The Insurance Institute of Zimbabwe

INTRODUCTION

This book was written to serve as the basic essential foundation to further studies and qualifications in the
insurance field. It was also written for all those people involved in our industry such as in typing
secretarial, accounts and messengers who want a knowledge of the industry in which they work and the
satisfaction of receiving a certificate on completion of the course and passing the examination.

Hopefully, this book is more relevant to the Zimbabwean insurance industry and reflect the current
practices rather than those of other countries. It is the intention for amendments to be issued whenever
there are alterations to the practices described in the book to ensure that it keeps pace with events.

Special acknowledgements to Ann Moss and Charles Mutangadura

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 The Insurance Institute of Zimbabwe

CHAPTER CONTENTS PAGE

CHAPTER 1 WHAT IS INSURANCE?

A1 Introduction………………………………………………………………… 5
1B What is Insurable?………………………………………………………….. 7
1C Risk …………………………………………………………………………8
1D Hazard ………………………………………………………………………8
1E Advantages of insurance ……………………………………………………10
1F Insurance investment in the economy……………………………………….10

CHAPTER 2 DEVELOPMENT OF INSURANCE

2A History………………………………………………………………………13
2B Marine Insurance……………………………………………………………13
2C Fire and Perils……………………………………………………………….15
2D Accident Insurance………………………………………………………….16
2E Package Policies…………………………………………………………….18
2F Motor Insurance……………………………………………………………..19
2G Miscellaneous Insurances……………………………………………………20

CHAPTER 3 THE INSURANCE MARKET

3A Introduction………………………………………………………………….21
3B Structure of the market………………………………………………………21
3C Proprietary Insurance Companies…………………………………………...22
3D Lloyd’s of London…………………………………………………………..22
3E Intermediaries……………………………………………………………….22
3F Self Insurance………………………………………………………………. 23
3G Reinsurance………………………………………………………………….24
3H Market Association of Zimbabwe…………………………………………..24

CHAPTER 4 BASIC PRINCIPLES

4A Law of contract in Zimbabwe……………………………………………….26

4B Insurable Interest…………………………………………………………….27
4C Utmost Good Faith and Material Facts…………………………………….. 27
4D Indemnity……………………………………………………………………28
4E Average……………………………………………………………………...30
4G Contribution…………………………………………………………………30
4H Subrogation………………………………………………………………….31

CHAPTER 5 UNDERWRITING AND CLAIMS

5A Proposal Form……………………………………………………………….32
5B Policies………………………………………………………………………33
5C Renewals…………………………………………………………………….36
5D Claims………………………………………………………………...36

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CHAPTER CONTENTS
PAGE

CHAPTER 6 INSURANCE COMPANIES

6A Directors and Managers…………………………………………………...40

6B Structure of Companies……………………………………………………42
6C Staffing of Branch Offices………………………………………………...43
6D Office Organisation………………………………………………………. 43
6E Practice of Insurance………………………………………………………44
6F Co-Insurance and Reinsurance…………………………………………… 45

CHAPTER 7 INTERMEDIARIES

7A Selling Insurance…………………………………………………………. 50
7B Contracts and the Agents………………………………………………….50
7C Brokers and Agents………………………………………………………..52
7D New Business……………………………………………………………...54
7E Renewals…………………………………………………………………..55
7F Amendments………………………………………………………………55
7G Claims Procedure………………………………………………………….55
7H Risk Management…………………………………………………………55

CHAPTER 8 COMMERCIAL INSURANCE

8A Background………………………………………………………………..56
8B Package Policies…………………………………………………………..56
8C Fire and Perils……………………………………………………………..59
8D Theft……………………………………………………………………….60
8E Money……………………………………………………………………..61
8F Fidelity…………………………………………………………………….62
8G Business All Risks………………………………………………………...62
8H Goods in Transit…………………………………………………………..63
8I Glass………………………………………………………………………63
8J Liability……………………………………………………………………64
8K Business Interruption……………………………………………………...66
8L Accounts Receivable………………………………………………………67
8M Group Personal Accident………………………………………………….67
8N Bonds and Guarantees…………………………………………………….68

CHAPTER 9 PERSONAL INSURANCE

9A Introduction………………………………………………………………. 69
9B Building (Houseowners)…………………………………………………..69
9C Contents (Householders)…………………………………………………..71
9D All Risks…………………………………………………………………...73
9E Personal Liability………………………………………………………….74

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CHAPTER CONTENTS
PAGE

9F Personal Accident……………………………………………………….…74
9G Underwriting…………………………………………………………….…75

CHAPTER 10 TRAVEL INSURANCE

10A Introduction………………………………………………………………….76
10B Policy Cover…………………………………………………………………76
10C Rating………………………………………………………………………..78

CHAPTER 11 MOTOR INSURANCE

11A Compulsory Motor Vehicle Insurance………………………………………79

11B RTA Policy………………………………………………………………….80
11C licensing Dates………………………………………………………………81
11D Cover Notes…………………………………………………………………81
11E Wider Covers………………………………………………………………..82
11F Private Cars………………………………………………………………….82
11G Commercial Vehicles………………………………………………………. 86
11H Motor Cycles……………………………………………………………….. 87
11I Motor Traders……………………………………………………………….88
11J Motor Fleets…………………………………………………………………89
11K Claims Procedures…………………………………………………………..89
11L Claims Agreements………………………………………………………….90

APPENDICES

Appendix A – Glossary of Terms…………………………………………………………………...91

Appendix B – Test Papers…………………………………………………………………………...99

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 The Insurance Institute of Zimbabwe

CHAPTER 1
WHAT IS INSURANCE?

CONTENTS

1A Introduction 1D Hazard
What is Insurance? Physical Hazard

Underwriter Moral Hazard

Premiums 1E Advantages of Insurance

The Insured 1F Insurance Investment in the National

Economy

Insurance and Assurance

Long Term and Short Term

1B What is Insurable

1C Risk

1A INTRODUCTION

What is Insurance?

Based on personal experience, many students can answer this question. Perhaps their parents receive visits
from a life insurance agent or a friend of a friend who knows an insurance broker. All those people who
have housing bonds with banks or building societies know of the need for house owners insurance to cover
the house against damage by fire lighting, hail, flooding and other hazards. We all know someone who has
had property stolen and has claimed from an insurance company. Most of us have some contacts with
insurance.

Gone are the days when insurance offices where full of people sifting through piles of dusty files. Modern
offices are spacious buildings equipped with computers providing the latest in Information Technology.
The industry has not yet reached the paperless era but it is surprising how much can be done without paper.
Telephones, e-mail and face-to-face contact are just as effective Direct marketing to clients has also led to
new ways of writing insurance business.

Insurance is a means of compensation if any accidental misfortune happens. People find it important or
even essential to ensure because the loss or damage could spell disaster for the owner. To the businessman
a loss could upset years of planning and budgeting for his business success.

What do people insure against?

The possibilities are endless. A fire in a house could damage a carpet, ruin a kitchen stove or destroy the
entire contents. A house owner might lose the whole house as a result of fire or flood. Without insurance,

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most people would find it difficult to replace or repair the lost property. For example, instead of insuring
his home and possessions, the owner decides to set aside $100 000 a year to pay for any possible damage.

Two years later a fire breaks out in his lounge and ruins the three piece lounge suite worth $1 200 000. The
saving of $200 000 plus interest would be hopelessly inadequate to replace the lounge suite.

