope and functions of the risk management department in
an organization
...


1
...
Everyday, some news or other issues on insurance are
published in daily papers
...
Insurance is an investment
...
Its
basic purpose is to derive plans to counteract the financial consequences of unfavorable
events
...
The unfortunate few of this group who encounter the risk
get compensation out of this pool
...
A few of
1

them maybe unfortunate (majority safe) and face the loss
...
Thus, it is a
cooperative device to share the sufferings of fellow persons
...


Therefore, we find human beings always live not in isolation, but in a

community
...
The sophisticated calculation
and application of cooperate principle is done behind the screen kin a business form
...
Insurance is a social device for eliminating or reducing the cost to society of
certain types of risks
...
One example will be sufficient to
show how important insurance is; Sir Winston Churchill as Prime Minister won the war
of England
...


People thought Sir Atlee more suitable for the job than Sir Churchill
...
So, Mrs
...
The
scheme was popular in spite of its defects
...
A leak of
government's thinking aroused a lot of criticism
...
Margaret Thatcher realized that
the end of NHS meant the end of her governance, so she promptly declared; “NHS is
safe with us”
...

1
...
3
...
The meanings differ according to their field of use
...
In a broader sense,
risk is uncertainty
...
The result maybe
helpful or harmful to human interest
...
It is a blessing because it gives rise to discussion, hope, planning,

2

accomplishment and progress
...
There is maximum feeling of uncertainty
when we believe that an event may either harm or help us; each one being equally likely
...
It is
here that the concept of risk and the possibility of gain or loss enter
...
All the forces that work are not known, so, the outcome is not foreknown
...
It cannot be called a “risk”
...

So we plan to reduce uncertainty
...
That in turn increases the factor of certainty and reduces risks
or uncertainty
...
Let us first understand the nature and sources of uncertainty, to understand the
working principles of insurance
...
3
...

For example, if we can foretell the possibility of an earthquake, storm or rain, then there
is no risk
...
Therefore, there is always a gap between our belief about
the event, occurrence and its actual occurrence
...
Our judgment about the future is
based on our past experience
...
If we can recognize or identify many events and
observe that their pattern of happening is constant (repetitive), then we go towards
certainty
...
For
example there will be sufficient rainfall in a particular year but its distribution
over different months or days is uncertain
...


(ii)

Inaccuracy of Observation
Our experiences of past events are modified by our personal feelings and
prejudice
...
As for example, we all place great
importance and become serious about loss due to accident
...


(iii)

Facts and Future Planning
Our belief of certainty or uncertainty about events is influenced by facts
already available and future plans
...
But we may plan for our present need with provision
for future increase
...


1
...
3 The Concept or Risk
The concept of risk in insurance refers only to uncertainty on economic matters
...
We shall
study he different types of risk, the nature of risk, the degree of risk, and the value of risk
...


According to source from which it comes, it can be: -

4

(a)

Managerial

(b)

Political

(c)

Innovational

1
...
4 Classification of Risk
(i)

Pure or Static
-

(ii)

Theft
Accident
Fire
Ship wreck

-

Death, and

-

Disability

Speculative and Dynamic
Management i
...

(a) Market (change of fashion, bad or good trading conditions)
...

(c) Production (strikes by workers, lockout by owners and stop
production)
...


Note

Insurance is only concerned with pure risks
...


5

Pure Risk is Loss
Here, the outcome of an event is certain
...
e
...

There is no question of earning profit
...
Success is profitable, failure means
loss
...
The result of tossing or
throwing is uncertain, but gives either party a chance to gain or lose
...
Its destruction is always possible but not
certain
...

1
...
5 Degree of Risk
The degree refers to severity of loss (smaller or bigger)
...
The
changes depend upon the uncertainty of loss or gain
...

Such losses are rare, except where one property is destroyed to promote other gains, for
example when coal is burnt to product steam
...
There is no risk of fires to a masonry dam, for example
...
The probability is a chance of loss,
which varies in degree with two extreme events
...
The greatest uncertainty in degree exists where chances of loss and gain
are equal if probability is one, then chances of loss or gain are each half
...
They believe in certain gain by selling goods at
higher prices, which cover their expenses
...
They may earn a profit for assuming losses
...

In most pure risks, the probability of loss is small
...
The insurers cannot deal with risks bearing maximum uncertainty
where the probability of loss is 50 in 100
...
200,000/=
...


100,000/= maybe lost if a fire breaks out
...
100,000/= to handle the risk (equal to fire loss)
...
e
...
200,000/=
...
So
the maximum degree of uncertainty is not insurable
...

1
...
6 Value or Risk
Risk depends on value upon the possibility of loss
...
The financial and economic strength or weaknesses of a person in relation to
loss suffered is more important here than the amount of actual loss
...
It is equal to margin or surplus of property available beyond his
needs of sustenance or living
...
A sudden immediate need of small value may put great pressure on even an
economically strong person
...
As for example, none of us minds to lose a pen or pencil worth
Kshs
...

1
...
7 Expectation of Loss
This is the foundation of insurance
...
If Kshs
...
5
...
In amount it will be equal to expenditure that puts a sufferer in his
position, before loss
...

1
...
8 Risk and Economic Burden
Loss affects individuals who are poor and also who are rich under different situations
...
If one has not covered his property against risk of loss
by fire, wreck or accident, such a loss will ruin him or reduce his economic status
...
If they are in surplus over the actual loss then the society losses the
benefit of that amount which is locked up for a loss of a lower value
...
The loss is therefore, an unproductive use of capital, and failure to secure
advantages of trade and business
...
3
...
In modern society credit plays a
large part
...
The lender lends a
greater role than otherwise
...
If the risk of loss
occurs, then he/she losses interest and capital
...

The lender would like to avoid such risk
...

1
...
10 Prevention of Loss
We already know something about uncertainty and probable loss
...

The society bears both the insurance cost and the total cost of loss
...
Therefore, it is a social gain if
loss can be prevented wholly or partly
...

Indifference to prevention is marked in all societies
...
We gain a lot
by preventing loss
...
Natural loss or loss of natural resources and loss due to
negligence or carelessness resources like when ore, coal and trees are destroyed to convert
their form of use
...

The gain of prevention = the average aggregate = the aggregate annual cost
Loss prevented

to all individuals of prevention
...
We hereby, discuss some general matters
about prevention related to insurance
...
4 Types of Preventive and Protective Efforts
They fall into 4 classes:
(i)

Preventive – The purpose is to eliminate the causes of loss
...


(ii)

Protective or Quasi Preventive - The purpose is to save things and persons subject to
damage
...

(iv) Salvaging – The aim is to preserve as much as possible of the value of damaged
property, or ability of injured persons
...
The second two are situations
arising after the occurrence of loss
...

(i)

Pure Prevention - Preventive measures that are introduced at the structure or
construction are the best
...
Probably, a few of the most striking examples of preventive
steps are elimination of yellow fever in Canal Zone and Gold states of USA and
small pox in India
...
Demand for a safety code or safety law is a positive sign
9

for preventive steps
...


Development of good preventive practices depends upon knowledge of hazards
...
This step reduces loss cost,
insurance cost
...
The
people are encouraged to take up more insurance at chapter cost
...
It should not cost more than what
is protects (the value of property)
...
It is
not possible by an individual
...
One such example is maintaining police department,
factory or boiler inspectors
...

A suitable reduction for individuals, who are protecting property, in their
premium rates is a good incentive
...
He should pay less if his risk is
low
...
If the person could not prove that the fire in his house was not
preventable, then he has to pay for cost of fire brigade and also for damages to
his neighbors
...
On his
heading falls expenditure of fire departments, of water supplies, and emergency
equipment
...
In military, emphasis is more
on inoculation against typhoid than to rely on hospital facility
...
If salvaged
goods in value exceed the cost of salvage then it is profitable
...
As for example, insurance company pays Kshs
...
2,000 out of selling salvaged goods
...
2,000 by
way of reducing the actual cost of compensation to it
...
5 INSURER AND PREVENTION OF RISK
Insurers fix the rates of premiums for each type of risk they are presented
...
They also look to reduce them
...
In 1764 the underwriters at
Lloyd’s London complied and issued guidelines called ‘books’ - the parallel of modern
shipping registers
...
Since premium were
fixed, whatever salvage was made out of damaged property was a profit
...
In early 19th century the
insurers were not concerned with prevention
...
Now
things have changed
...

Insurance; -The Intensifier of Loss
...
Full or nearly full insurance may lead to recklessness, or over insurance may
give birth to moral hazard
...
Willett:

The

Economic Treaties of Risk and Insurance, p
...
The insured try to get more money as
compensation than their loss
...
A part of the so is due to fraud by insured
...

It is also true that most stimulation or encouragement to adopt safety or preventive
measures came from insurers to employers and owners of property
...
Still there is scope for
improvements
...
It
requires considerable amount of investment
...
In Kenya it is slower and lagging behind other countries
...

In Kenya, matatu drivers are prohibited to use blaring music
...
Most drivers always break speed
limits
...
6 RISK MANAGEMENT
Until 1930s risk was not considered as important as it is to day
...
There was little analysis of the risk problem and little planning to meet it in
detail
...
It is known only when we suffer a big loss
...

1
...
1 Insurance Manager vs
...
The Risk manager is always wrongly called
the insurance manager or manger of insurance department
...
Risk manager should be
the title of the person who is responsible for management of risk
...
Insurance may be the principal means of meeting it, but it is not the only
means
...
P
...
4) says, "To-day, we thus have
the full-time insurance executive heading a separate department in corporate structure – a
specialist to whom management can look for the analysis of risks to which its company's
physical plant is exposed, the selection of methods through which these risk may be
reduced or eliminated, and the procurement of such insurance contracts as will provide
indemnification in the event of these risks result in financial loss
...
Risk management should not be confused with insurance
management
...
However, risk management is a much broader concept
...
It confines itself solely to the use of the 1
...


(a) Identification of risk to locate and

2
...


technical knowledge of the insurance

(b) Measurement of Risk: the amount that

policies and a familiarity with insurance

can be lost from a single incident or

market
...


3
...


avoid/eliminate the uncertainty as to

alternatives

either

to

mitigate the effect of potential loss
...
Determination and valuation of risk is the
number one function of risk management
...
The risk manager and his staff must take a
very

professional

approach

to

risk

management
...
He must make
a complete analysis of risk
...


1
...
2 what is risk management?
Many unexpected disasters, such as property destruction, the death of senior executives,
adverse legal judgments, or embezzlement can seriously sidetrack a company’s operation
...

Risk management is a plan to prevent earnings from becoming intolerably impaired by an
event that destroys company owned assets or contributing resources
...
If unplanned incidents or losses should occur, the adverse effect upon the firm’s
fiscal integrity and current operations will be minimized
...
Hocker and Dorothy M
...
22)
...
6
...

We find there is great increase in risk
...
The reasons are:
(i)

Insurance in size, diversification, and spread of activities of business has grown
...


(iv)

Physical hazards have increased and changed in shape due to raw materials,
process, products, machines etc
...


(v)

National laws are allowing liberal claims and public has learnt now of asserting
more rights or imaginary
...


(vii)

Business operates now on small margin of profit and faces many contingencies
due to severe competition between enterprises
...


(viii)

Preventive methods are proper and they need planning
...
What was a simple matter of choice
has become highly technical now
...
7 PRINCIPLES OF RISK MANAGEMENT
...
These principles ought to serve as a guide/ideal towards which to work
...
e
...

1
...
All risks are considered from the point of view of the
possible loss (tangible and intangible)
...
So
prevention and minimization of loss is the first principle
...


Possibility vs
...
How much attention should be given to loss depends
upon possibilities of loss
...
On the other hand, the probability of another loss might be slight but if
it happens (possibility) the consequences would be disastrous
...


Whatever maybe the probability, we give the

following examples:
(a) Probability high

Possibility is of little consequence
...


probability)
...


serious e
...
accidents in coal mines
...


15

3
...
Loss should be prevented or totally avoided
...
This is always the best because indemnity (compensation of loss) is
bound to be less than actual amount of loss
...
What measures of prevention are practical depends
upon judgment
...
e
...


1
...
1 Self-insurance and Non-insurance
...
Losses which are correctly estimated,
and business can bear it (through self-insurance or as an operating cost) should be provided
for and not to be given to insurer
...
Some companies follow a
policy to prefer transfer of settlement of claims to an insurer
...
In all these situations a company has to decide the amount of
insurance
...
For an insured full insurance is
the amount that would indemnify the insurer's real loss
...
We have two examples to show this: (Real loss is the
value of loss after loss
...

(i)

A timber contractor has erected a building on the tract of woodland to
accommodate his workmen
...

