Insurance 4

Types of Marine Insurance policies

The marine insurance covers are classified as Hull, cargo, freight and ship owners’ liability.

a) Marine Hull

This policy covers the body of the ship against loss or damage that might be caused by sea perils.

Included here are any equipment, furniture or machinery on the ship.

A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.

b) Marine Cargo

This type of policy covers the cargo or goods carried by the ship.

The policy is taken by the owners of the sea vessels to cover the cargo being transported.

It has the following sub-divisions.

i. Voyage policy-Here cargo and ship are insured for a specific voyage/journey.

The policy terminates automatically once the ship reaches the destination.

ii. Time policy - Here insurance is taken to cover losses that may occur within a specified period of time, irrespective of the voyage taken.

iii. Fleet policy - This covers a fleet of ships,i.e several ships belonging to one person, under one policy.

iv. Floating policy - This policy covers losses that may occur on a particular route, covering all the ships insured along that route for a specified period.

v. Mixed policy - This policy provides insurance for the ship and cargo on specified voyages and for a particular period of time. No compensation can be made if the ship was on a voyage different from the ones specified even if time has not expired.

vi. Composite policy - This is where several insurance companies have insured one policy of a particular ship especially when the sum insured
is too large to be adequately covered by one insurer.

vii. Construction policy/builders policy - This covers risks that a ship is exposed to while it is either being constructed, tested or being delivered.

c) Freight policy - This is an insurance cover taken by the owner of the ship for compensation against failure to pay hiring charges by a hirer of the ship.

d) Third parties liability - This is an insurance policy taken by the owner of
the ship to cover claims that might arise from damage caused to other people’s property.



Description of marine losses

The following are some of the losses encountered in marine insurance.

i. Total loss,

This occurs where there is complete loss or damage to the ship and cargo insured.

Total loss can be constructive or actual.

In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;

- When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.

- When a ship is missing for a considerable period of time enough to assume that it has sunk.
-Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved.

It may also occur;
- Where a ship and its cargo are damaged but of market value.

This could be as a result of decision to abandon the ship and cargo as the probability of total
loss appears imminent.

- If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g. many lives may be lost in the process of trying to prevent total loss.

ii) General average - This is a loss that occurs as a result of some of the cargo being thrown into the sea deliberately to save the ship and the rest of the cargo from sinking.

The losses made are shared by the ship owners and the cargo owners proportionately as the effort was in the interest of both.

iii) Particular average - This occurs where there is a partial but accidental loss to either the ship or the cargo. When this happens each of the affected party is soldy responsible for the loss that has occurred to his
property.

A claim can, however be made if the loss incurred amounts to more than 3% of the value insured.

Fire insurance-This type of insurance covers property damage or loss caused by accidental fire.

Cover is offered to domestic commercial and industrial premises, plant and machinery, equipment, furniture fittings stock e.t.c

- In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;

• Fire must be accidental

• Fire must be immediate cause of loss

• There must be actual fire.

There are several types of types of fire insurance policies.

These include:

a) Consequential loss policy;(profit interruption policy)

This covers or compensates the insured for the loss of profit suffered when business operations have.

It is offered to protect future earnings of an enterprice after fire damage.

b) Sprinkler leakage policy - This provides cover against loss or damage caused to goods or premises by accidental leakages from fire fighting sprinklers.

c) Fire and Related perils policy - This covers buildings which include factories, warehouses, shops, offices and their contents. The policy does not cover loss of profit arising from fire damage.

Characteristics of General Insurance

• It’s a contract of indemnity

• It cannot be assigned even to ones relatives

• The insured must have an insurable interest in the property to be insured

• Premiums charged depends on the degree of risk, the higher the premium charged.

• Compensation for loss can only be upto a maximum of the value of the insured property or the sum insured in case of under insurance.

• It has no surrender value

• It’s normally a short term contract which can be renewed periodically, usually after one year.

Factors to be considered when Determining Premiums to be charged

• Health of the person

• Frequency of occurrence of previous losses

• Extent of the previous losses

• Value of the property insured

• Occupation of the insured

• Age of the person or of the property in question

• Location of the insured(address and geographical location)

• Period to be covered by the policy

• Residence of the insured

Procedure for taking a policy

i) Filling a proposal form

ii) Calculation of the premium to be paid

iii) Issuing of cover note (Binder)

iv)Issuing of the policy

Procedure of claiming compensation

i) Notification to the insurer - The insurer has to be notified about the occurrence of any incident immediately.

ii) Filling a claim form - The insurer provides the insured with a claim form which he fills to give details of the risk that has occurred.

iii) Investigation of the claim - The insurer arranges to investigate the cause of the incident and to assess the extent of the loss incurred.

The insurer is then able to establish whether the insured is to be compensated and if so, for how much.

iv)Payment of claim - On receipt of the report of the assessor, the insurer pays the due compensation to the insured. (Payment of the compensation shows that both the insurer and the insured have agreed on the extent of the loss and the payment is the settlement of the claim)

Insurance and Gambling

In most cases, insurance is erroneously taken to be the same as gambling in that small amounts are contributed by many people into a common fund which later benefits just a few people.

They are however different and their differences include;

Insurance Gambling

- The insured must have insurable
interest

- A gambler has no insurable
interest

-Reinstates the insured back to the
financial position just before loss

- Aims at improving the winners

financial position

- The insured is expected to pay
regular premiums for the insurance cover to remain in force.

- Gambling money is paid only once

- Insurance involves pure risks -Gambling involves speculative risks.

- The event of loss might never occur.

- The event of bet must happen to determine the winner and the loser.

Past Kcse Questons

1. 1995 Describe the procedures that should be followed when taking an insurance policy.(10mks)

2. 1996 explain four ways in which the insurance industry promotes the growth of business enterprises. (5mks)

3. 1997 Explain four ways in which the insurance industry contributes to the development of Kenya’s economy. (10mks)

4. 1998 Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss. (10mks)

5. 1999 Discuss various insurance policies that the owner of a supermarket may find it useful for the business. (12mks)

6. 2000 Explain four benefits of the ‘pooling of risks’ to an insurance company.(8mks)

7. 2001 Explain the factors that may make it necessary for an insurance company re-ensure.

8. 2002 Explain the meaning of the following terms as used in insurance (10mk)

i) Uberrimae fidei

ii) Indemnity

iii) Third party motor vehicle insurance

iv) Contribution.

v) Subrogation

9. 2003 Discuss four circumstances under which an insurance contract may be terminated. (8mks)

10. 2004 Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy.

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