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CONTENTS
PAGE
Learning Outcomes
An overview
Differences
between
general
insurance and life assurance
Classes of insurance
Compulsory classes of insurance
Common
Policy
Terms
and
Conditions
Chapter summary
Test your understanding
Suggested Answers
Learning Objectives
After studying this chapter you should be able to;
List the classes of insurance; scope of cover and their key exclusions
Introduction
Insurance is classified into two major classes namely: General/Non Life
Insurance and Life Assurance.
In this chapter we shall differentiate between general insurance & Life
Assurance; review the scope of cover under the different classes of
insurance; compulsory classes of insurance and common policy terms and
conditions.
Various classes of insurance have continued to be developed in response to
societys needs and in this chapter we shall look at the main classes of
insurance offered in the Uganda Insurance market.
Accident;
Workers
Compensation;
Health
Term/
Endowment/Pure
Property Insurances
1. Fire and related perils (material damage)
Currently this class of insurance is yet to be embraced especially
among the private individual clients save for the few
organizations.
A Fire & Special perils policy provides insurance cover against the following
perils:Fire -is the actual ignition of something that should not be on fire, the
cause being accidental or fortuitous .There are exclusions under this peril,
however.
Lightening -Any loss caused by lightning is covered under fire policy
Explosions -of boilers or gases used for commercial purposes for example
oxy-acetylene gas used for welding..
This is in sharp contrast to the Standard Fire Policy which covers above to a
limited scope.
Special Perils
Policy conditions associated with fire policies are divided into general
and claims related. General conditions make the policy voidable if they
are not complied with and main ones are;
Reasonable care/precaution
Contribution where more than two policies cover same property, same
period, same insured and all are contracts of indemnity.
Subrogation rights the insured passes to insurer when claim has been
paid
buildings insurance from another, because this may work out cheaper
than insuring both contents and buildings together.
Even if a policyholder has both contents and buildings insurance, the
scope of cover may vary so that, for example, an accidental damage
claim might succeed under one section but not under the other. the
needs and resources of their policyholders and that the policyholders
understand what they are buying.
buildings insurance covers the structure of the building, plus
permanent "fixtures and fittings" such as baths, fitted kitchens etc.
The test is - can it reasonably be removed and taken to another homeIf it can, then it is part of the "contents" and it will not generally be
covered by a buildings policy. Buildings policies usually include
outbuildings - garages, garden sheds etc.
contents insurance covers your possessions - your television set,
furniture, clothes etc. In other words, just about everything you would
take with you if you moved.
Liability Section
3. Money Insurance
Key Clause Warrant that insurer is not liable for loss from safe/strong
room opened by a key which has been left on the insureds premises
whilst closed for business
Goods in Transit
Exclusions are;
Loss or damage due to delay , loss of market, or any consequent
loss
Loss to money and other treasury notes, precious metal, watches
dangerous goods, livestock
Loss/damage fro wear and tear, depreciation or defects in goods
insured
Loss due to theft or pilferage by employees
Loss or damage due to confiscation by the state.
Engineering Insurances
Liability Insurance
Liability Public liability insurance will protect your business if you cause an
injury to a member of the public, or property belonging to another business
or individual.
You should consider taking out public liability insurance if members of the
public visit you at your place of work, or if you perform work at places of
work owned by third parties. There are several types of liability insurances
and some of these include:
Public Liability
You own a shop. One of your customers trips over some boxes of stock
you carelessly left in an aisle. The policy will cover the costs of treating
the injury caused to the customer.
Professional Indemnity
Workers Compensation
Cover attaches from the time an employee sets off from home directly
to work, during the course of work and while travelling directly back
home until the employee reaches home.
The Act does not compel employers to insure but to compensate which
therefore leaves the employer with two options: Either: to retain the
risk and pay from their resources the amount of compensation or to
transfer the risk to an insurance company which option most
employers choose.
Benefits:
Health Insurance
This policy covers the cost of treatment for illness and other medical
conditions. It covers doctors, surgeons and anaesthetist fees, hospital
bed charges, drugs and dressings, diagnostic procedures such as xrays, cost of theatre and nursing costs etc.
Guarantee Insurance
These are policies which cover the failure of a party to perform a particular
task or breach of trust.
Fidelity Guarantee
The policy covers the employer in respect of any direct financial loss
which he may suffer as a result of employees dishonesty.
Bonds Insurance
There are several classes under this sub category and these include;
Performance bond
Bid or tender bonds ate used when the cost of new tendering has to be
incurred, should the highest bidder fail to take up an offer
Transport Insurances
Motor Insurance
Act Only
Act only is the minimum cover required by the insurance (motor
vehicle Third party Risks) Act 1989.
Third party only/ Enhanced Third Party
A third party is any person outside the insurance contract. This level
of insurance covers the insureds legal liability towards third parties
arising out of the use of a motor vehicle. Such cover is wider than the
act only cover in that liability for property damage, as well as for the
death and injury is included.
Third party, Fire and Theft
In addition to the full third party cover, the third party, fire and theft
level of insurance cover includes loss or damage arising from fire or
theft butt only to the insured vehicle.
Comprehensive Cover
The comprehensive insurance level provides very wide cover. The term
comprehensive is somehow misleading, however; though it implies
that every conceivable risk is covered, this is not the case under
comprehensive policies. In addition for full third party ,fire and theft
cover, it covers own damage and also malicious damage.
The most commonly known are Private Cars, Commercial Vehicle and
Motor Cycle
Private Cars
Private Car policies are have restrictions to use as follows;
Social, domestic and pleasure purposes
Used by insured or representative on business
Carriage of goods for hire and reward
Usually confined to small cars used in a business
Commercial Vehicles
Used for transportation of Goods and services and people and other
commercial activities.