Its destruction involves no real loss, so it need not be insured
...
No fund for
depreciation is created
...
Full insurance against real loss would equal cost
of replacement plus expenses for substituting of a warehouse
...
If premium rates are accurate, the
insured is always at a disadvantage
...
This is applicable to physical insurance relating to
property
...
Insurance here deals with
person rather than with property
...
It involves matters of human personality like taste, sentiment and necessities
...
They are not governed by concept of indemnity
...

One must remember certain points regarding insurance, such as:
(i)

Insurance is a plan for protection
...


(ii)

Insurance plans are all the same
...


(iii)

Insurance protection is limited to the value and purchase
...
Therefore, complete satisfaction by insurance of one’s all
reasonable desires is also beyond one’s means or capacity
...
It is necessary to set down first the desires of the buyer,
2
...
What would it cost?
4
...
As for
example, one person desires to have protection like:
(i)

his widow would maintain the style as she does now, after his death also;

(ii)

his three children would go to college as normal;

(iii)

his mortgage on house will be paid off;

(iv)

his funeral expenses will be paid for; and

(v)

expenses to provide for reorientation of the family are covered
...
The selection has
to be limited to a few
...
This is a part of risk
management
...
7
...
The main criticisms are:
1
...


2
...


3
...


The principles are guidelines towards ends, which are not covered at present
...
So difficulties will be
solved by application
...
7
...

Problems of a Risk Manager
...
They are:
1
...


2
...
The work is
limited to laying insurance or managing policies
...


Manager often lacks authority to carry on work and he should be responsible to top
management for work results
...


He needs the co-operation of the personnel of all departments for getting information,
carrying out regulations and for discussing risk aspects of work
...
He should know plant details
and layout
...


18

The success of risk management depends upon mutual understanding and the ready
cooperation between his department and other departments
...

1
...
The management should hold a positive and helpful view of risk
management
...

(c) To have personal visits to the scene of such an occurrence
...

(e) To allow application of the conditions to our own company, to devise
preventive devices, or corrections
...
They seek a
market
...
The
persons to follow take advantages of the idea already developed in some company
...
It is an element of business to day
...
The development of prevention and the widening use or risk bearing device all
suggest that risk management will become a major department of business activity in
future
...


19

Figure 1
...

- Life plan
...
8
...


The risk manager is to determine where the risks for the company

lie
...
Unusual risks like flood,
earthquake, extra expenses; research activities, and third party liability
...
Once the analysis of the possible loss of exposure is complete
the manager should calculate the need for insurance coverage
...
He should make a loss study
using historical data to eliminate future losses
...


Losses beyond certain values should be

covered by insurance
...
Information about assets
must be gathered by inspection or from internal reports
...
The aggregate loss must be found
...
Upon completion of the risk analysis the problem is to decide
what risks may be retained and what risks will be transferred
...
Except these two,
all other risks may be wholly or partially self-insured
...
Self-insurance is to
be decided under the three consideration:
(a) Some risk/also can be borne by company
...

(b) Self-insurance becomes cheaper than cost of purchasing insurance
...

(c) There are risks for which insurance is not available or insurance companies
don’t deal with
...


The

principle is that insurance should be the last line of defense against risk of
loss – not the first
...
Sometimes the cost of elimination may be too high
...

21

Risk management may be defined as a managerial function dealing with:
-

Identification (locating) sources of hazard to which the firm is exposed
...


-

Consideration of various techniques and methods available to cope with
these risks
...


-

Periodical examination of the results achieved through these techniques and
methods
...
The
firm X maintains a fleet of motor vehicles and does the risk management as follows:
1
...


From past experience it is found that hazards

common to motor vehicles are: accident, riot, theft, and earthquake
...

2
...
What proportion of total ventures may
result in loss, this is calculated by statistical formulas
...


3
...
The company must adopt all techniques: loss
prevention, loss reduction, retention and insurance
...

Drivers’ training, better maintenance

Prevention

Periodical check up, bonus and
Awards to safe drivers etc

Reduction

Minor losses of theft of accessories

Retention

Or depreciation to be met by management
Without insurance repairs
...


Implementation
...
Losses recovered and premiums paid, own retentions
...


5
...
If retention cost go on increasing all risks should be given over to insurers
for getting covers
...
The risk of
probable loss must be reduced
...
Out of past
experience, businessmen, individuals or society and insurers have devised certain methods
...

(i)

Avoiding

(ii)

Assuming

(iii) Reducing hazard
(iv) Reducing loss
(v)

Shifting loss and

(vi) Risk reduction
...
They may give rise to possibility of loss
...
One may avoid an air travel but cannot avoid
staying in the said house
...
We can avoid risks, but not always
...
For example, the risk
that goes with a thatched house, we can accept an air travel in a company, which
has maximum safety record
...

(ii)

Assuming risk
...
This is a way of living with least resistance
...
We don’t know all the aspects of law related to our
work
...
As for
example, one purchases a house, insures against fire but forgets to insure against
theft he has to pay for that loss (theft)
...
Rarely a person insures his life
voluntarily
...
In this
way his family members accepts a risk, which they could have transferred to
insurance company
...
Some
vocations like auto racing and circus acrobats are not insurable
...
In adventures of speculative business the speculator
becomes his own insurer, similarly a ticketless traveler, a cyclist at night without
light takes deliberate risk
...
One may lose a pencil or pen or a ten shillings
...

(iii)

Reducing hazard
...


Hazard is

the cause of risk
...
The accident is the hazard
...
Even if fire takes place the magnitude will be more
or less due to nature of materials used
...
Loss is the certainty of risk
...
The preventive steps
and steps for reducing loss are complementary
...


(v)

Shifting risk
...

(a) Hedging
(b) Sub-contracting
(c) Surety bonds and
(d) Limited Liability Company
...

(a) Hedging in common usage means putting a fence or defending your self against
attacks
...
One example of this is contracting to sell in future (hoping a rise in
price)
...
So
some loss in sale is made up by purchases
...
One contractor of a building may take up building, electrification
and public health fittings
...
If prices of
materials go up he suffers losses on sections
...

(c) Surety bonds
...
The person who offers the work thus is
saved of possible loss
...
Y is called the principal debtor and Z the surety
...

(vi)

Limited company
...
Capital is divided into
several parts and distributed among large number of persons if there is total
loss; also, individual shareholder’s loss is limited to money he paid as sharecapital
...
Insurance eliminates risk
...

happened like this:

There are 20 house owners
...
One house may be any one of the
20
...
This is a certainty
...
This is
the best form of management of risk
...
9 SUMMARY

Terms used in insurance
There are certain common terms, which are used very often in insurance
...


Insurers – The party who agrees to pay money on the happening of a contingency
is known as the insurer
...
Insurer
gives protection against loss according to his promise
...
g
...


ii
...
He is part of insurance agreement
...
The insured claims and
receives money as compensation in the event of the happenings
...


iii
...
It is the
consideration for which the insurer gives protection to the insured
...


iv
...
Usually it is issued by the insurer (insurance company)
...


v
...
This is also the maximum
amount he insured might get
...


vi
...


vii
...

There is no difference in meaning of the terms
...

This means that assurance applies to contract of life
...
The event of
contingency may or may not take place
...
Both the terms are being used as having the same meaning
...
One party transfers
some of his risks to the other
...


pay a certain sum to the insured if the risk really takes place, and the insured
suffers a loss
...


Risk – It refers to uncertainty about loss
...
One house out of 1000 belongs to X
...
X faces an uncertainty of loss
...


Contingency – This is the actual happening of an event or not happening of an
event on which the loss depends
...


xi
...

It arises out of contingency
...


Double Insurance – When subject matter (life/property) is insured twice either
with two different companies or with the same company under two policies; it is a
case of double insurance
...
On the maturity of the policies, he can realize the whole
amount from the insurer
...
10 Activity

(i)

Explain the basic differences between insurance management and risk
management
...


27

1
...
Define the following: a)

Insured
...


c)

Insurer
...


2
...

3
...

b) Pure and Speculative risks
...

d) Insurance manager and risk manager
...
Give reasons for the rise of risk management
...
What are the steps in a risk management plan
...
0 Introduction
Insurance plays a vital role in the society and it is wise to understand its functions, both to
individuals and the society at large
...

2
...


(ii)

Explain the role of insurance in increasing business efficiency
...
2 DEFINITIONS OF INSURANCE
(i) Insurance is defined as: “ a co-operative device to spread the loss caused by a particular
risk over a number of persons who are exposed to it and who agree to insure themselves
against that risk
...

(ii) Insurance has been well defined as: “that social device for making accumulations to
meet uncertain losses which is carried out through the transfer of the risks of many
individuals to one person or to a group of persons” (Allan H
...

What is uncertain with regard to an individual, however, may be closely calculated when a
group is involved
...


29

(iv) Dictionary of Business and Finance defines insurance as: “a form of contract or
agreement under which one party agrees in return for a consideration to pay an agreed
amount of money to another party to make good for a loss, damage or injury to something
of value in which the insured has pecuniary interest as a result of some uncertain event
...

The element of certainty of assurance is vital to every business and individual, and
insurance provides a way in which such certainty can be introduced
...

In this legal aspects it is a contract, the insurer agreeing to make good any financial loss the
insured may suffer within the scope of the contract, and the insured agreeing to pay a
consideration (Riegel and Miller)
...
(Joseph B
...

Insurance is a device for transfer of risk of individual’s entities to an insurer, who agrees
for a consideration (called the premium), to assume to a specified extent loss suffered by
the insured
...
W
...
Dinsdale)
...
It tries to reduce the cost of loss to society by
reducing risk
...
The fund is the way of
transferring individual loss to a group
...


The loss was uncertain from

But for a group the loss becomes certain
...
In
legal sense one promise to make good the loss of another for a small but
regular fixed payment
...

-

Insurance cannot stop an event from happening
...


But the loss to the

individual will be reduced
...

2
...
Functions and
services rendered by insurance will show us its importance
...
As an institution it has a very wide scope and various
types of transactions
...
But we must know what
insurance does? Insurance is now a social institution
...
One becomes visible and everybody
knows, but the other one may give benefits indirectly
...
Different types of
insurance give some common benefits
...
These two
classes of people belong to society
...
The different benefits
will be discussed under several headings
...
3
...
Insurance guarantees protection against
large and uncertain losses in return of small but certain payment
...
Each insurance gives protection against a
particular risk
...
The insurance company assumes on his behalf the risk
of large but uncertain loss
...
If he can
know the future loss accurately he may make provision without depending upon
insurance
...


Then it makes provision for those owners through some

calculation
...
Insurance provides one way of such certainty
...
They assume
different risks but on the same accident and sickness insurance gives financial
protection when individual is unable to earn
...
Marine insurance provides protection against loss of ship, and cargo
...

(b) Insurance provides assistance to business enterprise
...
This investment is exposed to loss or damage by fire, theft, accident
and other perils
...
Business
enterprises may have to block large amount of capital as insurance fund if they
themselves have to meet the risk
...


This gives many

advantages to businessmen
...
They need to have self-insurance provision
2
...

3
...
We can examine the following and find how
insurance assists business
...


The ship owner cannot

venture to expand its fleet due to his worry and anxiety of the owner
...
Insurance eliminates harmful
consequences of risk and encourages business to assume more risk
...
Insurance removes the fear, worry
and anxiety associated with this future uncertainty and encourages free investment
of capital
...

(c) Financial stability to commerce, and industry
...
So a loss affects the owners of properties and others also
...
It covers net profits wages,
taxes and other standing charges and increase in cost of working during stoppage
of production
...
This helps
society to maintain economic equilibrium
...
Modern business prospers on credit
...
This has become possible due to insurance
...

(e) Mortgage upon real estate
...

(f)

Retailer and wholesaler
...
The banks these days are giving credit in large scale
...
Again a dealer can use his grain as security for a bank loan if that is
insured
...
A bill of lading gives
security to a draft
...
The
marine insurance lends protection to the goods mentioned in the bill
...


33

So far fire and marine insurance are well known as bases of credit
...
Two such instances
are life insurance and credit guarantee insurance
...


That needs protection another

important asset is accounts owing to other concerns – the debtors
...
These debts must be covered by a credit insurance policy before they are
accepted for advancing credit
...
A business may be ruined by the dishonesty of an employer
...
So it seems every form
of insurance is a basis of extending credit to a firm
...


Insurance

encourages reducing loss in many ways
...
Rating or premium charged to undertake
insurance itself is helpful for reducing loss
...
In fire insurance for example,
extra rates are charged for inferior construction and discounts are
allowed for improvement in risk e
...
fire extinguishing appliances
...
Marine insurers allow lower rates
for good packing to encourage loss reduction
...
A few of
such agencies started by insurers in India, for example are:
(a) Loss Prevention Association of India
...