A businessman with stock valued at $20 000 000 saving $40 000 a year against the possibility of damage
by fire would not be enough even after ten trouble free years, to pay for a partial loss. However, these
savings of $100 000 for the private individual and $40 000 for the businessman are similar to the annual
premiums which would be required by an insurance company for protection of the same assets.

Fire is not the only hazard facing the house owner and industrialist. Houses, factories, offices and shops are
being burgled daily. People are injured in motor accidents or at work. Sometimes the cause of the accident
could be blamed on someone else who could be called upon to pay for the damage, injury or death of the
others involved in the occurrence plus the cost of repairs to the vehicle and any other property which might
have been damaged.

Examples

a) Mr Moyo owns a small shop selling newspapers, sweets, cigarettes and groceries. One night he
receives an emergency call at home from the local police advising that the shop was on fire and fire
brigade was at the scene. When Moyo arrived outside the shop, he found that the damage was
extensive and that the goods not damaged by the fire were wet from the water used to put out the
fire. He realized that he would be unable to reopen the shop until extensive repairs had taken place
and the stock replaced. This meant renting another shop in the meantime to avoid losing
customers. He still had to pay the rental on the damaged premises, the salaries of two staff
members, his overdraft and replace the destroyed stock.

Fortunately Moyo had Insurance, which not only covered him from the loss of stock but included a
provision for the renting of temporary premises and paid his expenses while waiting for the damage
to be repaired and the shop to reopen.

b) John, While driving his car down the main street of his town one busy Saturday morning, collided
with a man on a motor cycle and while trying to avoid him, he also struck a parked Mercedes Benz
car.

Both these events occurred as a result of a split second of inattention on John’s part. The cost of repairs to
John’s car was $10 000 000. The Mercedes owner claimed $30 000 000 damages plus the cost of a rented
car, and the motor cyclist not only claimed a new machine, but also compensation as he was unable to work
for some months.

The insurance concept is thousands of years old and has played an important part in the development of
trade and industry. Ships carrying valuable cargo would never have been put to sea unless someone had
been prepared to share the responsibility for the goods if they were lost or damaged.

Insurance has grown from small beginnings. Not All business, factories and houses are the same size, they
do not have the same value and some are more prone to loss or damage than others. For instance, a
thatched house if struck by lightning is more likely to catch fire than one roofed with tiles. Industries using
chemicals or producing inflammable goods are more susceptible to fire than others not exposed to such
hazards. Which is the greater fire risk – a clothing factory or bank? Whatever the value or degree of risk,
the theory is the same.

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Separate pools are established for each class of risk. For hundreds of years, skilled people known as
underwriters have run these pools calculating the amount of premiums needed to pay for the losses,
building up reserves against possible catastrophes and leaving a margin for profit. Compensation for those
who have suffered a loss is paid from the common pools which have been set up. Those who have
not suffered have bought the peace of mind, which come from the knowledge of having protection
against the consequences of losses arising from the risks insured against. The scope of insurance
is continually developing and certain risks that were at one time considered uninsurable can now
be covered. Some risks though still remain outside the scope of insurance. For instance, no
insurance company would cover a firm against bankruptcy caused by bad management.

Insurance terms tend to confuse many people so it is important that those working in the industry have a
sound knowledge of them and know their full meaning. Let us examine some of the terms used so far.

Underwriter

An underwriter is the person who assesses the risk and then decides to accept or reject it. Should he accept,
he must then decide what premium to charge.

An underwriter may be:-

1. An employee of an insurance company

2. A Lloyd’s underwriter acting on behalf of syndicate of members who provide the financial
backing.

3. Sometimes the insurance company itself is referred to as the “underwriter” or the

“underwriting company”

Premium

Premium is the money paid to the insurer or underwriter in exchange for insurance protection. The money
received is then put into the pool from which claims will be met.

The Insured

This is the person or company standing to benefit from the insurance. In other words, the person or
company taking out the insurance and paying the premium, who is then entitled to claim if and when there
is a loss for which cover has been affected.

Insurance and Assurance

Some confusion exists as to the use of these two words. “Usually “assurance” refers to long-term business
such as life and pensions and “insurance” to the short-term classes such as fire, motor and accident. Up to
now in this book, only the term “insurance” has been used. The use of “insurance” for both types of
business is generally acceptable although the purists in the long-term industry prefer “assurance” and refer
to the “assured” rather than
the “insured”

Long Term and Short Term Business

These expressions are used in the Zimbabwean market to differentiate between life and pensions insurance
(long term) and fire, motor and accident (short term). Once a life policy is in force it continues for as long

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as the premium is paid. The insurer cannot cancel a policy when a renewal premium is due because the
insured is suffering from ill health because one of the main reasons for effecting the insurance is to provide
a benefit which is payable in the event of death following an illness. Short term insurance, on the other
hand, is not automatically renewed and may be cancelled mid term (before the renewal date). Notice of
cancellation is necessary if given by the insurer and proportion of the premium will be refunded to the
insured.

1B WHAT IS INSURABLE?

Any risk can be insured against if:-

1. Its occurrence would result in a loss to the person taking out the insurance;

2. the loss is entirely accidental as far as the insured is concerned.

3. a reasonable premium can be assessed by the underwriter and be paid by the person taking out the
insurance

Several important principles are raised here:-

1. A person may only insure a risk, which would cause him direct personal loss. He cannot, for instance,
insure his neighbour’s car or a friend’s life. He must have what is called “Insurable Interest” in the
subject mater of the insurance, a legal principle that is discussed in Chapter 4.

2. A person may not receive more than the amount of any loss he suffers. The purpose of insurance is to
place the individual back, as near as possible, in the same financial position as he was in immediately
before the occurrence. He may not enjoy a profit as the result of the loss.

3. The monetary amount of the loss or damage, such as the cost of replacing or repairing an item stolen or
damaged by fire, should be measurable.

4. The loss or damage should be entirely accidental to the insured. Insurance is not there to compensate a
person who has deliberately burnt down his own factory or house but it will do so if someone else
deliberately burns downs his house.

5. Remembering the concept of the insurance pool, the risk must be one that is frequently encountered so
that the underwriter has some experience and a statistical base from which to judge what a fair premium
should be.

Sometimes a special or unusual risk is encountered where an underwriter may be prepared to provide
cover, basing his judgement on statistics and information, which has regarding other similar risks.

Often a “one off” situation arises where the Lloyd’s market is willing to offer cover, at a relatively high
premium due to lack of experience and statistical data for the risk. A good example for such a risk would
be a request by a famous singer for insurance against the possibility of losing his voice and being unable to
continue his career. However high the risk the underwriter must quote a realistic premium, if the premium
is too high, the quotation would be unacceptable. It would not be worthwhile insuring an item valued for
$5 000 at a premium of $4 000.

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1C RISK

Until here the word risk has been used to describe the hazard for which the insurance is taken out and two
helpful definitions are:

a) Risk is the chance of a loss; or

b) Risk is the possibility of an unfortunate accident

In life everyone faces risks of one sort or another – in business or in private life.

The taking of such risks is based on the individual’s training and experience. These are accepted and borne
by those concerned but there are other risks for which insurers are prepared to take responsibility and offer
cover.