Motor Cycles
Marine Insurance
Aviation Insurance
Aviation insurance is a class that requires a lot of reinsurance &
technical expertise. Large aircraft are insured with established
markets in Europe and most of these policies are taken to outside
reinsurers with no or little participation of the local reinsurers on
such risks. The policies are issued to cover the hull (the aircraft)
liability to passengers and the liability to others that is fire, theft,
accidents and legal liabilities.
LIFE ASSURANCE
Term Assurance
Whole Life
The sum assured is payable to the death of the assured whenever it
occurs. Premiums are payable throughout the life of the assured or
until the retirement of the assured. Although premium payment may
cease at retirement, the policy will still be in force and if the assured
dies, later the policy will provide the benefit to the assureds
representatives.
Endowment
From the above we can infer the following are the characteristics of Group
Life Insurance
Annuities
An annuity is a method by which a person can receive a yearly sum in
return for payment to an insurance company for a sum of money. It is
not a life assurance, though life assurance companies deal with it and
is based on actuarial principles. For example; if a person with a large
sum of money wants to provide on income for oneself when on
retirement, or at any other time, she or he can approach a life
assurance company and purchase an annuity.
Forms of Annuities
The annuity can start immediately ( that is immediate annuity or may
start at a future date ( that is deferred annuity ) . it can provide an
annuity for the life of the person ( the annuitant) or may be payable
irrespective of death for a certain period ( annuity certain )
Guaranteed annuity provides annuity for a guaranteed period until
the annuitant dies
Reversionary annuity provides for payment to annuitant that is wife
or death of another named person that is husband.
Joint and last survivor annuity; payable while two people husband
and wife are alive and on death of one, will continue at the same rate
or less rate on the life of survivor
Investment Policies
This is where insurance companies collect large sums of money some of
which is used for investment purposes.
Unit Linked
These are policies where the values of policy are linked to the investment
performance
Bond Investment
Compulsory Insurances
The idea behind this type of mandatory coverage is to protect the wellbeing of those who would otherwise be adversely affected if the events
covered in the terms of the policies were to take place.
The The Motor Vehicle Insurance (Third Party Risks) Act 1989
The Workers Compensation Act 2000
The National Social Security Fund (NSSSF)
Professional Indemnity for insurance Brokers
Now yet to be enacted, the National Health Insurance Scheme
Commission Rates
Motor
12.5% of annual premium
Liability
20% of annual premium
Theft
10% of annual premium
Personal Accident
20% of annual premium
Workmens Compensation
20% of annual premium
NOTE: These are maximum rates and insurers are free to pay rates below to
their Agents
POLICY TERMS
The written contract effecting insurance, or the certificate thereof, by
whatever name called, and including all clause, riders, endorsements,
and papers attached thereto and made a part thereof.
The Act provides some of the following as the terms which have to be
incorporated in policies of insurance
Sum insured, premium and any other sum of money mentioned in the
policies shall be in Kenya shillings except in cases of marine and
aviation policies which may be stated in other currencies.
No policy shall be issued on the life or lives of any person or persons
without insurable interest
Policy Document
Cover Notes
The proposer should be able to read and understand all the contents
of the policy
Courts of law will always refer to this document in case of any
dispute.
They are usually pre-printed and contain standard terms but
additional clauses and typed materials can be added.
Heading
Preamble/ Recital clause
Operative clause
Exclusions
Conditions
Policy schedule
Heading
This includes;
o Name of the insurer
o Address of the place where business is conducted
o Company logo
Preamble/ Recital clause
This section emphasises that the proposal is the basis of the contract
and it is included in the policy
Premiums have been paid or there is an agreement to pay
A brief introduction of the type of perils covered.
Operative clause
Exclusions
Under this part/ section, the type of losses that the insurer will not
pay are stipulated.
Such losses may be excluded because of;
o The risks are uninsurable
o Inadequacy of premiums
Conditions
Express conditions
These are conditions set by the insurer and they appear in the policy
for example
o Cancellation
o Subrogation
o Resolution of a dispute regarding the amount of claim
o Contribution in case of other policies on the same loss.
Implied conditions
These are conditions that must be complied with but they dont
appear in the policy for example:
The insured has insurable interest
The parties have disclosed all material facts
The subject matter of insurance can be identified
Policy schedule
Cover note
Insurance certificate
Endorsement
Renewal
Most contracts are annual but can be renewed on expiry.
There is no obligation on either party to renew the contract
Renewal means new terms and conditions
Renewal premiums are usually required before the policy expires but
some days of grace can be given
Sum Insured
Maximum liability on the subject matter of insurance
Premium rate applied on the sum insured.
Determination of limits of liability on policies whose exposure
cannot be determined in advance eg PL
For Life Policies, It is the ability for the Insured to pay up the
premium
Claims Process & Settlement
Claim Forms
Claim Forms
Questionnaire designed to extract details of loss from insured.
Contains info on name, address, circumstances, estimate of cost,
make etc
Claim file will be opened showing claim number, policy number,
address, period of insurance, sum insured, repair estimate
Should be completed in full and signed by insured
Information on claim form is compared with proposal forms to check
for non-disclosure of material facts
Insured may deal with on a without prejudice basis i.e. without
admitting liability to avoid unnecessary hardship to insured
Insurer can also make ex-gratia payments for commercial reasons
When claim is agreed at the a Discharge Voucher is signed by insured
to discharge all liabilities to the insurer
Types of Claims