(b) The Salvage Corps of Loss Prevention Association of India
...
Fire brigade subsides the fire,

34

the salvage corps save further damage by water, smoke and heat
...

(c) Survey and inspection of risks
...

The surveys suggest risk for rating and also recommend
improvements
...

(d) Specialized Knowledge and Experience on Risks
...
It includes special knowledge on process of manufacture of
an article the physical and chemical properties of materials, methods
of fire extinction, packing, trade routes, pork conditions, etc
...

(h)

Insurance provides funds for investments
...
It is incidental only
...
Life insurance usually collects more money in the early period
from an insured under level premium palms
...
In other forms of insurance also insurers may
utilize a part of fund – the excess of funds received over current expenses liabilities,
and reserves in government securities, municipal bonds, loans, mortgages and
equities
...

It helps pubic in two ways:
1
...


By reducing the cost of insurance
...
That means by the amount of investment
income premiums are reduced
...
Insurance is as good a source of foreign
exchange earning as export trade, shipping and banking services
...

35

(j)

Insurance tries to distribute cost equitably
...
It is based on large number of risks
...
Customers are interested
in correct cost
...
In fire and
marine insurance large number of factors are considered for, fixing premiums
...
The
systematic cooperation of many to share the loss of a few cannot be done
without insurance plan
...
This is a way of expression
...
Suppose a machine is producing income of
Kshs
...
Its life is 25
years
...
50,000
...
The points to be considered are probable lifetime of the
earner, percent of employment at different age, and loss in earning of that
person and present value of future incomes
...

This capital is a loss to the family if the person dies
...
The insurance premium
is of the same nature as that of allowances for depreciation
...


Insurance protects this valuable human capital and adds

importance to its value
...
It is a hedge – a cover for wrong decision
very much familiar in business transactions
...
Are fortunate to survive till the full planned amount is achieved, and
2
...
Insurance assures a saving and guarantees the
amount
...
They set apart a part of income every year in a
separate fund
...
If has certain risk
...
Insurance provides a hedge for
such a risk
...
g
...


Insurance thus is

complement to saving against uncertain loss
...
So it is a saving
...


This is more clearly found in Life Insurance
...
In non-life insurance
the money paid to insurance company leaves certain margin of excess of income
i
...
, premium over the actual expenditure over the actual expenditure
...
This would otherwise have not been available
...
This would be wasted had it not been given to insurance
...

2
...
1
...
Insurance gives many benefits
...
Others are indirect and remote
...
Direct benefits go to insurer and insured
...

We discuss some of these
...

Benefits accrued to individual policy holder who paid the premium
...
The benefits have the effect of community benefit
...
Adequate future provision is the
sign of a civilized society, and marks the difference between different
between stability and instability in business
...


37

Property and

casualty insurance are attempts to stabilize business conditions and
property rights
...
The
provision for old age, sickness and disability of persons in general
...

In case of fire, defalcations, failures, explosions, tornadoes an other
calamities that would tend to impoverish (render poor) families would
have been relieved of the financial shock if adequate insurance had been
maintained
...
They are able to maintain the standard of
living
...
These could lower the
ideals and standards of conduct of entire communities
...
In the absence of insurance this would have been
paid in a haphazard manner
...
In the absence of insurance some tenants would
pay higher rents than others
...
The most effective argument for reducing of fire losses, is that
smaller losses will make smaller premiums possible
...
In other words, vast funds are made available as capital which
otherwise would never be brought together in one place
...
Each of these contributions is significant, but in
total they amount to a gigantic amount
...

Between the time of insurance contract and the time of the event of loss
the insurance carrier works as a bank or an investment trust
...
3
...

Efficiency is measured by the price of goods
...
On
the other hand, the most uncertain is the most inefficient business
...
if these risks are transferred to
insurance underwriters then owner will look to details of production and increase
efficiency
...
The ways to increase efficiency are
many
...
Young entrepreneurs fully trained and ready do not
take up trade due to transportation risk, fire and dishonesty
...


(ii)

Delegation of work
...
If they don’t delegate their energy will be wasted on small matters
which servants may do
...
If one partner dies his heirs must get back the deceased
partner’s share
...
Insurance may solve the problem and remaining partners will
not worry about funds
...
Employers can have good relations with employees by
insuring employees against life, accident, and sickness etc
...


Insurance helps small business to compete successfully with the large enterprises
...
A small business cannot afford to take much risk
...
But for a small business such fund is a pure gamble
...


39

2
...


(ii)

What role does insurance play in reduction of loss?

2
...


b)

The society
...


2)

How does insurance benefit the public?

3)

“Insurance plays a vital role in reduction of losses “Explain
...
0 Introduction
Insurance is governed by law
...
This lesson will try to explain these principles and their application in
real life situations
...
1 Objectives

At the end of this lesson the learner should be able to:
(i)

Explain the basic principles of law governing general insurance

(ii)

Outline the special features of a valid insurance contract
...
2 Special Features of a Valid Insurance Contract
1
...
One party must have given a proposal
...


2
...
Agreement should create legal relationship
...
If he does not come he does not break a legal

relationship
...
Legal relationship is there only when
each one of the two wishes to go to court if any of them breaks his/her promise
...


Lawful consideration
...
This mutual give and get is called
consideration
...


Capacity of parties
...
If they make an

agreement law does not help them to enforce it
...
Mad, disqualified person and minor are some examples of
incompetent persons
...


Free consent
...

Some actions like coercion, undue influence, fraud and misrepresentation by any part
makes the contract invalid
...


Lawful object
...
If the purpose of the
agreement goes against public good it becomes illegal
...


Agreement should not be void
...
One example is the trade agreement
between two partners living in two countries
...
The
partnership automatically dies
...


Agreement should be possible
...


9
...


The agreement should be registered, attested and properly

stamped (court fees)
...


Utmost good faith;

2
...


Indemnity;

4
...


Subrogation;

6
...


Assignment and nomination and

8
...


3
...
3
...
The law compels the parties to the
contract (insurer and insured) to make full disclosure of all material facts
...
The insurer calculates the risk of the insurance and
fixes the price
...
“Full or partial
concealment of fact by any one of the parties makes the contract void
...
In sale of goods
the principle is to let the buyer beware of what he buys
...
But in insurance it is facts about the subject matter
to the insured
...
These facts
known to one but not known to the other party must be disclosed
...

Though both the parties have a duty of disclosure, the insured has more responsibility
...
The law
courts decide what is material fact
...


Nature of risk i
...
, make the risk more dangerous or less; and

2
...
e
...
Some examples of material facts may be given in life
insurance history of past diseases, in marine insurance repair and maintenance of
ship, in fire insurance, the surrounding and the materials stored, in motor insurance
the model and make of the car are material facts
...
But the
responsibility of parties differs from one type to other
...
If he does not disclose
some matters innocently or because of ignorance, then also in law it becomes concealment
...
In USA also the rule does not excuse innocent concealment
...
The insured is not punished for his non-disclosure in some
cases:
1
...


Facts, which he cannot know with reasonable effort
...
Some of these material facts are given below
...


(b)

Facts which reduce the degree of risk, as the fire extinguishing
arrangements
...


(d)

Facts which are mentioned in the Policy as a condition like a specific
looking measures
...


(f)

Facts, which were surveyed or inspected by insurer
...


He should also inform the insurer of about facts, which he knew later on, but

before completing the contract
...
The insured has a major responsibility under insurance contract
...
The insurer has no liability under such a contract
...
1
...
Insurance contract requires some
other conditions also
...
Insurable interest is a necessity
for insurance contract
...
It refers to monetary loss or gain
...
If the insured does not suffer a loss out of
44

the destruction of the subject matter of insurance he has no interest
...
Interest means financial involvement
...
Mehr says, “If the happening of the
event insured against cannot cost the insured money, then there is not insurable interest”
...
As
for example, one house is worth Kshs
...
If you are not the owner of
the house your interest in the hose is zero
...
A scooter is stolen
by ‘A’ which belongs to ‘B’
...
Some examples of insurable
interest are:
1
...


Owner of a dwelling house on the house;

3
...


Insurance underwriters examine the presence or absence of insurable interest for two
reasons:
1
...
The gamblers are not allowed to benefit out of insurance contract
...

The following are the conditions for valid insurable interest:
1
...


2
...


3
...


4
...


Who are the persons having insurable interest? We can make a list of persons and their
insurable interest as follows:

45

Persons

Insurable Interest

1
...


Agent

On property of his master

3
...


Bailees (temporary possessors)

On the property in which he has
worked and not yet paid (on ornament)

5
...


Husband/wife

On wife/husband’s life

Father depending on son/daughter

On son/daughter

7
...


Partners

On the partner’s lives

9
...


Surety (who stands guarantee
to a debtor)

11
...


Crew of ship

On ship (up to salaries)

13
...


When should insurable interest exist? Insurable interest must be proved at the time of
payment of insurance money
...
In
life insurance it is sufficient if the insured has an insurable interest in the life insured at the
time of contract
...
In fire insurance the insurable interest in the subject matter must be present at the
time of entering into contract and also when the event takes place
...
This is very easy if the insured has no interest in
the property
...
After sometimes
sells it to B
...

In all other insurance contracts like marine and accident insurable interest must exist in the
subject matter at the time of event causing the loss
...
1
...
This is regulating principle
...
Ordinarily a property
owner may not recover more than the actual cash value of the property destroyed, whereas
a person may insure his own life for any sum within reason
...
The
principle states that payment of loss under an insurance contract is enforceable only to the
extent of the actual loss to the insured resulting from a peril insured against
...
It as a contract by which one promises to save the other party from loss
caused to him by the conduct of the promiser himself or by the conduct of any other
person
...

Meaning
Indemnity means security against loss or damage or compensation for loss
...


The loss must be estimated in money value
...

The insured is restored with property loss or he is reinstated in his position before loss
...
in fire and marine insurance amount of loss plus a certain amount of profit that the
insured might have earned if there was no loss is taken as amount of compensation;
2
...
The value fixed by agreement
becomes a part of contract
...
Insurance of antiques and works of arts come in this line
...
It says that even if an insurer promises to pay a
sum of money in the event of a loss it cannot be enforced above the actual values of loss
...

2
...
Because the temptation to destroy one’s own property
will increase and also the risk
...
It will encourage
anti-social acts
...


In the absence of this principle of indemnity overpayment for loss i
...
, larger than
actual loss will be made
...
Honest persons will leave
insurance for dishonest to come in
...


We give two examples of over and under insurance
...
30,000 with an insurer
...
40,000
...
If the actual loss is Kshs
...
In the first
case A can get only Kshs
...
20,000 as
compensation
...


In over

insurance he pays higher premiums
...

Application of the principle
...
Insured has to prove that he actually suffers monetary loss in the event of loss
taking place
...
Compensation must be measured by comparing the value of loss or insured value
...
It
punishes over or under insurance
...
The insurer takes over all rights and duties of the insured after paying
compensation
...

4
...
For example, A’s house is burnt
...

30,000
...
It was due to carelessness of X, A’s
neighbor
...

Value of Compensation and Measure of Loss
...
e
...
For
example, a family table now has a big emotional value of Kshs
...
2,500
...
In case
like loss of property cost of replacement of repair is the measure of loss:
1
...
The value is equal to the value of new one in the market
...
Sound value is calculated after
deducting depreciation adding appreciation in original value
...


The original value of a machine was kshs
...
Its depreciation loss is kshs
...
So the present value is Kshs
...
If the market value is kshs
...

Then the value will be kshs
...
e
...
29,000
...
1
...
Life insurance and
third party liability in accident insurance don’t come under this principle
...

This means stepping into the shoes of other person
...
This
is very clear if we look to a fire insurance contract
...
10,000 by fire,
B the insurer indemnifies A upto Kshs
...


A has another alternative to seek

compensation
...
If A prefers to take compensation from the insurer, he cannot ask third party for
compensation
...
But insurance company
cannot sue in its own name
...
It has also been incorporated in
all policies
...
(Riegel and Miller)
...

Purpose
The principle supplements or helps to apply the principle of indemnity
...
Insured is not allowed to make a profit out of misery
...
J
...
Preston) that if a person wants to recover
compensation for loss he can do so by insurance
...
The insured cannot take it with both hands
...
There are two purposes
behind the principle
...


Insured may recover his loss but not more than that;

2
...
Lord Blackburn says that it becomes an equity that the person
who has already paid the full indemnity is entitled to the recouped by having that
amount back (Burnard Vs
...
The insurer is allowed to recover as
much as possible from third party by taking actions, which insured might have
taken
...


It arises out of indemnity compensation should be upto the value of loss
...


2
...


Thereafter

insurer becomes the proxy or substitute for the insured
...