The use of the word risk in insurance refers to the subject matter of the insurance, such as a house, factory
or office block. This is sometimes called the object at risk and at other times shortened to the “risk”. Most
of the risks covered by insurance are common to all of us, and although we may have some control over the
final outcome they cannot be completely avoided. For example, motor accidents were once regarded as the
fault of a particular driver and he was held solely to blame, but attitudes have changed and accidents are
now viewed as a combination of events, not all of which are within the control of the driver.

1D HAZARD

Hazard can be defined as a “feature, physical or otherwise, which affects the probability or extent of loss”.

There are two forms of hazard, which influence the attitude of the insurer to a risk, one is the physical
hazard and the other the moral hazard.

PHYSICAL HAZARD

This is the visible hazard affecting a risk and it is often referred to as poor or unfavourable. The following
are examples of such physical hazards with some good features, which help to improve them.

Fire Insurance

In the case of fire insurance, the building material used can be a physical hazard. Timber walls and
thatched roofs are highly combustible and are quicker to catch alight than concrete or tile. Materials used in
manufacturing processes, such as certain chemicals and gases, can be highly inflammable, while naked
lights, the use of blow torches and people smoking cigarettes are also physical fire hazards.

On the other hand, good physical features would be brick or concrete fire stop walls, metal fire doors,
automatic sprinkler and fire alarm systems. The storage of the inflammable materials needed for
manufacturing should be separate and if possible some distance from other buildings. It is interesting to
note that what can be regarded, as good feature on the one hand can also become a poor feature, depending
on the circumstances. For example, whilst sprinkler systems are an important form of protection in many
manufacturing and commercial buildings, water leakage from such systems onto paper products or books
could cause as much damage as a fire.

Theft Insurance

A building constructed of flimsy materials with a timber, asbestos or corrugated iron roof with standard
window latches and rim latches on the doors would offer little resistance to the average burglar. In

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addition, if the contents were attractive to thieves e.g jewellery, wines and spirits, tobacco and electrical
goods, the risk would be regarded as a poor physical hazard.

Study building constructions, security locks and bolts and burglar alarm systems can greatly improve a poor
physical risk.

Motor Insurance

Cars driven in heavy traffic in areas such as Harare are more likely to have accidents than those in country
districts. Vehicles used for some occupations are more exposed to accidents than others, for instance taxis
and the cars of sales representatives, which are on the road for most of the day. Vehicles, which are
expensive to repair, such as Mercedes and BMWs, could also be regarded as an extra hazard.

Young and inexperienced drivers and those with fast cars are regarded as poor physical hazards, but they
could also be regarded as moral hazards.

Liability Insurance

A company using chemicals, or materials which create dust and vapours in the industrial process often
cause physical hazards to their staff, customers and even those working or living in the same area. Where
work is carried out at customers’ own premises and involves cutting and welding with the use of gas
cylinders, the potential liability to the public is greater.

Personal Accident Insurance

A history of recurring illness, obesity and potentially dangerous occupations such as mining and
commercial flying are examples of physically hazardous risks.

MORAL HAZARD

The attitudes and conduct of people constitute moral hazards and those aspects are just as important as
physical hazards. The insured, his employees and society in general can all affect the moral hazard of a
risk.

The Insured

The employer who has little regard for the safety and well being of his workers is a poor moral hazard.

Sometimes when unsafe working conditions exist it is the result of cost cutting at the planning stage which
is a poor moral hazard creating a poor physical hazard.

Employees

The attitude of employees can be a poor moral hazard sometimes created by unsatisfactory communication
from the employer and underpayment or poor working conditions. This dissatisfaction can lead to
vandalism, sabotage and arson and to general carelessness.

Society

Economic pressures are causing the insuring public to become more claims conscious resulting in more
claims and some of a dubious nature.

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The growing incidence of vehicle theft, hijacking, vandalism and arson and the disregard of speed limits
and the basic rules of road safety are causes of concern and contribute to a worldwide increase in poor
moral hazard.

As a general rule it is easier to deal with poor physical hazards rather than poor moral ones. Insurer are
often obliged to decline risks where there is poor moral hazard because it is only possible to improve the
hazard by making those concerned aware of the potential dangers and enlisting their cooperation to take
more care.

1E THE ADVANTAGES OF INSURANCE

The benefits of insurance to the public as a whole are numerous and we have already mentioned
compensation and peace of mind. The following are also advantages:-

1. A businessman can concentrate his efforts on running his business and making a profit when he
does not have to worry about an accidental loss or damage.

2. There is no need to save large reserves to pay for possible losses.

3. The businessman will take decisions involving speculative ventures which he would not have done
without insurance. Such ventures include opening new factories, launching export drives and
experimenting with new products.

4. Insurance companies and broking houses employ specialists to advise businessmen on ways of
reducing risks and at the same time paying lower premiums. These specialists include fire
surveyors who advise on how to reduce fire hazards; theft surveyors who recommend the most
effective intruder protection and alarm systems and safety officers who can recognize potentially
dangerous area in the work place which would be overlooked by the layman.

5. Premiums collected by insurance companies are invested in many areas which benefit the
community at large.

1F INSURANCE INVESTMENT IN THE NATIONAL ECONOMY

Each year some part of every nation’s total output should be saved and reinvested in the replacement,
modernization and the expansion of its industry, this process is known as capital formation. Any nation
which neglects to provide for capital information will find itself susceptible to shortages, inflation,
unemployment and a declining standard of living. The insurance industry’s role in putting funds into
long term investments has a major impact on the economy and is not only income creating but also
capacity-creating. This means economic growth with the accompanying capacity of the country to offer
employment and a rising standard of living to its people.

Insurers in Zimbabwe spread their funds over much of the investment market, which has four well
defined divisions.

Money Market

Investments with maturity periods of under a year (usually 90 days) are purchased on the “Money
Market”. The minimum investment required to purchase money market instruments is large and
therefore this market is dominated by commercial banks, government, local authorities, financial
institutions, insurance companies and mutual funds.

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These large investors purchase money market instruments to convert temporary cash balances into
highly liquid interest bearing investments. The various money market instruments have individual
differences but they are substitutes for one another in many investment portfolios. The rates of return
on these securities tend to fluctuate closely with short-term interest rates. The money market
instruments used in Zimbabwe are Treasury Bills, negotiable certificates of deposit, commercial paper
and banker’s acceptances.

Capital Market

While money market securities are of short duration and low risk, capital market investments are lower
liquidity and greater risk and therefore give higher returns. Capital market instruments include a
variety of investments with either a fixed term to maturity or indefinitely. Capital market investments
include various kinds of bonds and capital assets. The Zimbabwean government issues a variety of
investment instruments in the capital market with maturity terms of one year and longer. As these
securities are backed by the government they are regarded as the highest grade issues available. Long-
term government securities include Treasury Notes and Treasury Bonds. These instruments are all free
from the risk of default but there are differences between them in regard to their periods of maturity, the
minimum amount needed for purchase,

Methods of payment of interest and special tax provisions.

Equity Market

The Zimbabwean Stock Exchange is the main market for equities in Zimbabwe, although some companies’
shares are traded through Post Offices. Equity is the interest an ordinary share holder has in a company and
through which he owns a share of its net asset value, earnings and dividends. There are numerous
categories of equity investments and most are readily marketable and their values change often. Equity
investments today are considered appropriate by both the life assurance and short-term industries for
investments which yield returns higher than the rate of inflation. The investments of insurers and pension
fund make up a significant proportion of the total funds placed with the Stock Exchange.

Property Market

Insurance Companies and pension funds have found this investment increasingly attractive particularly in a
high inflation environment. The possibility of high yields and capital appreciation are advantages which
frequently offset the disadvantages of interference by forces other than those of the normal market such as
rent control of residential properties and the fact that the money is not easily accessible. The investment by
insurers and pension funds in properties in Zimbabwe has created employment in the building and
construction industries and provided many long –term benefits to the communities in which the properties
are constructed. The further emphasis of the insurers’ important role in the Zimbabwean economy.

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CHAPTER 2
DEVELOPMENT OF INSURANCE

CONTENTS

2A History 2E Multi-Peril Policies

2B Marine Insurance 2F Motor Insurance

2C Fire and Perils 2G Aviation

2D Accident Insurances

Personal Accident

Sickness

Fidelity Guarantee

Employers and Residual Liability

Public Liability

Engineering

Theft

All Risks

Goods in Transit

Money

Glass

2A HISTORY

A knowledge of history is important in order to understand individual government procedures, how

democracy came into being and how laws throughout the world were formulated. Similarly, in order to
understand insurance, it is helpful to know how it began and be able to trace its origins. For instance,
Lloyds of London, while providing similar insurance to the company market operates in an entirely
different way. For those working in insurance, it is useful to know why insurance companies, and Lloyd’s
have developed ways of practicing insurance over the years, including the policy wordings. Insurance has
developed because of the needs of society and how insurers dealt with those needs makes our understanding
of present methods easier.

2B MARINE INSURANCE

Travelling and trading between countries dates back to the earliest recorded history. For both the traders
and the shipowners protection from loss became necessary.
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The earliest form of marine insurance was known as a Bottomry Bond when a ship’s hull was referred to as
a bottom. This was an advantage given on the security of the ship, which was refunded with interest if the
ship completed the voyage without damage. This form of insurance is over 3 000 years old. The next
development in marine insurance history was in Italy In the 12th Century when compensation for the loss of
ships and cargo at sea became established.

In the 14th century merchants from an area in northern Italy called Lombardy started a similar practice in
London in a street which became known as Lombard Street (as it is today)

By the end of the 16th century policy wordings became standard familiar to the shipping community and
courts were established to settle disputes. These special shipping courts were governed by international
trading laws, which differed from English law.

By the end of the 17th century there was a group of merchants in London who were prepared to accept part
of the risk of a ship and its cargo in return for a premium paid by the ship owner or trader. It was from this
simple beginning that the corporation of Lloyd’s ultimately developed. (see section 3D)

In 1720 in return for a large sum of money, King George 1 of England granted a monopoly to two groups of
people to transact marine insurance. One was London Assurance and the other Royal Exchange Assurance.
The Act forbade other companies from transacting marine but it did not extend to individuals.

Because Lloyds was made up of individuals it grew rapidly as a center of insurance. The rate of growth
continued until 1824. when Alliance Marine Insurance Company succeeded in its application to transact
marine insurance and so broke the company monopoly.

Over 300 years, the special London marine courts arbitrated over marine issues until the Marine Insurance
Act was passed in 1906. the Act forms the basis of the law relating to marine insurance throughout the
world still.

Policy Cover

Marine insurance can be divided into three area; hull, cargo and freight. The risks against which these may
be insured are perils of the sea and include fire, theft and collision. While hull and cargo are self
explanatory, freight is the sum of money paid for transporting goods for the hire of a ship. When goods are
lost due to perils of the sea, fright or part of it may also be lost which is the reason for the basis of valuation
of cargo to include an amount for freight.

Cargo is usually insured on a warehouse (of departure) to warehouse (of arrival) basis and usually on “all
risks” basis.

TYPES OF POLICY

Time of policy

This is for a fixed period of up to 12 months.

Voyage Policy

Operative for the period of the voyage, which for cargo is from warehouse to warehouse and may include
that part of the journey, which is by road or rail.

Mixed Policy
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 The Insurance Institute of Zimbabwe

Covers the subject matter for the time of the voyage and a period of time while in port.

Building Risk

Covers the construction of sea-going vessels

Open Cover

This is the usual form of policy for insuring cargo. Its purpose is to establish an automatic facility for an
insured’s future needs. Broad definitions of the basis of valuation and limits are incorporated together with
a rating structure. Although these policies are called Marine Open Covers they can also apply to sendings
by air. Part of the journeys covered by the policy may be by road or rail. Certificates are issued for
individual sendings and declaration are made to the insurers regarding shipments so that the appropriate
premium my be charged.

Small craft

The increasing leisure of small boats about the introduction of a policy for this form of craft covering a
wide range of perils and liability insurance.

2C FIRE AND PERILS

Losses caused by fires increased in Britain as people began to move from the country into the towns. To
help unfortunate victims, the guilds of craftsmen (who were the start of the trade unions) raised money and
appeals were made in churches. During the 17th century fires engulfed huge areas of towns were the houses
included much timber in their construction increased and included the Great Fire of London in 1666.

In 1667, Nicholas Barbon set up a scheme, which eventually became the Fire Office. Soon after this a
similar arrangement known as the City of London Corporation was formed. During the 18th century, further
schemes were established which varied in the way premiums were calculated and losses were compensated.

It became the practice to issue a metal plate with the company emblem to be displayed on the wall of the
house at first floor level. These plates were called fire marks and indicated the buildings with insurance so
that the insurance company owned fire brigade could find them when called and they provided free
advertising. In 1833 fire brigades in London joined together to form what eventually became the London
Fire Brigade, supplementing the existing municipal and other private brigades.

In 1861, after a number of quite large fires in London, a bad fire took place on the side of the river Thames
in Tooley street where large buildings were considered by the insurance companies to be among their best
risks. The result was a panic among insurers and the doubling and trebling of premiums. The merchants
called a meeting at which they formed their own insurance company, Commercial Union, and asked the
government to take over the London Fire Brigade. In 1865 the Metropolitan Board of works took it over;
while the insurers decided to co-operate among themselves on premiums and rating. A system was also
established whereby insurers paid a levy based on the total sums insured in the London Fire Brigade area to
help support the Brigade.

The industrial Revolution in Britain produced more complicated and industrial risks from 1829 the fire
office managers in Scotland met regularly to discuss problems and the English offices soon followed their
example. An agreement was reached after the Tooley Street fire, which resulted in the founding of the Fire
offices Committee in 1868 where matters of common interest were discussed.

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Standard Fire Policy

Over the years the term “fire” has become precisely defined and the wording of the standard fire policy
agreed by members of the Fire Offices Committee has been widened to include lightning and explosion,
without actual fire resulting

The basic mention of this policy is to provide compensation to the insured in the event of damage to his
property caused by fire, lightning or explosion. A number of extra perils may be added to the basic policy
at an additional premium. These perils include:

▪ Storm, flood and burst pipes;

▪ Aircraft, other aerial devices or articles dropped there from;
▪ Impact by vehicles or animals;
▪ Earthquake;
▪ Riot and malicious damage

It is important to remember that these additional perils must result in damage to property.

2D ACCIDENT INSURANCE

The coming of the Industrial Revolution in Britain created the need for many forms of insurance not catered
for in the fire department. The first of these was personal accident insurance to cover injury or death while
on a train or railway property. Later this was extended to include accidental death or bodily injury in other
circumstances and then sickness benefits were added.

Personal Accident

The intention of the basic policy is to provide compensation in the event of an accident causing death or
injury.

