CHAPTER ONE

INTRODUCTION TO INSURANCE LAW

You should be familiar with the following areas

  • Meaning  Insurance
  • Historical Background of Insurance law
  • Important terms
  • Purpose of Insurance
  • Characteristics of Insurance

1.1 MEANING OF INSURANCE

Insurance is a protection given to a person or group by which cover on it if they be injured. Or is process of undertaking risks for price or premium based plans for distribution and qualification of those risks and any of large exposure. Insurance is contract, where by one person called the insurer undertakes in return for the agreed consideration called the premium to pay to another person called the insured a sum of money or its equivalent on the happening of the specified event.

In the case of Scottish Amicable Heritable securities Association v Northern Assurance Co (1883) 11 R Lord Justice Clerk, defined insurance as acontract of insurance belonging to a very ordinary class by which the insurer undertakes in consideration, may sustain by the occurrence of an uncertain contingency.

1.2 HISTORICAL BACKGROUND OF INSURANCE LAW

The history of insurance consisted of the development of the modern business of insurance against risks especially regarding cargo, property, death, automobile accidents and medical treatment. The industry helps to eliminate risks as when fire insurance companies demand the implementation of safe practice and installation of hydrants spreads risks from the individual to the large community and provide an important sources of long term finance for both the public and private sectors. The insurance industry is generally profitable and provides attractive employment opportunities for which workers.

Ancient World

In the same sense we can say that insurance dates back to early human society, we know of two types of economic with no centralized nor standardized set of financial instrument and monetary economies (with markets, currency financial instruments and so on).

Insurance in the former case entails agreements of mutual aid, if one family house gets destroyed the neighbors are committed to help rebuild it.

Current, there types of insurance have in countries or areas where a modern money economies with its financial instruments is not widespread. The first methods of transferring or distributing risk in monetary economy were practiced by Chinese and Babylonian traders in the 3rd and 2nd  millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessels capsizing.

The Babylonians developed system that was recorded in the famous code of harmonies, 1750BC and practiced by early Mediterranean selling merchants. If a mechanists receved a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lenders guarantee to cancel the loan should the shipment be stolen or cost at sea.

Archaemenion monarchs in Ancient Persia were presented with annual gifts from trhe various ethnic groups under their control. This would function as an early form of political insurance and officially banned the Persian monarch to protect the group from harm.

At the same point, in the 1st millennium BC the inhabitants of Rhodesis created the general average. This allowed groups of merchants to pay to ensure their goods being shipped together.

The collected premiums would be used to reimburse any merchants whose goods were jettisoned during transport, whether to storm or sinkage. The ancient Athenian maritime loan advanced money for voyage with repayment being cancelled, if the ship was cost.

In the 4th century BC, rates for the loans differed according to safe or dangerous times of year implying an intuitive pricing of risk with an effect similar to insurance.

The Greeks and Romans introduced the origins of health and life insurance 600BC when they created guilds called “benovent societies” which cared for the families of deceased members as well as paying funeral expenses of members. Guilds in the Middle Ages served similar purpose. The Jewish Tamid also deals with several aspects of insuring goods. Before insurance was established in the late 17th century “friendly societies” existed in England in which people denoted amount, if money be a general sum that could be used for emergencies.

1.3 TERMINOLOGIES

(a) Insurer

is a person who undertaking or assure risks or loss on behalf of others.

(b) Insured

A person pay premium that he can be protected against risk

(c) Premium

Is a valuable consideration by the insured to the insurer, so that the insurer may undertake such a risk

(d) Policy of Insurance

Is a form on which the contract of insurance is expressed.

(e) Jettison

Is an reducing goods from the based to sea, so that to reduce the backness

(f) Risks

Is an economic hazards whose occurrence is uncertainties and when it attained to insured (subject matter) and if event occurred the insured

(g) Loss

Is actual value of mainly cost due to occurrence of insured event.

(h) Cover Notes

 Is an provisional contract of insurance and it at limited time or period.

1.4 PURPOSE OF INSURANCE

The purpose of insurance is a contract in which a insurer promises to pay the insured party a sum of money, if one or more specified events occurs in the future, in return for regular small payments known as premiums. It reduces your business exposure to the effects of particular risks.

1.5 CHARACTERISTICS OF INSURANCE

1.5 1 Sharing of Risk

Insurance is device to share the financial losses which might be fall on an individual or his family on the happening of a specified event. The event may be death of a bread-winner to the family in the case of life insurance, marine-peris in marine insurance, fire in fire insurance and other certain events in general insurance. Example theft in burgarly insurance, accident in motor insurance

1.5.2 Co-operative Device

The most important feature of every insurance plan is the co-operation of large number of persons who is effect, agree to share the financial loss arising due to a particular risk which is insured  such as group of persons may be brought together voluntary or though publicity or through solicitation of the agents.

1.5.3 Value of Risk

The risk is evaluated before insuring to charge the amount of share of an insured, here in called, consideration or premium. There are several methods of evaluation of risks. If there is expectation of more loss, higher premium may be charged. So the probability of loss is calculated at the time of insurance.

1.5.4 Payment at Contingency

The payment is made at a certain contingency insured. If the contingency occurs, payment is made. Since the life insurance contract is a contract of certainty, because the contingency, the death or the expiry of term, will certainly occur, the payment is certain. In other insurance contracts, the contingency, is the fire or the marine perils etc may or may not occur so if the contingency occurs, payment is made, otherwise no amount is given to the policy-holder.

1.5.5 Amount of Payment

The amount of payment depends upon the value of loss occurred due to the particular insured risk provided insurance is there up to that purpose is not to make good the financial loss suffered. The insurer promises to pay a fixed sum on the happening of an event.

1.5.6 Large Number of Insured Persons

To spread the loss immediately, smoothly and cheaply large number of persons should be insured. The co-operation of an small number of persons may also be insurance but if will be limited to similar area. The cost of insurance to each may be higher. So it may be unmarkable

1.6 MAJOR TYPES OF INSURANCE

(a) Life insurance

(b) Property insurance

(c) Motor Vehicle Insurance

A. LIFE INSURANCE

This is contract to pay a certain sum of money on the happening of a particular event. Example death of a named person or the attainment of acertain age by a named person. Life insurance is not a contract of indemnity as other form, are in this the event must occur.

B. PROPERTY INSURANCE

Property insurance is divided into two:

  • Fire Insurance
  •  Marine Insurance
  • Miscellaneous Insurance

I.                   Fire and Marine Insurance

It covers damage or loss to a property because of fire. It is specific form of insurance and covers the cost of replacement and repair or reconstruction above what the property insurance policy covers.

II.                Marine Insurance

Is a contract of an agreement whereby insurer under takes to indemnity the insured in manner and extent thereby agreed against transit losses, that, it to say losses accidental to transit.

III.             Miscellaneous Insurance

Refers to contract of insurance other than those of life, fire and marine insurance. It covers a variety of risks i.e personal accident insurance

C. MOTOR VEHICLE INSURANCE

Is type of insurance thus consumer an purchase or kept to purchase of motor cars. It type of insurance which protects the insured against the causes of repairing the vehicle following an accident or purchase new valuable following theft and all other losses occurred. m$u �up-��: