Insurance

TOP SIX CONTINUED

 AGENDA
 DEFINITION
 DISTINCTION BETWEEN INSURANCE AND
ASSURANCE
 TYPES OF INSURANCE
 TERMINOLOGY USED IN INSURANCE
 PRINCIPLES OF INSURANCE
 IMPORTANCE OF INSURANCE
 LIMITATIONS OF INSURANCE IN UGANDA
DEFINITION OF INSURANCE
 An essential safeguard against any risk or loss
inherent in commercial operations carried on
under a contract to compensate one party by
another, on occurrence of a defined risk, upon
prior payment of agreed amounts to meet the
cover.

 A contract whereby, in return for the payment

of premium by the insured, the insurers pay
the financial losses suffered by the insured as a
result of the occurrence of unforeseen events.
DEFINITION OF INSURANCE
-CONTINUED
 An agreement by which one party called the
insurer undertakes in return for the agreed
consideration, called premium to pay to
another person called the insured a sum of
money, or its equivalent, on the happening of a
specified event.

 It is a contract by which a person, in

consideration of a sum of money, undertakes
to make good the loss of another against a
specified risk
INSURANCE VS ASSURANCE
 Insurance focuses on incidents that
may or may not occur while
Assurance relates to life,
occurrences that will definitely
occur e.g. Death
 INSURANCE VS ASSURANCE -
CONTINUED
Insurance (Non-Life Insurance) Assurance (Life Insurance)
 It is not a contract of indemnity.
 Contracts of indemnity Since life lost cannot be returned .
 Insurable interest must be present
 Insurable interest must be only at the time of taking out the
present both at the time of policy, but need not be present at
the time of maturity of the policy.
effecting the contract and also  A life insurance policy can be
at the time of occurrence of loss surrendered by the assured before
 In the case of insurance, policy its maturity.
 Life Insurance contains both the
cannot be surrendered by the elements of security and
insured before its maturity. investment.
 In the case of fire and marine
insurance, insurance contain
only the protection element.
Types of insurance
 Life Insurance:
In this case certain fixed amount becomes
payable on the death of the assured or on the
expiry of a certain fixed period, whichever is
earlier.
 Fire Insurance:
It covers the losses caused by fire.
 Marine Insurance:
It covers all marine losses, that is to say, the
losses incidental to marine adventure.
Types of insurance
 Personal Accident Insurance:
In this case, the amount payable is a
compensation for any personal injury caused to
the assured.

 [Link] Insurance:
It provides benefit for medical expenses.
Types of insurance
 [Link] Insurance:
Insurance intended to compensate for harm to the
insured person’s real property.
Property insurance takes various forms like theft
or burglary insurance, fire insurance, liability
insurance etc.
 TERMINOLOGY USED IN
INSURANCE
 Insurer - the organization or firm which
undertakes to a cover a risk for another or person
i.e. Insurance / Assurance company
 The party agreeing to pay for the losses of the
insured.
 Examples of insurance companies; AIG, SWICO,
PWICO, Jubilee, Excel, UAP, APA, NIC, NICO,PAX,
Rio etc.
 Examples of assurance companies; Lion, Phoenix
and East African Underwriters
 TERMINOLOGY USED IN
INSURANCE
 Insured/ Assured - The individual/company that
pays to be covered against a risk or the person whose
loss is to be made good

 Premium - Amount paid by the insured to the

insurer for covering a defined risk or Consideration for
which the insurer undertakes to indemnify the
insured / assured against the risk. It may either be
single or a periodical payment
 Or the payment to the insurer receives from the
insured for indemnifying the losses.
 TERMINOLOGY USED IN
INSURANCE
 Policy - the risk which is covered by the insurance
contract or accidental happenings which produce a
monetary loss. E.g. A factory catching fire, a ship
sinking or car accidents
 TERMINOLOGY USED IN
INSURANCE
Subject Matter - items that
you can insure, in order to keep YOUR HOUSE
them protected e.g. YOUR
BOAT