Cover is provided for death, permanent disability and medical expenses. Compensation for permanent
disability is based on a scale which is graded according to the severity of the injury. For example, 100% of
the benefit will be paid for loss of an arm or leg while 25% will be paid in the event of permanent and total
loss of hearing in one ear. When the insured has suffered an accident, which results in temporary total
inability to follow his usual occupation he may claim for temporary disability benefits. This will provide a
weekly benefit, payable for a maximum of 104 weeks.

In addition to the purchase of personal accident by individuals, companies sometimes arrange this cover for
their employees.

The temporary total disablement section of the cover can be extended to provide a weekly benefit if the
insured is temporarily totally disabled through illness.

Personal accident and sickness policies are renewable annually. If a claim has occurred, which could be of
a recurring nature, the cover may be restricted at renewal or in severe cases not renewed at all. Sickness
policies generally exclude the first days of illness to keep down the number of claims and the cost of the
cover.

Fidelity

This class of insurance has been available in Europe since 1840 and covers the risk of an employer losing
money or stock through the dishonesty of staff. In Zimbabwe, because of the number and size of claims in
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recent years, all insurers have agreed to charge the same minimum rates and apply the same compulsory
excesses.

Employers and Residential Liability

Until the mid-twentieth century it was understood that employees accepted the risk of death and injury in
their own chosen occupation.

This situation was changed over the years by the various Acts of Parliament, which gave employees the
right to claim against their employers in the event of an accident at work.

With the introduction in Zimbabwe of Workmen’s Compensation Act, a workman had the right to claim
against the fund following an accident at work. However the definition of “Workman’ was limited by a
level of earnings and therefore many employees were excluded.

Now the Workers’ Compensation fund has been incorporated in National Social Security Authority (NSSA)
and all employees – other than Civil Servants, agricultural and domestic workers are included. There is
however a monetary limit on the benefit levels which means employees in higher wage brackets are
disadvantaged.

All workers however retain their right at Common Law to take action against their employers in the event
of an accident. Employers Liability insurance is designed to cover the legal ward made against the
employer.

In the event of an employer being found by NSSA to have been negligent in connection with the cause of an
accident they can be fined and residual Liability insurance is designed to cover such fines.

Public and Products Liability

During the 19th century in England, the development of the idea of employees’ liability created a
corresponding general awareness and encouraged business people to seek insurance, which would also
cover their legal liability to the public. Such liability can arise in a number of ways e.g. manufacturing
methods may prove hazardous to the public, or the public may have access to premises where they can
sustain an injury or loss or damage to their property. The owners are responsible for the public’s safety and
so would need public liability insurance. There is also the possibility of injury or damage being caused by
goods, which have been sold in the course of the business or following some service provided. Many
companies take out products liability and defective workmanship policies to cover their legal liability in
these circumstances. The legal costs of defending any court action are also included in the public liability
insurance.

Engineering

The Industrial Revolution in Britain brought the risk of damage and injury resulting from the operation of
new machinery. In those days the most frequent occurrence was the explosion of boilers and other pressure
plant used to power machinery.

Little or no consideration was given to safety standards in those days and it is interesting to note that the
development of engineering insurance ran parallel with the inspection of boilers.

In Britain in 1854 the Steam Boiler Assurance Company began issuing policies combined with an
inspection service. However, public feeling grew to such an extent that in 1882 the Boiler Explosion Act
was passed and severe penalties could be imposed if the explosion was found to have been the fault of the
owner.
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Currently engineering insurance can provide the following cover;

1. damage to or breakdown of specified items of plant and machinery.

2. cost of repair to own surrounding property due to 1;

3. legal liability for injury caused as a result of 1;

4. legal liability for damage to property of others;

5. business interruption following machinery breakdown or damage

Theft

The contents, which a business would insure against theft, are the same as under the fire policy for contents.
A fire could destroy all the contents of a building, but this would rarely happen with theft. It is usual for the
insured to select a lower sum to be covered and this is called first loss insurance. Insurers charge higher
premiums or place a limit on the amount, which can be claimed for stock, which is attractive to thieves,
such as tobacco and electrical goods. For a claim to be admissible, the policy requires that the loss should
have risen following forcible and violent entry into or exit from the premises, so this would naturally
exclude such acts as shoplifting from the cover.

Personal All Risks

The naming of this form of policy is misleading because it is not possible to provide insurance for every
risk but a wide scope of cover is covered.

The “all Risks” policy is designed to ensure possessions such as clothing and personal effect worn or
carried on the person (i.e sunglasses, calculators, handbags etc) or worn or used when playing sport (with
some exclusions and also specified valuables like jewellery and photographic equipment against accidental
loss or damage both in the home and when traveling. This type of insurance is usually part of a
householder’s policy although some insurers will underwrite it on its own.

Business All Risks

This is the same type of cover as Personal All Risks but it is for items of value taken away from business
premises or for items that can easily be accidentally damaged – calculators, computers, professional
photographers equipment.

Goods in Transit

This is a form of all risks insurance covering breakage and accidental loss or damage during the
transporting, loading and unloading of goods. The cover may be restricted to loss or damage to the property
due to fire, collision or overturning of the carrying vehicle at a reduced premium.

Money

The policy compensation for money which is stolen from business premises, the home of the insured or an
employee (although cover is limited), or while being carried to or from the bank. This is an important form
of cover since large sums of money are frequently at risk. News reports reveal that hold-ups and break-ins
occur daily, with vast amounts often being stolen. The policy also covers damage to money.

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An important addition to the basic cover is the provision of compensation for employees who may be
injured or have clothing damaged during a robbery.

Glass

Cover is available against accidental breakage of external and internal plate glass, in windows, mirrors, and
doors. Subject to the policy limit, the insurance is extended to include damage to the contents of display
windows and frames as a direct result of the loss or damage sustained, the cost of boarding up, cost of
removal and reinstallation of fixtures and fittings necessary for replacement of the glass and the
employment of a security guard.

2E PACKAGE POLICIES

Many of the types of insurance already mentioned are needed by the same individual or business. Anyone
who owns or occupies a house would require cover for fire, theft, water damage, loss of rent, additional
living costs if the house is damaged and cannot be occupied until repairs have been completed, glass,
money and liability insurances. The businessman may require similar covers with the addition in transit,
money, engineering and business interruption insurances.

There are advantages in combining various forms of insurance in one policy, it is less costly from an
administrative point of view; there is one premium and one renewal date to remember; there is less chance
of overlooking some form of cover and it is easier for insurers to sell one product than several.

These package policies, given various names by different insurers for marketing reasons, are suitable for
many business although the larger and more complex the company, the greater is the need for a specially
tailored insurance portfolio.

Another example of a package policy is the travel policy, where “all risks” cover on luggage is combined
with personal accident, medical expenses and loss of deposits caused by delays.

A specialized package is available for farmers, which can cover the house, farm buildings, money, crops,
public liability, cars, trailers and tractors.

Another package is the home policy, which offers a wide scope of cover. In addition to covering the basic
perils mentioned above, it also include insurance against damage caused by collapse of television aerials,
breakage of underground water pipes and sanitary fittings and many more risks. Package policies for
offices and blocks of flats with cover being provided as a package are often called combined policies.
These are an efficient and relatively inexpensive way to insure non-hazardous buildings.

2F MOTOR INSURANCE

The invention of the motor vehicle towards the end of the 19th century did not produce an immediate
demand for motor insurance. In the UK there was a safety law, which required that someone had to walk in
front of every vehicle carrying a red flag to warn people of its approach.

