3. Fundamentals of Insurance Enock Barimah ( Unit Head, Training )
PROGRAMME
Junior Leadership
MODULE
Business Assurance 101
SUBJECT
Fundamentals of Insurance
FACILITATOR
Enock Barimah ( Unit Head, Training )
COURSE DURATION
1 hour
CREDITS 5

4. Insurance Principles-Legal
Origin of Insurance
Understanding risk
Insurance Principles-Legal
Outline
Types of Insurance

5. Origin of Insurance
The need for the product called insurance emerged from the fact that entrepreneurs wished to take risks. In the early days, these risks were encountered when sending their sailing ships off on hazardous sea journeys to trade with far countries. The entrepreneurs were nervous of the fact that a failure of one venture could cause losses that would destroy them financially. The need for insurance evolved further when these entrepreneurs needed to obtain financing for their ventures. The financiers had an even smaller appetite to take on the risk of one large failure fully on their own account and they demanded some protection against a loss.

6. Why do we need insurance?
……………………………………………………………………………………………………………………………………………………………………………………………………. ?

7. What is Risk?
Risk may be defined as the uncertain, potentially negative end-result of an activity, event or venture. The possibility of a positive outcome is generally referred to as “chance”.

8. RELATIONSHIP BETWEEN FREQUENCY AND SEVERITY OF RISK
Risks are measured in terms of their frequency and severity.
Statistics clearly indicate that there is an inverse relationship between severe risks and their frequency or frequent risks and their severity.

9. MANAGING RISK: THE RISK MANAGEMENT PROCESS
The Risk Management Process encompasses 3 phases: 
- Identification of Risk;
- Evaluation/or Measurement of Risk;
- Controlling Risk: Evaluation of diverse control measures and implementation of the most economically effective means of control

10. How will you respond to risk
Retention or assumption: There are some risks you just can’t do anything about. For such risks, you’ll accept them.
Prevention or Avoidance: when the Risk is not taken up by the insurance company.
Spreading of Risk: Risk can be spread through reinsurance and co-insurance.

11. What is insurance ?
Insurance is based on the concept of the contribution of many (through premiums) paying for the losses of the few.
Definition:
Insurance can be said to be an agreement where one party, the insurer, in return for a consideration, the premium, undertakes to pay the other, the insured a sum of money or its equivalent, upon the happening of a specified event, which is contrary to the insured’s financial interest

12. INSURANCE IS CONTRACT
WHAT IS CONTRACT?

13. Features of a Valid Contract
1. Legality
The contract must not be against the laws of the country, or against public policy, E.g., Marine
Cargo Insurance on goods cannot be traded with an enemy in time of war.
2. Capacity
The capacity of a person to contract is laid down in law. Most persons have the right or capacity to enter into an insurance contract, but there are certain individuals who have limited powers (e.g., minors, mental patients, persons under the influence of drink, corporations, partners).

14. Features of a Valid Contract (cont)
3. Legal Relationship
An intention to create a legal relationship or obligation must exist in any legal contract. With many informal agreements (such as giving a friend a lift in your car), there is never any intention to create a legal obligation, or of legal consequences, should the agreement not be carried out. Your friend would not take you to court if you forgot to give him a lift in your car to the office.

15. Features of a Valid Contract (cont)
4. Unrevoked Offer
This offer may be expressed by conduct, verbally, or in writing.
In an insurance contract, the offer is normally expressed in a fully completed proposal form, completed by the client (or prospective insured) When the insurer accepts the proposal form or slip, he quotes the premium and terms upon which the policy may be issued. This then becomes a counter-offer, which may be accepted or rejected by the client.

16. Features of a Valid Contract (cont)
5. Acceptance
An acceptance should be unqualified and may be:
Verbal;
Written;
By Conduct.
It means that the offer must be accepted in precisely the terms submitted for a binding contract to be formed. Negotiation and agreement may require a revised offer to be made and accepted, thus constituting a contract. Acceptance must be communicated and is only open to the person to whom the offer was made.

17. Features of a Valid Contract (cont)
6. Genuine Agreement
Once agreement has been reached the parties are said to be of one mind (Consensus ad idem). Both parties must be of the same opinion and have the same objective, that is, to arrange an insurance contract.
7. Consideration
Both parties to an insurance contract provide consideration:
a) From insured to insurer - by payment of the premium.
b) From insurer to insured - the promise to compensate the insured in the event of a valid claim.

18. Insurance Principles. Insurable Interest; Utmost Good Faith;
Proximate Cause;
Indemnity and its corollaries: Subrogation andContribution.

19. Insurance Principles
Insurable Interest ; “The legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject matter of insurance”.
Proximate Cause means the active , efficient cause that sets in motion train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.

20. Insurance Principles (Cont)
Utmost Good Faith; . It imposes on the parties to the contract a duty to demonstrate openness on all matters related to the contract and/or subject matter. This is mainly manifested in what are known as "representations" i.e. statements made or written regarding the nature and extent of the risk. Underwriters require to know all material facts surrounding a risk i.e. all facts which may influence them as to whether they should accept or decline a risk, and if they were to accept it, at what terms would they do so.

21. Insurance Principles (Cont)
Indemnity, for the purposes of insurance contracts, may be looked on as exact financial compensation sufficient to place the insured in the same financial position after a loss as he enjoyed immediately before it occurred. Castellain v Preston (1883).
Subrogation and Contribution supports principle of indemnity and apply only to contracts of indemnity.
Subrogation “The right of one person, having indemnified another under a legal obligation to do so, to stand in the place of that other and avail himself of all the rights and remedies of that
other, whether already enforced or not”.

22. Insurance Principles (Cont)
“Contribution is the right of an insurer to call upon others similarly, but not necessarily equally liable to the same insured to share the cost of an indemnity payment”.

23. Basic Types of Insurance
Endowment Insurance
b)Whole Life Insurance
c)Term Insurance

24. THANK YOU