3
...
The insurer who steps into the insured’s position can
get benefits upto his payment
...
80,000 from insurer
...
120,000 from another ship owner for his negligence
...
40,000 minus his expenses to A
...


Subrogation may be applied before paying compensation
...
The insurer will pay the balance of loss
...
20,000
...
10,000
...
20,000 will not pay only kshs
...
That is total loss minus compensation fro
third party
...


Subrogation does not apply to life contract
...


The doctrine of subrogation is based upon two principles:
1
...


2
...
Wrongdoing are mainly civil wrongs the
common forms are negligence and nuisance
...


This is settled

principle in insurance
...
It means that the insurer has certain rights in an insurance
contract
...
If insured does something by which
insurer is not able to recover anything from a wrongdoer then the insured is punished
...

Contribution
This refers to sharing of loss between co-insurers
...
This is quite legal
...
If one of them pays for the loss will he bear the expense alone? Can
he invite others to share his burden of payment?
The insurer paying the claim has a right upon other insurers to pass or transfer part of his
burden
...
How is the share of insurer fixed? The
shares are equal or are equitable (determined on some fair basis)
...


The first claim payer can compel all others to

contribute
...


51

Essential requirements of the doctrine of contribution
1
...


2
...


3
...


4
...


Calculation
Generally there are two ways to fixing the insurer’s shares
...


(ii)

Sum insured: The insures pay according to the proportion their shares bear to
total sum insured respectively
...
10,000; and B another insurer covers Kshs
...
The actual loss is Kshs
...
A paid the sum of Kshs
...
What would be
the loss, A can recover from B?
Total Insurance = A Kshs
...
Kshs
...
30,000
A = 10,000 x 9,000

= 3,000

30,000
B = 20,000 X 9,000

= 6,000

30,000
52

A Kshs
...
3,000 (A’s share) = Kshs
...
6,000 from B, so B has to contribute Kshs 6,000 towards the loss
which A has already paid on his behalf
...
1
...
Insurance is taken against risk of happening one or more events
...
This
is an additional principle besides insurable interest and subrogation
...

Compensation is paid if the cause is insured against
...


The events may be complimentary or dependent upon one another and come one after
other
...


The events may be quite independent of one another but some must happen first and
others next
...
In these situations the
cause of loss is found out by applying the principle of causa proxima
...
It directs the parties to look at the most proximate (the nearest) but not at
the remote (distant or indirect) cause of loss
...
If the two conditions are fulfilled
compensation must be paid
...
The cause need not be the nearest to loss in time of occurrence
...
It looks at the result producing capacity of the
cause, which may come early or late in time
...
vs
...
He says that ‘efficiency may have been
preserved, although other causes may mean time have sprang up, which have yet not
destroyed it, or truly impaired it, and it may culminate in a result of which it still remains
the real and efficient cause to which the events can be ascribed”
...
Some time may elapse from the first appearance
...
The
cause exists and continues till it produces the loss
...


Presence and existence of the case with force;

2
...


The cause is insured against
...
The direct dominant,
operative and efficient incident producing loss is the proxima cause
...


One marine insurer excluded loss by rats, but included sea perils in the

insurance
...
It resulted in entry of water and
sinking the ship
...

In a fire policy ignition was insured against
...
The
radiators of the store had heating arrangements by steam
...
There is no fire so any compensation
...
Fire here is the remote (not direct contact with fire) reason or
cause
...
The amount of damage depends upon the terms of
54

insurance and sequence of events
...

1
...
The ship ran to the shore to avoid capture
...
Here proximate cause is hostilities
...
In the example given above if the ship goes away from its normal course to avoid the
chase its journey is delayed and for the delay met a storm, then what is the proximate
cause? Argument is that if there was no storm ship would have escaped chase
harmlessly
...

3
...
A torpedo lay hidden in one of those to
destroy ships entering the port
...
He enters the port by the way where
torpedo is hidden
...
The cause of loss is ‘act of
hostilities’
...
The
ship while navigating the channel ran around and was lost
...
So the
cause is ‘perils of sea’ here
...
In one case, oranges and lemons were insured as cargo against collision of ship
...
For convenience of
repairs the cargo was unloaded on to lighters and reloaded on the ship after repairs
...
Find out which is the nearest
cause of loss? (Collision or loading and unloading? The perishables nature and
unloading loading of cargoes were the proximate causes
...

In the cases discussed we find two causes of loss: they are independent of each other
...
It is easy to pick up the cause insured against
from the cause not insured
...
The incidents may be separated but quite
linked with others and products a loss
...
In these cases time of occurrence of the event is not considered
...
The tug
met an unexpected obstacle
...
To prevent entry of water through ejection for repairs
...
The ship was filled with water and sank
...
The repairs were nearest in time to the loss, but the
nearest to loss was collision
...


The broken down condenser

remained the dominant, operative and decisive cause of loss
...

This is a case of broken chain
...

It does not include cover for sickness
...
He was injured
...
The insurers will pay cost of hospitalization only
nothing else
...
A fire occurred
...
The public replied by stone throwing
...
The insurer is bound to pay compensation
...

In cases where incidents were started from the misconduct of the assured the proximate
cause is deliberate action
...
Sea
water rushed in and ship was lost
...

56

Lastly the claim of compensation is valid, only when the perils insured have operated
directly and not circuitously on the subject matter f the insurance
...
For example, one ship was sailing on high seas
...
It was sure that the ship would have been captured had it continued the
journey
...
The goods
were sold
...
So no claim is allowed
...
Single
B
...

1
...
Some Uninsured: the point of
occurrence of the uninsured
event has to be found
...

(ii) If the insured event comes
first and then uninsured
events
...

(iii)
If effects are not
separate
...


Full

Nil

Upto the happening of
uninsured event the amount
of
loss
will
be
compensated
...
No succession of events
...
One event arises then
others arise independent of the
risk
...
The insured event occurred
first and later on the uninsured
one
3
...


For the loss caused by the
insured event only

Upto the happening
uninsured event
Full

Excepted or uninsured perils; Nil
perils born of misconduct or fault
of the assured causing a loss
directly or indirectly
...


3
...

(ii) Match the following persons with their insurable interest:
(a) Bailees (temporary possessors)
...

(c) Husband/wife
...

(e) Employer
...


58

of

(g) Trustee
...

(i) Whole undisputed owner
...

(k) Cargo owners
...

(iii) An insurer covers Kshs
...
20,000 of a
property
...
9,000
...
A paid the sum of Kshs
...
00 What
would be he loss, A can recover from B?
...
3 Questions

1)

What are the basic principles of General Insurance? State
...


3)

What are the essentials of the doctrine of subrogation?

4)

An insurer (Madison) covers Kshs
...
40,000
of a property
...
10,000
...
10,000
...
0 Introduction
This lesson covers the general market structure of insurance, that is, the demand and supply
of insurance in relation to price and income elasticity
...

4
...


(ii)

Understand the forces of demand and supply in relation to price and income
elasticity
...
2 The Insurance Market Structure
The Central economic problem is that (a) (i) the needs and desires for goods and services of
mankind, and (ii) demand for leisure together continuously outstrip (exceed) the (b)
productive capacity of factors of production at nay time
...
There are two ways: (i) to leave it to a central body i
...
Government, to
produce and distribute the goods and (ii) distribution is determined by market forces of
demand and supply at a price
...
2
...
The demand for insurance arises from the existence of pure risks,
which affect human activity
...
By purchasing insurance the individual can safeguard his
own, and his dependants’ financial interests
...
For the firm, insurance again provides greater
income and capital certainty
...


(c)

Economic Institutions
...
g
...
The one normal major exception is
the government, partly because it often controls a sufficiently large number of
exposure units to enable it closely to predict its actual loses
...

Government cannot be insolvent
...
Thus, the demand for insurance arises from many sectors of
society
...

Other things remaining equal, an increase in price will bring about a reduction in
demand
...


(e)

Compulsory insurance
...
So for example,
in most countries it is now a criminal offence to drive a motor vehicle on the
public highway without effecting insurance against level liability to other road
users
...
Sometimes this is accompanied by the creation of a state monopoly for
that class of insurance, in other cases only specially authorized insurers are
permitted to transact such business, and in other cases insurance can be effected
with any insurer willing to underwrite the risk
...
In addition to the above there are many other
insurance that may be termed as of a quasi-compulsory nature
...


(i)

Under a mortgage or debenture deed a

requirement that the borrower shall insure the building against fire and
other perils; (ii) a requirement in a lease, that the tenant shall maintain and
insure the premises; (iii) the condition in a building contract that the
builder shall accept responsibility for and insure the building in course of
erection until completion
...
(i) In a contract for the supply of components the
supplier may be required to effect products liability insurance against
liabilities arising from accidents caused by the failure of the component;
(ii) a repair contract allowing the repairer access to the client’s premises
may require the repairer to have an adequate liability insurance in force
...
g
...


Clearly such compulsory insurance requirements affect both the extent and the
nature of demand for insurance
...

(ii)

Market demand for Insurance Undoubtedly if there is only one
insurance industry dealing in the transference of pure risks and with
all suppliers confronted by common problems of rating, defining
capacity limits, marketing and so forth
...
In identifying insurance markets the
following factors need to be considered
...
‘Several alternative classifications are possible and
over a period of time
...
e
...
It further subdivides life and general into
home and overseas business, and general b business into industrial/commercial
and personal is based on differences in the needs and bargaining powers of the
classes of buyers, and the different technical and marketing problems involved
in handling the two categories of business
...
The sub-division of general business into
industrial/commercial and personal is based on differences in the needs and
bargaining powers of the classes of buyers, and the different technical and
marketing problems involved in handling the two categories of business
...
On the other hand such markets are sufficiently
closely related that factors influencing one may very well affect others too
...
At the
other extreme an insurer able to achieve a substantial degree of product differentiation
would be in the position of a monopolist with a unique demand curve
...
3 PRICE ELASTICITY OF DEMAND FOR INSRUANCE
...
g
...
The same holds true of the
demand for insurance
...
In relation to those classes of insurance which are made
compulsory by law, market demand would tend to be highly inelastic
...
Motor insurance for
example, forms part of the cost of running a car
...


Similarly, national

insurance contributions increase the cost of labor relative to capital so causing firms to seek
more capital-intensive methods of production
...

Ignorance and inertia
...
Neither the need for insurance (the risk) nor the produce itself
is easy to easy to evaluate
...
The former will include many buyers with expert knowledge of the product so
that their responsiveness to price changes may be expected to be more positive than that of
individuals
...


On the other hand ignorance may produce more reactions from

personal buyers based on an inaccurate subjective evaluation of situation; the larger
numbers of individuals who have transferred their motor insurances to cut-price companies
in UK Perhaps is evidence of this
...
4 INCOME ELASTICITY OF DEMAND FOR INSURANCE
...
e, an increase in income would result in a more than proportionate increase in
demand for insurance
...

Therefore, as national income per capita increase, so it is reasonable to assume
that the demand for life assurance and pensions contracts will be rising even
faster
...
e
...
) and a greater demand for leisure activities
...


(iii)

In an economy where

productive resources are fully employed, an increase in income per capital can
only come about by greater efficiency or by increasing capital employed
...
Greater efficiency can
be achieved through increasing specialization, (export and import trade) perhaps
on an international scale, so increasing the demand for marine and other transit
insurances
...
Then a rise in incomes
will create an effective demand for insurance
...
, in its monthly publications Sigma

the October 1968 issue was

devoted entirely to an investigation into the long term growth of insurance and the
national economy
...
Demand for insurance will rise at a higher rate than the
rise in rate of increase in income per head
...
5 THE SUPPLY OF INSURANCE
...
As noted the price/output behaviours of firms is
determined to a considerable degree by their costs
...
The business of insurance is not so risky
...
Although the potential claims costs of individual policies is uncertain the
actual result of a large account can be predicted with a substantial degree of accuracy
...
e
...
e
...
The student should consider
different classes of business and the stability of underwriting results in the light of
these points
...
Like an
65

original insured, the direct insurer then substitutes the certainty of the reinsurance
premium for some of the uncertainty of claims costs
...
The second feature of an insurer’s expenses is that fixed costs form
only a small part of total costs
...


Likewise, a large proportion of

management and sales expenses comprise variable costs for the reason that insurance is a
labor intensive business and most companies obtain their business through intermediaries
who are remunerated by way of commission only on business transacted
...
An insurer that relies on brokers for its business can
avoid the fixed costs associated with branch offices
...