It was only after the repeal of the law in 1986 that the British motor industry began to develop but progress
continued to be slow until the end of World War 1 in 1918. The first motor policy was issued in 1898, and
a form of comprehensive insurance became available a few years later. The value of motor transport was
shown during the 1914-1918 war and with many people having learned to drive while in the army a market
for both private cars and commercial vehicles had been created. The demand led to the mass production of
vehicles with an accompanying reduction in prices, while the introduction of hire purchase facilities
brought the purchase of a car within the financial capabilities of many individuals.

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In consequence of these developments, there was large and rapid increase in the number of vehicles on the
roads in Britain and it was not long before a corresponding rise in accidents and casualties became a matter
of concern. Many of the new motorists were unable to pay for the damages and injuries, which they caused.
This situation led to the introduction of the first British Road Traffic Act in 1930. The Law required the
owners of vehicles to insure their liability in respect of death or injury to third parties arising from the
negligence or error of the driver.

Compulsory Motor Insurance in Zimbabwe

The Road traffic Act 1976, Part III refers to Compulsory Insurance against Third Party risks arising out of
the use of motor vehicles. A policy issued in terms of the Road Traffic Act is referred to as Full Third Party
policy.

This provides the user of the vehicle with legal liability cover for death or injury to any persons except an
employee of the insured and passengers are covered only if they are paying a fare such as in taxis or buses.

Policy Cover

With the third party personal injury liability insisted on by the legislation, owners of motor vehicles have
two additional forms of insurance from which to choose. The first is commonly known as “Full Third
Party” and covers liability for damage to other people’s property, to which may be added loss or damage to
the vehicle caused by fire and theft. The other alternative is a comprehensive insurance, which covers all of
the aspects just mentioned as well as accidental damage to the insured motorcar and limited medical
expenses for its occupants.

The policy cover will vary depending on the type of vehicle. For example, private – type cars; commercial
vehicles and special types (graders, bulldozers etc); motor cycles, buses and trailers including caravans.
Motor fleet policies are available for businesses with over 20 vehicles.

Special policies are available to members of the motor trade to ensure that their liability is covered whilst
using their own or customer’s vehicle on the road or at their own premises.

2G AVIATION

World War 1 accelerated the development of aircraft design and construction but it was not until 1945 after
World War 2 that aviation really developed and Lloyd’s played a large part in the provision of insurance
covers.

All aviation risks from component parts to complete aircraft and liability covers are insured in the specialist
aviation market. Liability for accidents to fare paying passengers is regulated by international agreements
beginning with the Warsaw Convention in 1929 and Hague Protocol in 1955 but individual national laws
may place higher limits internal domestic flights.

In Zimbabwe there are only a few insurers prepared to underwrite aviation insurance and small private
planes.

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CHAPTER 3

THE INSURANCE MARKET

CONTENTS

3A Introduction 3E Intermediaries

3B Structure of the Market 3F Self-Insurance

3C Proprietary Insurance Companies 3G Reinsurance

3D Lloyd’s of London 3H Market Associations in Zimbabwe

3A INTRODUCTION

The dictionary tells us that a market is a gathering of people for the purchase and sale of goods. When we
talk about the insurance market we are referring to the many companies, institutions who are involved in the
purchase and sale of insurance.

The purchasers of insurance are found in commerce industry and general public. The size of the risks
varying from the contents of small flats to properties such as Hwange Power Station. The sellers consists of
the various insurance companies and Lloyd’s.

Between buyers and sellers are the intermediaries. Intermediaries are either agents employed by one
insurance company or independent brokers. Intermediaries are paid in the form of commission by the
insurer for the services provided to their clients.

Playing an important role in the overall structure are the re-insurers. Re-insurers do not deal direct with
insuring public but they are essential in the transfer of the financial consequences of risk by insuring
insurers for the portions of risks which are too great for the insurers.

3B STRUCTURE OF THE MARKET

The market layout in the diagram shows how the purchase and sale of insurance is performed and also
indicates which individuals and organizations participate in the arrangement.

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BUYERS
THE INSURED
Commerce, Industry, Public

INTERMEDIARIES COMPANY BROKERS LLOYD’S SELF -

AGENTS BROKERS INSURANCE

SELLERS INSURANCE LLOYD’S OF CAPTIVE

COMPANIES LONDON INSURERS

REINSURERS

3C PROPRIETARY INSURANCE COMPANIES

In Zimbabwe all those companies transacting long and short term insurance are subject to the requirements
of the Companies’ Act and must also comply with the provisions of the Insurance Act 1987 as amended
over the years.

Proprietary companies are owned by the shareholders whose liability for losses is restricted to the nominal
value of their shares.

Many to today’s major insurance companies have similar origins dating back to the time when groups of
merchants, manufacturers, and ship owners formed their own insurance companies to handle their own
insurance business.

3D LLOYD’S OF LONDON

In the 17th century it became usual for trader and ship owners who required marine insurance and those
providing this facility to meet and conduct their business in coffee houses. One such establishment was
opened by Edward Lloyd in London around 1680. as an additional service to his patrons, Lloyd also
published a newssheet giving the latest available information on shipping matters. In 1871 the Lloyd’s Act
created the Corporation of Lloyd’s. The corporation did not transact insurance, this was still the area of
individual under writing members but it did provide premises, services and assistance. It also, laid down
the regulations and requirements which had to be met by anyone wishing to become a member.

Included in the services provided by the Corporation now are the Lloyd’s Policy Signing Office, where all
policies are checked and signed after preparation in the broker’s office and the Lloyd’s Under writers
Claims and Recoveries office where underwriters can have claims handled.

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Another service is available through the Lloyd’s agents who are based at most ports around the world.
These agents assist underwriters by arranging for surveys of damaged vessels and cargo and also settle
claims.

Lloyd’s agents are also the source of much of the shipping information used in the Lloyd’s publications,
examples of which are the Lloyd’s List, the oldest newspaper in the world, dating back to 1734, and the
Lloyd’s Shipping Index which gives information on shipping movements in all parts of the world.

Only a Lloyd’s brokers can place insurance at Lloyd’s, and before obtaining accreditation must meet strict
requirements. The Lloyd’s broker always acts as his insurance agents as well as placing the risk, will
negotiate any subsequent claims on his client’s behalf. The point of contact between the broker and the
under writer is the area in the Lloyd’s building known as “The Room”. When seeking to place a risk, the
broker prepares a slip, which gives information broadly similar to that asked for on a proposal form. The
slip also includes an indication of the premium which the broker considers appropriate for the risk as well
as the rate of commission he requires. The broker then approaches one or more underwriters at their
“boxes” (desks) in “The Room”. The underwriter whose quotation is accepted will either assume the entire
risk or lead it.

Where other underwriters are participating in the risk, they will follow the lead underwriter on the same
terms and conditions. Lloyd’s brokers are not restricted to placing their business at Lloyd’s and also make
extensive use of the company market in London.

3E INTERMEDIARIES

Intermediaries are important to the insurance market, they provide the link between the insurer and the
insured, or prospective insured.

Brokers who can place business with all insurers and are licensed by the office of the
Commissioner of Insurance as insurance brokers.

Multiple Agents who usually have agencies with most insurers and are also licensed by the office of
the Commissioner of Insurance but the requirements are not as stringent as for the
licensed brokers.

