Principles of insurance, claims management

INSURANCE is about purchasing a promise and unlike purchasing a tangible product which if it does not conform to the needs and requirements of the user it can be returned.

In other words, it is a binding contract in which one party agrees to compensate another party for any losses or damages caused by risks identified in the contract in exchange for the payment of a lump sum or periodic amounts of money to the first party i.e the insurer.

e main area of contention, according to the insuring public has been ‘fulfilment of the contract ‘by the insurer upon happening of an insured event.

Since it is not in dispute, that a valid contract will exist upon completion of valid proposal form and subsequent payment of the premiums. It is therefore incumbent upon the insurer to fulfil their side of the bargain by honouring part of contract in the event of fortuitous insured loss event befalling the insured. Just like any other forms of contract, there are certain principles and conditions that guide the insurer should they be called upon to honour their side of the bargain.

is article thus attempts to bring to the fore these principles and policy conditions and perhaps demystify the myth of “ripping” insuring public their hard earned cash. For without the very same insuring public none of these in/reinsurance companies would have been in business up to this day.

e principles and conditions are not discussed in order of importance as they are all equally important. e conditions and principles to be discussed herein are Insurable Interest, Utmost Good Faith, Indemnity, Average, Subrogation/Contribution.

Last but not the least, we look at the claims procedure. Agreed, claims do come in different forms but will focus on the general requirements since this has been mainly the area of concern.

Insurable interest

Not all risks are insurable and insurable risks have certain characteristics ie they must be capable of financial measurement, there must be large enough number of similar risks and must be pure and particular. us existence of insurable interest is an essential constituent of any insurance contract.

Before attempting to define Insurable Interest, it would be prudent to firstly identify what is it that is insured by an insurance policy. To some it implies the physical object i.e buildings, machinery, stocks e.t.c. ese basically are referred to as “subject matter of insurance”. In the case of Castellain vs Preston (1883) the following was said:

“What is it that is insured in a fire policy? Not the bricks and materials used in the building the house, but the interest of the insured in the subject matter of insurance.”

It therefore follows that it is not the subject matter that is being protected by the insurance policy but rather the insured’s pecuniary interest in the property insured. ere are four features that are essential to the establishment of insurable interest:

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ere must be some property, rights, interests, etc, capable of being insured

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Such property, rights, interests must be subject matter of insurance

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Insured must stand in relationship with that subject matter of insurance where he benefits from its safety and would be prejudiced by its damage

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e relationship must be recognised at law For that reason, any person who buys a policy must have an insurable interest in the subject of the insurance.

Nonetheless, for purposes of life assurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouse and dependents thus insurable interest only needs to exist at time the policy is purchased. For property insurance, the insurable interest must exist both at the time the insurance is purchased and at the time a loss occurs.

On the other hand, for marine policies, insurable interest need only to exist at the time of loss since someone may assume interest of the consignment during the voyage.

Utmost good faith

not mislead the other, the contract cannot be avoided.

However, this is not the case with insurance contracts because the insured or policyholder is in a very strong position as they know all the details pertaining to the risk to be insured, whereas, the underwriter does not.

e underwriter can have a survey carried out but he relies on the information given by the insured in order to assess those aspects of the risk which may not be apparent at the time the survey is undertaken.

ere must be disclosure of all material facts which are pertinent to the risk to be insured.

e next question would be “what is a material fact”?.

In the case of President Versekeringsmaats vs Trust Bank van Afrika (1989), court ruled that a fact was material if, in the opinion of the reasonable man (not reasonable insured / insurer) could influence reasonable insurer in deciding whether to accept or reject a risk. If accepted at what rate of premium to charge. e test is not

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