The organization of the insurance market
...
The supply side of
insurance markets ranges from monopolistic competition to monopoly
...
g
...
In
addition a common feature of most insurance markets is the presence of intermediaries, i
...
,
part-time agents and brokers, which may exert various influences over the behaviour of the
market
...
In the 10 years preceding 1956 less than a handful of
new companies entered the market each year then the pace went on decreasing until in
1956 (life) and 1972 (others) it was nationalized in India
...
This was followed by the failure of several new cut-price
motor insurance companies
...
it
66

led to demands for legislation to control new and existing companies culminating in Part
11 of the Companies Act 1967
...
(i) The economics of largescale; (ii) advantages of product differentiation by established firms; (iii) insurance market
organization; (iv) the absolute cost advantages of established insurers; (v) minimum capital
requirements; (vi) legal barriers; (vii) the availability and cost of reinsurance
...
If costs fall substantially up to a large level of
output then this would place anew company at a serious cost disadvantage
...
e
...


(ii)

Advantages of product Differentiation by Established Firms
These may arise fro preferences by the public for established insurers based on
their reputations; membership of market associations such as the British
Insurance Association or the three associations of life offices; local connections
and branch networks; advertising and so forth
...
One of the advantages which an establish
branch network provides a company has been noted above
...
For number of reasons
an established insurer may be able to operate more cheaply at any scale than a
new company
...
Likewise, difficulty may be experienced
in finding suitable accommodation except at higher rents, which established one
can only provide
...
The 1967 Act in UK, and Insurance Nationalization Acts in
India also empowered the Board of Trade/Government (now the Department of
trade and Industry) to refuse authorization to a potential new entrant to the
insurance market in UK on grounds that it has failed to make adequate
reinsurance arrangement so that any officer of the company or its parent
company is an unfit person
...


In order to operate safely an

insurance company must be able to secure reinsurance Research by Dr
...

Therefore, it may be concluded that a new insurer is at disadvantage compared
with established insurers
...

vii)

The effect of mergers on the supply of Insurance
...
The relationship of mergers to this problem is
what happens to the total retention of a new group when previously independent
companies are integrated
...
The integration of two similar underwriting
portfolios (policies) would increase the numbers of exposure units combined
together in the one account, thereby further reducing residual risk
...


In practice this does not appear to have happened and from time to time it has been stated
that aggregate limits have been reduced
...
Possibly
the explanation may be psychological, reflecting underwriters’ attitudes to risk, i
...
an
unwillingness to raise limits substantially beyond the amounts they had been prepared
individually to accept in the past
...
Again the
re-adjustments of group underwriting and reinsurance arrangements following several
major mergers of direct offices may have an adverse effect on the amount of reinsurance
68

supplied to the market, thereby reducing the acceptance limits of the direct offices
...

4
...

(a)

Economic institutions
...


(c)

Certainty of income and capital
...


(e)

Quasi-compulsory
...
6 Questions

1
...


How does price elasticity of demand affect insurance?

3
...
0 Introduction
This lesson covers the life insurance, briefly explaining how the life insurance cover is
taken and the diseases that can be insured
...


5
...

(ii) Explain how a health plan works
...
2 FIRE POLICY DRAFTING
During the 16th century people contributed money to a common pool out of which
payments were made on the death of a member
...
The type of assurance offered those days was for a short term for a
period of 12 months
...
In 1762 the equitable life assurance society was
formed and transacted business dependent upon the age of the person when he took out
the policy
...

In 1774 Life assurance act was passed, its title was “An act for regulating insurance upon
lives and prohibiting all such insurances except in cases where persons insuring shall have
interest on the life or death of the person insured”

70

5
...


However if the insured survives until the end of this period

(maturity date) the sum insured is paid to the person
...
e
...
In case the person dies after contributing for 5 years the
dependents are paid 200,000/= which is the money insured
...

5
...
The money provided by life
insurance meets several urgent expenses like:
•

Funeral and medical expenses
...


•

Education expenses
...


Factors that determine amount of life insurance taken
...


•

Needs at the time of death
...


•

Ongoing financial need i
...
Rent, education etc
...
5 TYPES OF LIFE INSURANCE OFFERED IN KENYA
Term insurance
This is life insurance that provides protection for a specific period of time
...
Upon maturity of the policy, the insured is give the sum insured
...
The policy is designed and priced for one to keep
over a long period of time
...
Whereby a premium is paid periodically in the amount indicated in
the policy
...
The benefits under the policies are not paid before the
death of the life assured
...
The net premium differs from
polices depending on the benefits requires by the proposer
...
e
...


•

Benefits applicable to the policy
...


•

Cover ceases on demise of the life insured
...


•

Common claims namely death claim, maturity claim surrender claim, paid up value
claim
...
g
...


5
...
Health plans offer variety of health care
products form medical treatment health care
...
An
individual or employer pays an annual fee which is used t cover the member or employees
incase of illness
...


72

Along with payment of bills for members some health plans provide advice of health
related issues, medical check us, counseling services and preventive health care
...

5
...
1 Factors to consider when choosing a health plan
Just like making any other major purchase it is important that one selects a health plan
wisely by using the following factors:
i
...
Coverage
Coverage of health care services differ from one company to another
...

(a)

Medical check ups, follow up care, counseling services and preventive
care
...

(c)

Information

on

child

immunization,

cancer

screenings,

medical

examination and caring of your health
...

iii
...
What do members of
specific health plan say about that company? From friends one can
determine how satisfactory a specific health plan is
...
7 Health Care Issues
Common diseases
There are several disease that are currently diagnosed in Kenya and are such a threat to the
people of this country
...
8 Activity

(i) Give a brief summary of the life insurance policy and state how the health plan
works
...
9 Questions

1
...


What are the types of life insurance offered in Kenya?

3
...
1 Introduction
Fire is a peril that causes great loss of property
...
We are going to understand the
different causes of fire and how they are treated
...

6
...

Explain the structure of a standard fire policy and conditions
...
3 Fire Policy Drafting
Insurance protection is an (abstract invisible) intangible service
...
When the event of risk
occurs insurance becomes a claim (tangible thing)
...
Settlement of claims should be
the promptist so that there is appreciation for insurance
...
As far as possible claims should be settled
...

The claims are to be settled within the framework of insurance contract
...
The loss
must be carefully investigated
...
The premiums received from
many should be kept as a trust fund, which is to be managed on business principles to pay
for the losses of the few
...
The general law of contract
2
...
The terms and conditions of
4
...
The extensions to the standard policy
6
...
Loss assessment procedure

In the following section we mention in brief the different items of legal aspects of fire
insurance
...
3
...
The agreement binds insurer and insured for consideration by both
sides – premium and indemnity
...


6
...
1 Special Principles: Utmost good faith insurable interest, indemnity obligation and
contribution
...
But even if they are not
specifically mentioned they are applicable to fire contract i
...
implied conditions
...
4
...
e
...
Insurance is based on utmost good faith i
...
, disclosure by
insured
...
Good faith is a part of agreement
...
It extends over preservation of property
...


76

This put a duty on insured to inform all changes to insurer
...

6
...
2 Insurable interest: Capacity of person means more than what is found in the Indian
contract
...
But in insurance he must have also an interest in the insurance property
...
Besides the owner,
the trustees, executors, administrators, mortgagor and mortgagee (up to part of loan amount
unpaid in loan granted against the property), the bank (Agreed Bank clause) have insurable
interest
...

When insurable interest be present? Insurable interest must be present at the inception of
the contract and when the loss takes place
...
A businessperson expects a
consignment of goods; the time of arrival is not known
...
He can arrange insurance in advance
...
Insurable interest is a personal right of insured so does not
pass automatically with the property
...
But the legal heirs of insured get the insured right
automatically
...
The property – the subject matter must be present physically at the time
of contract
...


77

6
...
3 Indemnity
...


subrogation and contribution
...
Subrogation gives insurer all the rights of insured
against the third parties
...
Contribution refers to the sharing of compensation with other
insurers of the property
...
The
measurement is done by the market value of property, upper limit being sum assured, but
value agreed in value policy
...
A insured his factory
building for Ksh
...
It is lost by fire caused due to
negligence of Z
...
X pays the loss in full to A
...
5, 000
...
4
...


Compensation is payable only when the loss takes place by insured peril
...
Some perils before and some
perils after the insured perils
...
In such complicated situation previous legal decisions guide the insurer’s action we
mention a few points taken from such decisions
...
Every event is the result of a cause
...


78

But losses, which are indirect or consequential, may be covered by special agreement with
insurance company
...
One must prove that the loss
is connected with the peril by a chain of events leading naturally and in the ordinary cause
of events, from one to another
...
Law
union case the facts were: that a wall was damaged by fire and remained standing for many
days
...
It damaged the neighboring
property
...
It was held that fire did
not cause the loss so no compensation paid
...
West of Scotland case the
facts were: that a fire left a wall of the building in a very dangerous condition
...
The wall fell upon the neighboring building and
damaged that
...
The connection between the loss
and fire must be direct and close to be called proximate cause
...
The loss is also compensated
...
Such perils are war, forest, fire, earthquake etc
...

6
...
It embodies all the
terms and conditions which are specific and applicable especially to relationship under the
contract
...
However, these points were
discussed in the lessons of general principles of insurance in details
...
Not other form of contract can be used
...
This can be done by
endorsements to meet the conditions of the particular case
...
Oral contract is possible but not advisable
at all
...
It has two parties the
carrier of insurance-insurer and the insured
...
e
...
Usually the insured offers or requests for insurance
...
The acceptance comes from
the carrier, or through an agent who is willing to accept the risk
...


Consideration from the carrier is his promise to pay

compensation and from insured side it is his payment of premium
...
Lastly, the insureds
relation with subject matter must be such that loss or damage of the property would harm
him
...
Without the interest contract becomes
gambling
...

Basic Definitions in use in Policy
1
...

Loss means damage and destruction
...

80

(a)

Loss by fire means a sufficiently combustion to produce ignition and
probably requires presence of flame
...


Friendly fire is one, which

confines to the respectable intended for it
...
One proof is that fire must be the most
proximate cause of damage
...
It is covered by endorsements
...


(c)

Other perils extended cover
...
Damage due to removal of goods from endangered
peril is also covered
...
Examples
are property like buildings, furniture, fixtures and fittings
...
fire means accidental ignition
...
Insured
...
In return the person pays an agreed consideration (premium)
...
Generally an insured is a policyholder
...


3
...


The insurer is the person or body who, in return for the premium,

undertakes to indemnify the insured
...
That document is known as policy
...
But in India it is General Insurance Corporation
...
But standard policy may be modified by endorsement to meet
the conditions of the particular case
...
The cover relates to loss or a=damage to insured property by
specified perils
...
Cover for loss of profit by way of
stoppage of production is consequential loss
...
Policy
...
It describes, inter alia,
the property and peril covered
...
Proposal form
...
Insurer may accept this
...
It is neither general nor compulsory in use
...
The proposer (the person who wants to take insurance policy) furnishes
the following particulars in relation to the policy in that form
...
Nature of adjacent (lying near)
property
...


(vi)

Agency

Fire insurance right from its birth in society is transacted by “word of mouth”
...


However, in order that there is no misunderstanding it is an accepted principle, that the
insurers confirm in writing by means of a letter what has been communicated orally
...
Cover Note
...
The request comes from the insured or, the
insurer if he anticipates any delay in the issue of policy document, usually issues a
cover note or a letter of cover for provisional protection to the assured
...
The cover
note briefly describes the property to be covered, perils against which it is insured,
the period of the cover, sum insured, agency and also mentions that the insurance
cover issued is subject to terms and conditions
...
It is effective till the
issue of fire policy
...
Renewal Notice
...

This is purely a reminder
...
Section 64 VB of the Insurance Act 1938 duly
amended provides that no insurer in India can assume cover unless the premium is
paid in advance/covered by a bank Guarantee/Cash deposit before assumption of
the cover
...

8
...
There are two aspects of the extent of protection:-

(i)

The events covered by the policy, such as damage by fire, water smoke
and like;

(ii)

The amounts covered by the policy, i
...
, the definition of the sums that
can be recovered by the insured in case of loss
...
Inspection Report
...


Its manner of

preparation is different in different insurance
...
In life the person is the subject matter but in fire and other
non-life contract the person and subject matter are different
...
It may relate to classification of a house in a rural environment
...
It will depend upon each individual case of investigation
...
6 POLICY DRAFTING
1
...
The effectiveness of efficient drafting of a policy can be
tested only when a claim is processed for settlement
...
It is a skill to draft well
...
The following qualities are considered
essential in efficient policy drafting
...


Practice in policy drafting is of prime importance
...
They should read policies and follow them
...
Materials used for Drafting
...
From the following sources of information we can build up a policy
...


Form (a)
...
It also gives information about heating,
lighting and construction the premises
...
This is prepared by an official of the company to obtain:
(i)

Full description of the construction, occupation, lighting, and heating of
the building concerned together with full details of trade processes,
particular hazards, and fire appliances installed
...
Inspection report is prepared to know
facts about insured and property
...