Sole Agent who act only one insurance company.

Lloyd’s Broker who have to have their offices in London, are accredited by the Brokers Liaison
Committee of Lloyd’s and are the only people who can place business at Lloyd’s.

3F SELF INSURANCE

As an alternative to purchasing all insurance in the market some large industrial concerns set aside funds
to meet losses. This can either be by establishing a captive insurance company, taking large excesses or just
establishing an internal fund from which losses are paid. Since the risk is retained within the particular
organization there is no market transaction of buying and selling. However, these arrangements still have
an
overall effect on the market’s funds and also on premium levels when the insured is taking a large excess.

An organization’s decision to self-insure is influenced by two considerations. Firstly, it believes that its
own financial resources are adequate to meet such losses. Secondly, the organization is able to avoid the
insurer’s
administration costs and the allowance made for their profit margin when the insured is taking a large
excess.
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An organization’s decision to self-insure is influenced by two considerations. Firstly, it believes that its
own financial resources are adequate to meet such losses. Secondly, the organization is able to avoid the
insurer’s administration costs and the allowance made for their profit margin when calculating the amount
to be transferred to the internal fund.

If the method used is to create a captive insurance company then this is subsidiary of the large corporation
and they can place some of their covers direct with re-insurers at a lower cost than direct with insurance
companies.

The advantages of self-insurance are;-

1. Premises should be lower as there are no costs in respect of broker’s commission or insurer’s
administration
and profit margin.

2. Interest on the investment of the fund belongs to the insured. This can be used to increase the fund or to
reduce the amount of future transfers to the fund.

3. The insured’s premium costs are not increased due to the adverse claims experience of other firms;

4. There is a direct incentive to reduce and control the risks of loss;

5. No disputes will arise with insurers over claims.

6. As the decision to self insure is limited to large organizations, they will already have qualified insurance
personnel on their staff to administer the fund;

7. The profits from the fund go to the insured.

The draw-backs to self insurance are;-

1. A disastrous loss could occur, wiping out the fund and perhaps force the organizations into liquidation;

2. While the organization may be able to pay for any individual loss, the combined effect of several losses
in one year could have the same effect as one huge loss, particularly in the early years after formation of
the fund;

3. Capital has to be tied up in short-term, easily realizable investments, which may not provide as good a
yield as the better spread of investments available to an insurance company.

4. It may be necessary to increase the number of insurance staff employed at an extra cost;

5. The technical advise of insurers on risk prevention would be lost. The insurers’ surveyors would have a
wider experience over many firms and different trades, and this knowledge could be advantageous to the
insured.

6. The claims statistics of the organization will be derived from too narrow a base for predictions to be
made with confidence as to the future claims costs;

7. There may be criticism from shareholders and other departments;

a) at the transfer of large amounts of capital to create the fund and at the loss of dividends that year;
b) at the low yield on the investment of the fund compared with the yield obtainable if that amount of
capital was invested in the production side of the organization.
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8. In times of financial pressure, there may be a temptation to borrow from the fund, thus defeating the
security which it has created;

9. Pressure may be brought to bear on the fund managers to pay losses which are outside the cover with the
resultant reduction in the fund. This defeats its purpose, making statistical analysis more difficult.

10. The basic principle of insurance, that of spreading the risk is lost.

3G REINSURANCE

Having decided on the maximum amount which an insurer is prepared to lose in the event of a major claim,
the
Insurer is faced with a number of choices when offered a large risk. The insurer can refuse the business;
accept only a part (co-insurance) or take the whole with the intention of reinsuring.

In the case of co-insurance, insurers share the risk. The leading insurer issues the policy, deals with
changes in cover, negotiates renewals and handles claims settlements. Where the risk is reinsured, the
insurer is still fully liable to the insured.

The contract is between the insured and the insurer. The insurer’s decision to purchase reinsurance is a
separate matter. If the reinsurer went out of business the insurer will remain liable for the full amounts of
the claim to the insured.

3H MARKET ASSOCIATIONS IN ZIMBABWE

The main insurance associations operating in Zimbabwe for the benefit of the Industry are:-

Insurance Council of Zimbabwe (ICZ)

Founded in 1978 to promote and advance the common interests of underwriters of all classes of short-term
insurance and to promote the agreement and co-operation between its members on all matters of mutual
interests. It provides machinery for resolving any differences. Regular meetings are held to discuss policy
wordings, in underwriting unusual risks and so on. Additionally the Council represents the short-term
market in discussions with the Ministry of Finance, represented by the Commissioner of Insurance.

Various associations with ICZ consider specific matters related to short-term insurance. These include:-

a) Motor Insurers’ Bureau of Zimbabwe: This body is made up of representatives of all registered
motor
insurers and is concerned with the welfare of victims of uninsured drivers in all claims involving
death or bodily injury covered by the Road Traffic Act, 1976.

b) Motor Insurance Pool: This body is concerned with providing Road Traffic Act cover to all
visitors to Zimbabwe.

c) National Bureau for Zimbabwe is concerned with the “Yellow Card” system which provides Full
Third Party cover in terms of the relevant legislation in P.T.A countries.

d) Professional Indemnity Consortium deals with professional indemnity cover for insurance
brokers and multiple agents.

e) Growing Timber Risks Consortium concerns it self with the insurance of timber plantations.
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f) Special Risks Consortium was originally formed to cover those risks which were not miserably by a
single insurer or had to be replaced outside Zimbabwe due to technical complexity or lack of
volume of business on the particular risks.

g) Fire prevention inspection Bureau: supervises the installation of automatic sprinkler systems and
gives final approval that the installation is in accordance with laid down rules. In addition, the
Bureau authorizes the applicable discounts and carries out regular inspections of installations.

Zimbabwe Insurance Brokers Association (Z.I.B.A)

This organization looks after the interests of Registered Insurance Brokers. ZIBA lays down a code of
conduct which contains the basic principles to be observed by member in the course of their business with
the public, the insurance market and with one another.

Zimbabwe Association of Reinsurance Offices (ZARO)

ZARO represents those offices which transact only reinsurance. Although its members also form part of
the Council, this body considers insurance trends as applicable to the re-insurers.

Life Offices Association Zimbabwe (LOA)

The LOA was formed to promote and advance the common interests of life assurance companies that
underwrite both life assurance and pension business. The LOA provides a forum of exchange of ideas
affecting that particular sector in liaison with the office of the Commissioner of Insurance and Provident
Funds and other stake holders.

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CHAPTER 4

BASIC PRINCIPLES

CONTENTS

4A Law of Contract in Zimbabwe 4E Average

4B Insurable Interest 4F Excess and Franchise

4C Utmost Good Faith and Material Facts 4G Contribution

4D Indemnity 4H Subrogation

4A LAW OF CONTRACT IN ZIMBABWE

A contract is an agreement, which creates a legal obligation between two or more parties. The elements
needed for a legally valid contract are:-

1. Consensus

The parties involved must communicate with each other and a contract will come into existence as
a result of an offer being made by one side and its acceptance by the other.

2. Capacity

There must be capacity to contract. Certain types of people do not have full legal contractual
liability because they might not understand the contract they are entering into. These are people
under 21 years of age (minors), those who are mentally ill and those who have been declared
bankrupt and therefore insolvent. These cannot enter into any contracts.