YOU

YOUR FAMILY 3 5
YOUR AWESOME
CAR
1

2 4
 PRINCIPLES OF INSURANCE
 Utmost good faith  Material Information is that
information which enables
- Let the buyer beware the insurer to decide:
 The insured/ assured
must declare all material  whether to accept the risk
Information about the and if so, at what rate of
premium and subject to what
subject mater of terms and conditions
insurance
 Breach of utmost good faith
renders the contract voidable
at the insurer’s option and it
can refuse any
compensation.
 PRINCIPLES OF INSURANCE
 Insurable Interest  Indemnity - the insured
- The insured must be has to be placed after the
loss in the same financial
in a position to
(original) position in which
financially suffer if a loss
he was immediately before
occurs i.e. must be the loss.
either the owner or 
It is against insurance
trustee of the minor policy to allow an
assured / insured to make
a profit out of the
happening of the loss or
damage insured against
 PRINCIPLES OF INSURANCE
 Subrogation - Purposes:
Substitution of the  Prevents insured from
insurer in place of the collecting twice for the same
insured for the purpose loss i.e. the insured should
of claiming indemnity not look at insurance as a
means of getting income
from a third party
wrongdoer for a loss paid
by the insurer  It is used to hold the negligent
party responsible for the loss

 Helps to hold down insurance

rates
 PRINCIPLES OF INSURANCE
 Re-insurance - If an  Double insurance -
insurer has insured a venture in Where the assured/ insured
which the risk involved is beyond insures the same risk with two
his capacity, he may insure the or more independent insurers
same risk either wholly or
partially with other insurers.
 In case of loss, assured
 The insurer has an insurable /insured cannot recover more
interest in the subject-matter than actual amount of loss.
insured to the extent of the
amount insured.  This is because a contract of
insurance( other than life and
personal accident insurance)
is a contract of indemnity.
 PRINCIPLES OF INSURANCE
 The aim of contribution is to
 Contribution –In distribute the actual amount of
case of double insurance, loss among the different
the insurers are to share insurers who are liable under
the loss in proportion to different contracts in respect of
the amount insured by the same subject-matter & risk
each of them.
 EXAMPLE: A insures his house
 Conditions against fire for $10,000 with
insurer X, and for $ 20,000 with
 Subject matter of insurer Y .
insurance must be the A loss of $12,000 occurs. X is liable for
$.4,000 and Y for $8,000.
same
If the whole amount of the loss is paid
 The risk insured must be by Y, he can recover $.4,000 from
X.
the same
 The insured must be the
same.
 PRINCIPLES OF INSURANCE
 Proximate clause / Example…
The cargo of rice in a ship was
Causa Proxima - The destroyed by sea-water flowing in
assured /insured can only the ship through a hole made by
recover the loss if it is rats in bathroom lead pipe.
immediately caused by any of Held, the insured was liable for
the risks insured against compensation. The proximate causa
whether directly or indirectly.
of the damage in this case is sea
water. If however , the loss was
caused directly by rats or vermin,
 Compensation only for Insured the insurer wouldn't have been
risks mentioned in contract liable. [Hamilton Fraser
but not for uninsured and & Co. [Link](1887)]
expected or excluded dangers.
 PRINCIPLES OF INSURANCE
 Subject matter - the  Mitigation of loss
insured must clearly state - the insured must
the asset being insured make necessary effort
e.g. the car, house, to minimize the insured
family, life and Company loss
 HOME WORK

 USING THE PRINCIPLES OF

INSURANCE / ASSURANCE,
DISCUSS THE RIGHTS AND
RESPONSIBILITIES OF THE
INSURED/ ASSURED AND THE
INSURER
 FUNDAMENTAL ADVANTAGES
TO BUSINESSES
 Transfer of risk from one person (Insured) to another
(Insurer)
 Sharing (Pooling) of losses - losses will be
indemnified (paid)
 Reduction in tension and fear for business people
– reduces stress leading to better decisions and
management
 Credit multiplication – can easily access loans from
financial institutions
 Avenue for investment – Life insurance provides
business opportunities used to diversify risks by
business people.
 Builds business confidence - to take on risky but
profitable ventures
 FUNDAMENTAL ADVANTAGES
TO BUSINESSES
 Cultivates faithfulness - among traders since they are
bonded together by the insurance policy
 Provides employment as a separate industry (lawyers,
accountants etc.) – increases on demand for business
product
 Ensures proper planning and documentation of
different assets – a requirement before making an
insurance contract
 Facilitates trade especially international trade -
traders are not afraid to transport their merchandise for
long distances
 Enhances business continuity – put back to original
position incase of an insured risk occurs
 LIMITATIONS OF INSURANCE IN
UGANDA
 Ignorance – most firms and people not aware of
importance
 High levels of poverty – many cant afford the
premium
 Economic trends – unpredictable business trend
making it difficult to commit to an insurance contract.
 Political situation – some regions still unstable and
thus insurance industry doesn’t cover them
 Lack of professionals – insufficient professionals
 Socio-cultural issues- some cultural values
disregards insurance importance e.g. safe guarding a
risk invites it.
Thank You for Your Attention