Generally

survey is done only for the larger insurances, property in congested or
conflagration prone areas, and for risks under which trade processes are
carried
...

(iii)

Principles of Reading a Policy
...
Dispute
may arise in future on the correct meaning of the terms used in policy
...


When intention of parties is clear no difficulty arises
...
These are special writing added to printed form, (c) endorsement in writing
overrides typed, the typed words override printed ones in case of any duality in meaning,
(d) the meaning which goes against the drafter is accepted, benefit goes to insured
...
g
...

Structure of a Standard Fire Policy and Conditions
The formal undertaking of the company to indemnify the insured in the event of destruction
of or damage to the property by certain contingencies is expressed in a document known as
the “standard Fire Policy”
...


The standard fire policy form is issued by the offices of the subsidiaries of the General
Insurance Corporation and the terms and conditions are governed by the various provisions
of the Tariff
...


In the event of conflict between the written portion and the printed, the former over-rides
the latter
...

Before an attempt is made to draft policies, the Standard Fire Policy should be studied
thoroughly
...


1
...


(ii)

Liability is subject to the conditions that are printed and or endorsed,

87

(iii)

Peril included are: (a) Fire, (including fire following explosion), (b)
Lighting, (c) Explosion of Boiler used for domestic lighting or heating in
a building not forming part of any Gas works
...


6
...
The term simply
means actual ignition under accidental circumstances (as far as the insured is concerned)
...


Thus,

damage by smoke, heating scorching or charring without actual burning, is not considered
as “fire”
...
But this applies only to the
insured
...
If the insured himself sets fire to the insured property, it is
certainly not accidental; in fact, it is fraud
...


88

A fire lighted for a definite purpose and confined to its proper place limits, e
...
for cooking,
heating or manufacturing purposes is not a fire within the meaning of the policy
...


Sugar, which was undergoing refining process

through the application of heat, was damaged due to excessive heating caused by the
negligence of an employee
...
Nothing was consumed by fire… the sugars were
chiefly damaged by the heat; and what produced that heat? Not any fire against which the
company insures but the fire for heating the pans which continued to burn all the
time………
...


If the fire had broken its limits and caused ignition to take a place outside the pans, grate or
furnace, then the loss would be within the policy
...
This is fire in improper place
...
Poland 1941) throws light on the subject
...
The next
morning, the fire was lighted by mistake and the jewellery was damaged by fire
...


But the judge held them liable saying that it made no

difference whether the fire came to the insured property or the insured property came to the
fire
...


89

The position may be summarized thus: (a) there should be actual ignition, (b) of property
which ought not to have been on fire, (c) under accidental circumstances, so far as the
insured is concerned it is fire
...


Examples are: (a) Damage during or immediately following a fire caused by: (i) smoke and heat; (ii)
scorching, (iii) falling walls
...
g
...
g
...
, (ii) damage caused by
blowing up the property to prevent spreading of fire
...

6
...
1 Fire resulting from Explosion
The insurance does not cover any loss or damage occasioned by or through or in
consequence of explosion except as stated on the face of the policy, but it covers certain
types of explosion
Explosion
...
A dictionary defines explosion as “a sudden violent
burst with a loud report”
...

90

Harris’s

Technological Dictionary of insurance Chemistry pressure in the surrounding air, or gases,
from sudden and violent expansions of any substance in their neighbourhood
...

Excluded
...
Concussion
damage
is to be excluded
...

(c) But insurers are prepared to include all fire damage resulting from explosion
...
Loss or damage (Both fire and concussion) caused by the explosion of
a boiler is covered provided the boiler is used for domestic purposes
...


Two English cases provide guidance in the interpretation of the word

“domestic”
...
Muller, it was held that a boiler used for supplying hot water for
cleaning and heating the office operation of business premises was held to be
domestic
...
a very, it was held that “if the water is used for
a purpose which is common to all domestic establishment, it is none the less
used for domestic purposes”
...
Thus, explosion of a boiler in a canteen in a factory would be within the
scope of the policy
...
7
...

Uses- for domestic purposes only, or lighting or heating a building not forming part of any
gas works
...
These are “domestic
purposes”
...
However,
explosion of gas in a gas works causing damage to insured property is not covered
...
Therefore, damage caused by an explosion
of gas in street is not covered
...
This peril is included so that all damage so caused, whether fire results or not, is
covered
...

Exclusions (nature of loss)
...

Condition 6 excludes certain n perils and conditions 7 certain types of property from the
scope of cover
...


6
...
3 Subterranean Fire
...

Loss of or damage to any electrical machine, apparatus, fixture or fitting
...
This
exclusion is necessary to avoid doubt in the application of the legal doctrine of proximate
cause
...
The proximate cause of loss will be theft and fire the remote cause
...
This comes under loss covered by action
of mitigating damage
...


Loss by fermentation, natural heating, and spontaneous combustion, heating or drying
process is regarded as an inevitable, natural loss
...
Most of these losses generally result from carelessness or defective
storage and the object of the exclusion is to penalize the insurer for his lack of care
...


An example will make this clear
...


93

Loss or damage to property occasioned by its under-going any heating or drying process is
excluded
...

Loss by burning under orders of public authority would occur when, for example, the
appropriate authority orders intentional destruction of property for sanitary reasons
...
Literally, it means fire
occurring below the surface of the heated materials accumulated underground or to
artificial heat igniting a coal-bearing stratum
...
Exclusion (e) excludes loss or damage to
electrical machine, fixtures, fittings, etc, or to any portion of the electrical installation
caused by “electrical risks” such as short-circuiting, self-heating, over running, or whatever
cause including lighting
...
or portion of the electrical installation which is affected by any of the
electrical risk
...


Exclusions (Nature of Property)
...
and
“social” perils like riot and “political perils” like war, etc
...


94

“Riot” has been defined by the Indian Penal Code as follows: Whenever force or violence
is used by an unlawful assembly or by any member thereof in prosecution of the common
object of such assembly every member of such assembly is guilty of the offence of rioting”
...
7
...
Loss or damage directly or indirectly, proximately
or remotely caused by the excluded perils is outside the scope of the policy
...

Secondly, the onus of proof that the loss is not caused by the excluded perils is placed upon
the insured
...
It is to be established whether the
insured is legally liable for loss in trust or on commission
...
The words “for which the
insured is responsible” are also inserted to make it clear that cover operates only where
there is clear insurable interest
...
The expression “goods held on commission” is used to
refer to goods, which are held by the insured as bailee for the purpose of sale
...

There is an interesting agent, contracted to transport some bales of cloth and yarn from
Bombay to Shrivardha
...
Quazi Ali took out a
95

policy of fire insurance from 26-11-1995
...


While observing that the words “the property of the insured” “in such policies covered not
only goods belonging to the insured but also goods in respect of which he had a lien or a
charge for services rendered or for expenses incurred
...

Classes of property in bullion and valuable stones are of high value in small bulk; these
will present difficulties in assessment of loss, so excluded
...
Claims for documents,
manuscript and business books are settled on the basis of the value of the materials as
stationery together with the cost of clerical labor necessarily incurred in their production
...
are settled on the basis of the cost of labor and
material necessary for their reproduction, subject to the sum insured on each item
...
8 SUMMARY
1
...
It is very much vital to the insured and the insurer and test
of its accuracy is the intention of the parties to the contract would come up only
when a loss is reported
...
Issued in lieu of cover note
Place of issue and date of issue
Period of insurance
Total sum insured
Risk covered and the premium thereof
Total premium
Agency
Description of the property to be insured
Attestation
2
...
The standard fire policy form is prescribed by the tariff
...
If a policy does not contain these
conditions then it would be subject to implied conditions only
...
That means
policy is subject to both implied conditions and express conditions
...
Conditions are printed on the standard fire
policy itself
...


They are enlisted in serial number of the standard policy:

Misdescription
Payment of premium
Other Insurance
Fall/displacement,
97

Excluded losses
...

Good draft needs a mastering of conditions
...
The result of misrepresentation is serious
...

Misrepresentation may be regarding property insured or material misdescription of
property
...

Therefore accuracy in translation of the property to be insured is of supreme importance
...
Terms must be specific and have one
meaning
...
“No payment in respect of premium shall be deemed –
unless a printed form of receipt for about the proof of premium payment (1) premium be
paid, (2) form of printed receipt be obtained (3) it should be signed by an official or agent
of the company
...
We have already
seen the calculation
...
All sum insured at the same rate should be
grouped together
...

Other Insurances (Condition 3)
...
The purpose
is to know about other insurances on the same subject matter
...
Other insurances are declared while replying on the extent of
loss
...
This condition provides for automatic cancellation of
cover in the event of collapse of the building or of any important part of the building if it
goes to change the risk (original risk)
...
The cover is not cancelled if the collapse is caused
by fire
...
Excluded losses, excluded losses,
99

excluded perils and excluded properties are dealt in condition 5,6,and 7
...


Excluded losses (condition 5)
...
They are:
(a)

Loss of theft during after occurrence of fire

(b) Loss of damage to property occasioned by its own fermentation, natural
heating or spontaneous combustion or by its under-going any heating or
drying process
...

(e) Loss or damage caused to any Electric Machine/Apparatus/ Fixture or
fitting arising or occasioned by over running, excessive pressure, short
circuiting or arcing, or self heating or whatever cause including lighting
and this applies only to the machine so destroyed but spread of fire will
fall under the standard fire policy
...


Excluded Perils (condition 6)
...
They are:
(a) Earthquake, Volcanic eruption or convulsions of nature
(b) Typhoon, hurricane, tornado, cyclone atmospheric disturbance
...


Excluded articles – Property (Condition 7)
...
These will have to be specially
included in the policy whilst drafting if the intention is to cover these articles also
...


Goods held in truest or on commission

ii
...
1,000
...


Bullion or precious stores

iv
...


Securities, documents of any kind of stamps
...


vi
...
It deals with alteration in the risk
originally proposed
...
These are as follows:
If trade or process or nature of occupation or other circumstances affecting the building
insured or containing the insured property be changed in such a way as to increase the risk
of loss or damage by fire
...


If the property insured be removed to any building or place other than that which it is
herein stated to be insured
...
The insurer’s liability will not end if the
following conditions are fulfilled: (a) the change was notified to insurer, (b) change was
endorsed in policy, (c) if the insured dies the policy is automatically transferred to his legal
heirs
...
It depends upon circumstances
and the insurer’s giving proof
...


It provides for stoppage of cover in case of material alteration in subject matter
...


Marine Clause (Condition 9)
...
If one property is insured under marine and fire policies than the
payment of compensation will be from marine first and any balance left of the loss will be
met by the fire policy
...
This condition provides for the cancellation of the policy by
either party (insurer or insured) by giving notice to the other party
...
If insured cancelled the policy
the refund of premium is made according to the short period scale
...
240
...
240 i
...
180
Short period Premium for 3 months at 40% of the Annual Premium =ksh96: Refund (ksh
240 –96) =ksh144
...
The insured must give (a) immediate notice of loss
(b) Written statement of particulars of property lost or damaged, and (c) proof of loss, at his
expense
...
In the event of loss the insurer has the
following rights: (a) to enter the insured premises, (b) to take possession of the insured
property (c) salvage the insured property, and (d) sell the property on behalf of concerned
parties
...


Fraudulent Claims (condition 13)
...
The circumstances (i) the claim is
fraudulent (ii) the claim is based on a false declaration (iii) use of fraudulent means to
claim (iv) willful damage are fraudulent
...


The insurer may pay

compensation in cash or reinstate the insured
...

103

Insurer’s right to obtain insured’s assistance against third party (Condition 15)
...
This arises when third party is liable for the damage under law
...
This condition deals with multiple
insurance on the same subject mater
...
g
...
There is a loss of ksh
...

A pays

40,000/100,000 x 20, 000 = ksh8, 000

B pays

60,000/100,000 x 20,000 = ksh12, 000

It is arrived at by finding the proportion the sum insured bears to the aggregate insured sum
and applying that to the amount of loss
...
If the sum insured is valued at a lower price than the
property on the date of loss, then the insurer will pay in the same proportion the insured
sum bears to the value of property
...
As for
example, let us assume that value of property on the date of loss is ksh 75, 000 and the
actual loss is valued at ksh
...
50,000
...
20, 000

104

Arbitration (condition 18)
...
But whether claim is insured or not has to be decided by the court of law
...
The insured forfeits his claim if he does not
take the claim to court within 12 months from the date of refusal by the insurer
...
All notices and communications to the insurers are to be
in writing only
...

Condition 1
...


Condition 4 and 8 policy ceases when certain events occur
...
Under condition 13 due to fraudulent
claim all benefits are forfeited
...
9 Miscellaneous legal features
Burden of Proof
...
g
...
He is not expected to further prove that the
cause of loss does not fall within any exception
...
However, this onus of proof may be shifted back to the
insured by policy conditions
...


In any action, suit or other proceeding, where the company alleges that by reason of the
provision of this condition any loss or damage is not covered by this insurance, the burden
of proving that such loss or damage is covered shall be upon the insured
...
But once the insurers prove this, the onus shifts to the insured who has to prove
that the loss was not caused by the excepted peril or that it arose independently of the
operation of the excepted perils
...
g
...


Where a breach of condition is alleged, the onus of proving it is on the insurers
...
Waiver defined as the voluntary relinquishment of a known right
...

6
...


(ii)

Explain the meaning a different types of the peril ‘ fire’
...
11Questions

1
...

2
...

(a)

Insured peril
...


(c)

Expected period
...


(e)

Extent of protection
...


3
...


107

LESSON 7
MARINE INSURANCE
7
...
It
explains the general principles that govern the insurance policy
...
1 Objectives

At the end of this lesson, the learner should be able to:
(i)

Explain the concept of maritime interest
...


7
...
That is to
say, the losses incidental to marine adventure
...
In fire the
indemnity is limited to actual loss, in marine insurance it is ordinary based on values
agreed upon in advance
...

The risks are marinetime perils’ on insurable property
...
But modern cover
extends up to inland waters or on land in conjunction with the sea voyage
...
2
...

Ship is the hull including its equipments
...
Since fortuitous events event

108

may cause loss to any of these interests, they are insurable interests
...

A ship may carry only cargo belonging to owner of the ship (he has three interests: hull,
cargo and freight)
...
Each of
the parties has an insurable interest here
...


7
...
2 Special Characteristics of Marine Insurance Contract
There are three outstanding characteristics of the application of Marine Contract
...
Second, it is more strictly interpreted
...
However marine insurance has
the following essential features or fundamental principles:

Feature of general contract, insurable interest, utmost good faith, doctrine of Indemnity,
subrogation, warranties, proximate cause, assignment and nomination of the policy, return
of premium, non-deviation in voyage
...
3 FEATURES OF GENERAL CONTRACT
...
Broker prepares the
slip after getting ship owner’s instructions, merchant or other proposers
...
The premium
is determined on assessment of the proposal
...
The
broker then sends the cover note with the terms and conditions of insurance
...
3
...
So
the insurable interest of the person must be present at the time of happening of the loss
...
So the policy is
easily assignable
...
There is complete reliance on mutual good faith of parties
...


PPI policy: Insurance policy itself is the insurable interest in such a policy
...
If loss takes place the insurer will not verify the insurable interest of the
holder
...
Persons
having insurable interest are: (a) ship of ship-owner, (b) cargo-cargo owner, and price of
cargo plus freight; (c) Freight receiver-of freight; (d) Reinsurer for – his insurance, Insurer
may reinsure, (e) Other cases-liability in respect of salaries (master and crew), (f) Lender of
money – on battomry or respondentia in respect of loan
...
This depends upon the terms of sale
...
O
...
O
...


F
...
B railroad

the buyer assumes responsibility after the goods have been placed on
railroad car
...
O
...

110

2
...
A
...

3
...
… price is for the goods unloaded from steamer at
destination, but the buyer assumes responsibility for all insurance
...
C
...
F
...

3
...
This is a general characteristic of all insurance
contracts
...
The insurer relies more on
insured’s information and contact than in case of any other
...
The insurer has also some liability i
...
, he cannot urge upon
proposer to effect an illegal insurance
...
There are certain exceptions: good faith (disclosure) does not apply
to
(A)(i) Facts of common knowledge
(ii) Facts ought to be known to insurer
(iii) Facts not required by insurer;
(iv) Facts which insurer can infer,
(v) Facts of public knowledge

4
...
Insurance compensates loss, but allows no profit out of it
...
This can be the insured or
insurable value
...
In case of loss the payment is made in the proportion the sum assured bears
to insured value
...
It is agreed upon earlier
...

If the insurable value becomes higher than the sum for which it is insured then the
111

insured is treated as his own insurer for the difference or excess
...


Exceptions
...


Profit allowed
...


Insured value
...

7
...
2 Doctrine of Subrogation
...
Insurer may reduce the sum
payable to insured by the amount insured receives from the third party as compensation
...
If insured gives up his right to claim from third party the insured is
liable to repay the amount he forgoes to the insurer
...
A warranty is that by which the assured undertakes that some particular thing
shall or shall not be done
...
That assured affirms
or negatives the existence of certain state of facts
...
There are two classes of warranties
...


112

Express warranties are expressly mentioned in the contract of policy
...
But non-compliance with any one of them is fatal
to the contract
...
(ii) That there will be no deviation from the agreed
course of voyage
...
Sea worthiness means reasonable fitness ( in all respects) to survive the
normal course of its proposed use
...
It relates to start of the voyage
...
It is not applicable to hull insured
under time policy
...
If voyage has several stages the ship must be sea worthy at the beginning of every
stage
...
The conduct of the venture and its purpose must be legal under the laws of the
country of insurance and international laws
...
Violation of laws of foreign countries does constitute breach of warranty
...

Non-deviation
...
Normal routes
...
Deviation is
allowed in the following circumstances
...

113

7
...
The insurer is liable for any loss proximately caused by insured peril
...


Causa proxima is the cause proximate in efficiency, and not necessarily the cause nearest in
time
...
(Land
shore and shipping Co Norwich Union Fire insurance Soc
...
Assignment
...


It is done by

endorsement or other traditional manner
...
4 Meaning and object of Marine Insurance and Terms used
Marine insurance is closely related to Import and Export trade over seas
...

The marine Insurance Act 1963 defines Marine Insurance as a contract between insurer and
insured
...
The
insured has to pay a certain sum of money as premium in consideration of insurer’s
guarantee against sea perils
(Sea perils are an event, which causes personal/property loss at the time of shipment
through seas)
...
This document is called as
“marine policy”
...


The term “Maritime adventure” includes:
(a)

Any insurable property exposed to maritime perils
114

(b)

The earnings or any freight, passage, money, commission of other financial
benefit, loans etc, are endangered by exposure of property to marine perils, (c)
any liability to a third party may be incurred by the owner of, or other person
interested in or responsible for insurable property by reason of maritime
perils
...


According to Section 2(13) A of the Marine Insurance Act 1938, “Marine insurance
business” means the business of effecting contracts of insurance upon vessels of any
description including cargoes, freights and other interests which may be legally insured for
any transit by land or water or both
...
5 Subject matter of Marine insurance
On the basis of subject matter of property we can divide marine insurance into Hull
insurance, cargo insurance and freight insurance
...


As the

ship/vessel/hull moves from one part to another and it may be subject to marine perils,
hence insurance is affected against the risks
...
As for example, steamers, sailing vessels etc
...

Hull policies are also issued to cover vessels in course of construction
...
When the goods or cargo transported from the port of departure to the port of
destination, forms the subject matter of insurance, it is called as Cargo Insurance
...


Freight Insurance
...
The
freight receiver to protect freight purchases the freight insurance policy
...
Freight may be paid in two ways
...
In the first case there will be no problem for the freight receiver
...
Freight Insurance, therefore, is a device to protect against such loss of
freight
...
But the nature, extent and
capacity of insurance varies from one country to another
...
Till to day it is considered to be having stronghold in Marine
Insurance Market
...


116

7
...
Lloyd’s provides all facilities enabling its
members to transact on their own account insurance business of all kinds
...
Out of these 16
members in each year 4 of them retire on rotation basis
...


The insurance brokers are chosen as

underwriting members
...

7
...

(b) Cargo insurance
...


117

7
...


What is maritime interest?

2
...


3
...
O
...
factory
...
B
...
A
...
I
...


What are the basic principles in fire underwriting?

118

LESSON 8
MOTOR INSURANCE
8
...
The principles that govern this insurance are also extensively
covered, including the policies that fall under this insurance
...
1 Objectives

By the end of this lesson the learner should be able to
(i)

Give a brief history of motor insurance
...


8
...
But the business is so big
that insurance companies have to maintain a separate department
...
So the cover, premium rates and policy forms are all standardized or uniform
...
Because the property is exposed
to damage and law imposes upon owners some responsibility towards the public
...
The risks are of two types:Legal liability for damages for bodily injuries or damage to property caused to other
...
Everyone who owns an automobile assumes a
risk because the property is subject to damage and the law imposes upon owners
119

responsibility to public
...


8
...
K the first car appeared in 1894 and the first policy
was issued in 1895
...
In 1899 accidental damage to car
and in 1901 burglary and fire were added
...

In 1903 the car and general insurance corporation limited was started and many others
followed
...


8
...
But the application of these principles to automobile insurance is
accepted as a specialized problem requiring a special contract
...


8
...
1 Utmost good faith
The doctrine imposes a legal responsibility on the proposer to disclose material facts to the
insurer
...
The declaration clause given there makes the
proposer’s responsibility a contractual duty of utmost good faith
...
So the answers must be true to
the language and must be correct
...
Examples are the type of vehicle, the geographical area of use, the
physical health of driver, the driving history, traffic convictions, and past loss experience
...

8
...
2 Insurable Interest
This is the legal right to insure
...
Existence of property exposed to damage or liability;
That must be subject matter of insurance;
1
...
The parties who are expected to have
insurable interest are:
(a) Insured
...

(b) Other than insured
...
In effect the insured becomes the agent for
these persons and insured indemnifies them
...
In hire purchase agreement the financier’s interest is
insurable
...

(d) Motor Trader
...

8
...
3 Indemnity
It means, the insured is placed after a loss, as far as possible, in the position as he was
before the loss
...
So the insurer pays the actual
121

value of loss or sum insured whichever is less in case of total loss to insured
...
Insurer may repair or
replace or pay cash as it likes
...
Legal costs
are also indemnified
...


8
...
4 Subrogation and contribution
Subrogation is transfer of right to insured to insurer
...


Insurers may exercise the insured’s right to cover damage
...
But policy may contain transfer before
payment (knock and knock agreement)
...
It is done in the proportion the insurer’s share bears to total sum of all
insurers
...
4
...
It is applicable to third party claims also
...
5 Types of motor vehicles
Three classifications are found in Act as follows;

Motor Vehicle

Private Cars
1
...

2
...


Motor Cycles
1
...

2
...

3
...
Three wheelers, in
valid carriage
...
Goods carrying (private
carriers permit)
...
Goods carrying (Public
carriers permit)
...
Trailers without means of
self-copropulsion
...
Passenger carriers buses,
hotel omni buses, airline
buses
5
...


8
...
1 Types of Policies
1
...


2
...

This provides all covers of Act only and allowed higher limits for third party
property damage
...
Two other different covers are available for private cars
...


3
...


123

This covers the risks of fire and/or theft to car while in garage and out of use
...

This policy covers risks covered by Act only and third party policies and in addition
covers risks of fire and /or theft whilst the vehicle is running and /or in garage
...


8
...
2 Classification of vehicles
The vehicles are generally divided in the following four categories for the purpose of
insurance
...


Motor Vehicles
Classification is necessary for fixing the rates of premium
...
The Tariff defines and describes the vehicles in
the following ways: -

(a) Private Cars
Vehicles used solely for social, domestic and pleasure purposes
...

Three wheeled cars (including cabin scooters) used for private purposes

(b) Motor Cycles
This class includes the following different types of vehicles:-

Motor cycle with or without side car
124

-

Auto cycles or mechanically assisted pedal cycles

-

Motor scooters with or without side car

-

Three wheeler invalid carrier

(a) (i) Commercial vehicles Owner’s goods
...
These vehicles are used under a private carrier’s permit
...

8
...
3 The following characteristics make a vehicle private commercial vehicle: 1
...


It is run under a private carrier’s permit

3
...
e
...


4
...

Commercial Vehicles General Carriage
...
The Act defines a public carrier as
‘an owner of a transport vehicle who transports or undertakes to time or in any public place
for hire or reward, whether in pursuance of the terms of a contract or agreement or
otherwise’
...
5
...


It is run under public carrier’s permit

2
...


3
...


4
...


(iii)

Trailers
...
It includes also agricultural implements drawn or hauled by selfpropelled vehicles
...
The vehicles may be made like buses including
tourist buses; hotel or school omnibuses, and air-line buses
...


Motor insurance belongs to miscellaneous class of insurance
...
This is a tariff class of
business so the covers, premium rates and policy forms are all standardized or uniform
...


Those who drive cars are more responsible to public
...
Legal ability for damages for body injuries or damage to property caused to others;
ii
...


126

Everyone who owns an automobile assumes a risk because the property is subject to
damage and the law imposes upon owner’s responsibility to public
...

8
...


Motor Private

2
...


(vii)

Motor (PSV) Articulated Tanker
...


(ix)

Motor (PSV) General Cartage Articulated

127

For each class there are 3 types of cover available these are:
1
...


Third Party Fire an Theft (TPFT)
...


Third Party Only TPO)
...


Comprehensive cover
Covers the insured against losses that may be caused by all possible causes except
definitely stated exclusions such as Acts of god and Terrorism
...
Within the same policy the insured will be covered against
the loss or damage of accessories in the vehicle such as alloy rims, radio cassette,
etc
...
The basic premium is arrived
at by applying a percentage to the value of the vehicle or the
...


Third party Fire and Theft (TPFT)
Covers the insured against losses caused specifically by Fire or Theft of the vehicle
i
...
other causes such as accidents are excluded from compensatory cover
...
The premium in most cases is a present amount depending
either on the cc or type of vehicle
...
The
insurance company undertakes to compensate the

Third party on behalf of the

insured
...
Third Party Only (TPO)
Covers the insured against losses that may be incurred by Third parties involved in
an accident wit the

insured’s vehicle
...


128

8
...
Value of the vehicle (basic)
2
...

3
...
Radio cassette
5
...
Air-conditioners
7
...
Any other stated accessories
9
...

Extensions are available to these covers
...
Strike Riots And Civil Common (SRCC)
2
...

3
...

4
...

5
...

6
...

7
...

Standard rates are applied to these stated minimum values for these additional extensions to
come up with the premium
...

TPO
This only covers the insured against Third Party liability
...
This can be in
form of a predetermined amount or percentage rte
...
These Excesses govern the limits above which
the insured can make a claim
...
Also in the event of a claim the insurance company may require the
insured to pay the excess amount before they settle the claim
...
Applicable Excesses for Motor covers include:
1
...
Accident Excess
3
...
Third Party Excess
5
...
8 Discounts
Certain discounts are also applicable to a motor policy
...
They include:1
...
The actual amount of discount depends on the size of the fleet and the
insured’s relationship wit the insurance company
...
Non-Claims Discount (NCD)
This is applied if the insured has not had a claim in the past insurance year
...
Should the insured
have a claim at any point the NCD automatically reduces to 0% for the next
insurance period
...

N/B
...
This gradually reduces the overall impact
of the discount on the total premium e
...
if NCD of 10% fleet Discount of 10% and
Special Discount of 10% were to be applied to a premium of 60,000 in the same
order, the resulting discounts would be as follows:
130

•

Net premium = 60,000/=

•

NCD 10% = 6,000/- New net = 54,000/=

•

Fleet discount 10% = 5400/= New net = 48,600/=

•

Special Discount 10% = 4,860/= New net = 4,740/=

Renewals and Lapses
Most motor polices cover a period of one year except for sort-term polices, which may go
for 14 days depending on the requirements of the insured
...

Renewals/lapse processing involves:1
...
Printing and sending of renewal notices to he clients,
which require the clients to make any necessary amendments to the insured value
of their vehicle and to confirm instructions to he insurers to go ahead and renew
their policies
...


Printing and sending of renewal reminders t those clients who have not sent any
confirmation that they wish to renew their policies
...


Lapsing of polices whereby the insured has not sent instructions for renewal
Policies will normally be lapsed if they have not been renewed for some time
since the required renewal

date
...

The calculation of premiums for renewals is done in the same way as it would be done for
new business wit the exceptions of training levy and stamp duty
...
9 Endorsements
During the period of cover, it may be necessary to endorse a policy because of various
reasons
...
This my happen if the client increases or reduces the value of what he
has insured e
...
by buying a new car or adding some accessories, which he wants covered
...
If the policy has already run over a period of half
a year, the calculated premium to be charged or refunded will be for the un-expired term of
cover, i
...
prorate premium
...
10 Motor Claims
There are various types of motor claims
...
They are:1
...
Third Party Property Damage
...
Third Party personal Injury
4
...
Windscreen
6
...

Other important considerations for motor claims are the prevailing circumstances at
the time of loss e
...

1
...
Road conditions
3
...
The number of victims injured or deceased
5
...

6
...

7
...

8
...

9
...

10
...
Companies retention limit
When processing any claim, certain validations have to be taken into consideration
...
The vehicle for which a claim is being booked has to exist in the company’s
books/files already
...
The vehicle has to have been on cover under one of the company’s policies at the
time of loss/accident i
...

•

The claim should not be before the date of inception of the policy
...


•

The claim did not occur after the policy had been canceled or after the
vehicle had been deleted from the schedule of vehicles covered under the
policy
...
11 Process functions of motor insurance
1
...


2
...
These vary from client
to client
(a) Basic premium is calculated from the value of the vehicle for comprehensive
cover and preset amounts for the TPPD and TPO
...

(c) There are discounts applied to the premium above
...
E discounts can be applied either before or after the
extensions
...

(e) Training levy is also applied to new premium, which is usually a percentage of
the basic premium
...
The debit is note is printed and reinsurance is handled at this point
...
The policy is printed and issued to the client after the premium is paid
...


133

5
...
The company
sends renewal advice notes to the insured indicating the premium that is due for
payment
...
Claims are processed for policies that are issued and are in force bearing the fact
that the claim occurred during the policy cover period
...
12 Activity

(i)

What are the basic principles of insurance that govern motor insurance?

(ii)

Who is a third party in motor insurance
...
13 Questions

1
...

2
...

3
...
Explain the various covers
offered in this area
...
What is a Non-Claim Discount? (NCD)
5
...
What do these abbreviations stand for in motor insurance?
(a) TPO
(b) SRCC
(c) LLP
(d) SPC
(e) TPFT

134

LESSON 9
GENERAL INSURANCE MISCELLANEOUS INSURANCE
9
...

This lesson will help the learner to clearly understand this important branch of insurance
...
1 Objectives

By the end of the this lesson, the learner should be able to: (i)

Understand the concept of general insurance and the main clauses that
govern this types of insurance
...
The main modules of General Insurance would thus be
classified as follows:•

Motor insurance
...
2 Miscellaneous insurance
•

This is a consortium of different policies that are not very common e
...
cash in
transit, fidelity guarantee, engineering, bonds, contractors all risks, workmen’s
compensation etc
...


Also included in this area are:(a) Business Insurance
Business insurance is divided into different classes some of which are:
•

Product insurance

•

Professional insurance

•

Public insurance

(b) Product Insurance
This is a cover taken to protect a manufacturer against claims arising from loss caused by
his product
...

136

( c) Professional Insurance
Lawyers, Doctors, Dentists etc take professional insurance to cover claims arising from
loss caused during their professional performance
...

(d) Public Insurance
This is cover taken by Authors or Editors who in their professional undertaking writes
something that results in defamation
...
This cover can also be useful for liability arising from your
actions to cause one injury or harm like your dog biting a neighbour, crossing the road
without looking and causing an accident etc
...
, insurable interest,
utmost good faith , indemnity (including its corollaries – subrogation and contribution) and
proximate cause, apply to the various classes of miscellaneous (accident) insurance dealt
with here
...

9
...
The social and economic changes that the community in its wake
and

the increased hazards to life and property gave rise to miscellaneous (accident)

insurance
...
But the turn of the century witnessed for reaching changes both in the
scope and the content of miscellaneous (accident) insurance coverage
...

Burglary and fidelity guarantee insurances which had already gained currency became
increasingly popular with the introduction of the five year plans scarcity of goods and
inflation have had a significant say in the development of this class of business, as losses
137

tend o increase during periods of acute scarcity and/or depression, and inflation contributes
to artificial jacking up of insured values
...
It would
be an understatement to say that we

have touched just the fringe of it
...
There are many other
types of contracts besides fire and marine) which are no so much popular they may be
quite helpful to individual insured
...
So it facilitates the insurer to cover any risk through extended cover by
endorsements
...
Any contingency which may result in financial loss can be included here
...

9
...
Any class
for which there is no provision in the fire or marine insurance is underwritten in the
accident department
...
Hence a wide range of risks and contingencies are insured in the
accident department, through strictly all the risks an contingences may not originate from
accident
...
5 Main Classes
The main classes of business are as follows:
i
...
The insurance provides for payment
of compensation against death or disability arising out of accidental bodily injuries,
or disability arising out of sickness
...


Motor insurance
...
e
...
comprehensive policies insuring
risks of liability and risk of loss of or damage to the vehicles are also issued
...


Burglary insurance
...
All risk insurance policy affords a
wider cover inclusive of theft, fire and accidental losses
...
The principal types of re:a) Burglary (business premises) insurance
...

c) Combined fire and burglary private dwellings) insurance
...

e) Cash-ins-safe insurance
...

iv
...


Under commercial guarantees, indemnity is

provided to an employer against direct losses arising out of any dishonest or
fraudulent act on the part of his employees
...
They guarantee the due and proper discharge of duties connected with
official appointments or with certain understandings given
...

b) Court bonds – administration bonds, Liquidator’s and
c) Receivership bonds
...

v
...
The policy protects
the employers’ statutory liability under the Fata Accidents Act, 1882, the
Workmen’s Compensation Act, 192 and Common Law, for disability of workmen
arising out of employment injuries or occupational disease
...
The benefits are the same as
available to workmen
...


Public (third party) liability insurance
...
The same actions done by any person under the
insured’s control or by any defect in the ways , works, machinery or premises of the
insured
...


Engineering insurance
...
The boiler insurance policy and
the erection insurance policy can be extended to cover third party liability risk
...

viii
...
This class of business is one of the latest branches of
miscellaneous (accident) insurance
...


ix
...
Some of the notable classes are indicated below:a) Contract guarantees (covering solvency risks)
...
missing documents indemnity
(covering loss or damage airing by reason of issuing duplicate documents
...

d) Pedal cycle insurance covering the pedal cycle against ‘own damage’ and
third party liability
...

e) Plate glass insurance covering plate glasses fixed to display windows or
showcases of commercial establishments against breakage)
...

g) Jewellers’ block of insurance covering the property of the jewellers whilst
on the premises in display windows, in ban lockers an also while in transit)
...

j) Cattle insurance (covering cattle against death due to accident or sickness)
...
The course deals with the classes of
miscellaneous (accident) insurance other than motor, personal accident, liability,
engineering, aviation and agricultural insurances
...
However, it can also be classified according to he subject matter of
insurance, i
...
, insurances of person, insurances of property, insurances of liability and
insurances of interest
...
The features of each of
these three classification are, therefore stated below:
9
...
, burglary, money-in-transit, all risks, combined fire and burglary, pedal
cycle, plate glass, television and other classes of property insurance
...


All are contracts of indemnity
...
They can also call into
contribution other policies covering the same risk
...


ii
...


The depreciation of value is an important factor to be

considered
...


The indemnity extends and covers the actual pecuniary loss suffered by the
insured
...


141

9
...
The insurance policies which comprise
this group are fidelity guarantees, contract guarantees, credit guarantees and other similar
policies
...


Three parties are involved in a contract instead of the customary two – the
employer, the employee and the insurers, or the principal, the agent (the
contractor) and the insurers, or the creditor, the debtor and the insurers
...


ii
...


iii
...


iv
...


9
...
An example is television insurance
...
They are:
i
...


ii
...


iii
...


iv
...


142

v
...


9
...

1)

Burglary
It was attempted to sell cover for burglary in 1787 but until 1890 no substantial
amount was sold
...

One is

burglary insurance
...
It accounts for a sizeable portion of the
department’s premium income
...
Apart form traders and manufacturers, he householders
frequently sought the insurance in respect of general household goods and personal
effects
...
It
enables them to recoup the losses suffered by them consequent on burglary or
housebreaking
...
In addition to he burglary insurance policy, there are other types of policies
giving wider covers
...
Burglary means forcible entry into premises for the purpose
of stealing
...
Theft includes misappropriate by servants having access to property
...


Burglary (business premises) insurance policies
...


Burglary (private dwellings) insurance policies
...


Combined fire and burglary insurance policies, jewellery and valuables
insurance polices
...


All risk insurance policies
...


Baggage insurance policies
...
10 Activity

(i)

What is burglary
...
11 Questions

1
...


What is burglary and what covers are provided for in this area?

3
...
,1992 Dictionary of Insurance
...

(ii) Clark, O
...
John,(2001) Dictionary of International Insurance and Finance Terms
...

(iii) Diacon, S
...
Carter R
...
,(1992) Success in Insurance,

3rd edition, John Murray

Publishers, London, Britain
...
S
...
Principles and Practice of Insurance, Kalyani publishers, 1st edition,
New Delhi, India

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