3. Physical and legal Possibility

The obligation in the contract must be physically possible to be completed. The item involved in
the contract must exist at the time of the contract being agreed. If Moyo is selling his car to
Sibanda but at the time they are agreeing on the terms of the contract the car has been destroyed by
fire then the contract is not physically possible.

4. Reasonable Cause

The parties to the contract must intend at the outset to come to an agreement over the contract.
When entering an agreement they must intent for a proper legal situation to come about as a result
of the contract. Social arrangements such as invitations to meals and acceptances are not a legal
contract because there are no legal rights and duties arising out of such arrangements.

In Zimbabwean Law, all agreements seriously and deliberately made, whether verbal or written, are
enforceable.

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5. Formalities

Most contracts are valid whether verbal or written but those for the sale of land, surety ships and
donations are required to be in writing.

In terms of the Law of contract if any one of the five legal elements are missing then the contract is
not legally enforceable.

These rules apply to contracts of insurance with additional principles that are described below.

In insurance the contract is the initial agreement between insurer, which can be in writing, a
proposal form, or verbal. The policy is EVIDENCE of the Contract.

4B INSURABLE INTERST

Once it was possible to take out an insurance policy on anyone’s life or anyone’s property in the hope of
making a profit if they were killed or the property damaged. This was gambling. Over the years laws have
been passed to prevent a person profiting from someone else’s misfortune. These laws state that the insured
must have an insurable interest in the property or person being covered by the policy.

Insurable interest means that the insured must have relationship recognized by the law to the property or
person being insured so that he will benefit from its safety and be prejudiced by its loss. This means that
the person taking out the policy will suffer a loss if the risk insured against happens.

The purpose of insurance is to protect a person against loss not to enable him to make a profit out of loss.
You can insure your own house against fire because if it burns down you will have to find somewhere else
to live but you cannot insure the life of someone else who owes you money but only for the amount of his
debt to you because if he dies you will not have your money repaid.

4C UTMOST GOOD FAITH AND MATERIAL FACTS

All, contracts whether insurance or not, are subject to good faith because the law does not support fraud.

The courts have held for a long time that insurance contracts are based on utmost good faith, which means
that the parties to these contracts-insured and insurer-must tell each other everything that could influence
their decision as to whether to enter the contract or not. If all the facts are not revealed then the contract is
not in force.

Both insurer and insured have a duty to disclose before the contract is finalized all the facts, which relate to
their risk and the premium. This duty of disclosure probably rests more heavily with the insured as they
have all the information relating to the risk as it is at the time of approaching the insurer and all the
insurance history.

The definition of a material fact is:-

A fact that in the opinion of a reasonable man could influence the reasonable insurer in deciding whether or
not to accept the risk and decide on the premium to be charged.

The legal test is whether a reasonable man could influence the reasonable insurer in deciding whether or not
to accept the risk and decide on the premium to be charged.

The legal test is whether a reasonable man would consider that the information should be given to the
underwriter not whether he thinks it is a material fact.
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It is not practical to list all the facts which should be disclosed but here are some examples.

Fire

The construction of the building and the business that is carried on inside

Theft

The types of stock and the security measures in operation.

Motor

The age and experience of the most frequent user of the car who sometimes is not insured.

Personal Accident

Medical History and History.

In all insurance it is essential that details of all previous losses whether or not they were insured against at
the time are disclosed to the insurer.

4D INDEMNITY

Indemnity is the placing of the insured in the same financial position after a claim that he was in
immediately before the occurrence.

This is the basic idea of insurance to provide compensation for the loss sustained but no more. Insurance is
not meant to be a way for the insured to make a profit from a misfortune.

When a loss happens the insured has to complete a claim form, which gives the details of the circumstances
of the loss and shows a calculation of the compensation. The example shows a typical householders claim
form.

CLAIM FORM

Statement of property lost, stolen or damaged

Description Date From Whom Cost Deduction Amount

Of property Acquired purchased wear, tear Claimed
Depreciation,
Value of salvage

Pair of January Pelhams 150 40 110

Curtains 1993

Tea towel February OK Bazaars 15 2..50 12.5

Kitchen March TM 25 10 15
Gloves 1994

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The claim form has been designed to lead the insured towards a reasonable estimate of the current value of
the damaged articles.

Depreciation

This is the extent to which property has reduced in value because of wear, tear and age.

Depreciation is part of indemnity. It puts the insured back to where he was financially just before the loss.
For example, a damaged carpet that is 2 years old will have higher value than one which is10 years old
because the wear and tear would be less.

Replacement

Many claimants are unhappy with the depreciation method because there are often disputes with insurers on
the remaining life of an item and therefore the amount of wear and tear which is deducted.

Some insurers are now offering householders policies with no depreciation other than on clothing. These
policies are therefore on a replacement basis. To obtain full benefit from such policies the insured must
insure all the house hold goods for their present day replacement cost which will be higher than the old
depreciation cost method and the premium will be higher.

When a loss occurs the items will be replaced as new but not a better item. A 2 year old television will be
replaced with one of the nearest possible make and model available. The insured will not be paid to buy a
better make or model.

In the case of a business’ stock the basis of settlement is the invoice price. Anything more would allow for
the profit the company would make on the sale of their goods, which is insured under Business Interruption
policy.

In the leading South African law case on indemnity it was said that;

“The amount recoverable under a policy if insurance in the event of a fire must not exceed the sum
necessary to indemnity the insured fully against any loss, which he may actually sustain in the consequence
of the fire. He is not entitled to recover the amount specified on the policy unless it represents his actual
loss. The main purpose of the policy is to fix the limit beyond which the liability of the insurers is not to
extend. The insured is therefore entitled to a full indemnity within the limits of his policy for the loss which
he has sustained in respect of the subject matter of the insurance.

In practice it is sometimes difficult to calculate a loss scientifically when dealing with damaged goods and
insurers try to pay an amount, which is fair to be insured.

There is direct link between indemnity and insurable interest. In the event of the total loss of an insured
article the indemnity payable would be the same as the insurable interest at the time of the loss. If someone
bought and insured a radio, which was then stolen he would expect to receive the full cost of replacing the
radio. The principle of indemnity required him to be returned to his previous financial position by giving
him the cost of a replacement radio and his insurable interest in the radio was 100% because he had
purchased it with his own money.

Indemnity cannot apply to all classes of insurance because it is possible to compensate in a financial
settlement for injury, loss of life or health. Life and Personal Accident policies are called benefit policies
because they cannot indemnify by replacement they can only pay a specified benefit if the insured event
happens.

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In these policies it is not possible to calculate the cost of a person’s life to others and so indemnity cannot
be given. In life and personal accident policies it is the sum insured shown on the policy which is paid in
the event of a claim. These policies are therefore not subject to indemnity but the principle is not ignored
because the financial benefits are kept in line with the policyholder’s earnings.

a) Although Personal Accident policies can have an unlimited sum insured the amount is restricted by
the policyholder’s ability to pay the premium.

b) If a sum assured seems above the usual for the occupation and age of the insured person then
insurers will investigate the matter further before giving the cover. It is unwise for insurers to allow
a sum insured above the insured person’s usual earnings because if there is a claim for temporary
disablement then he is going to be reluctant to return to work.

c) Policy conditions require notification of any other policies of the same type in force.

Sometimes insurers will make a payment for a loss, which is not covered. This is called an “ex gratia” – a
favour. This can be because although the circumstances of the loss are not covered the insured believed
they were and if the insured had changed his car for one of a similar value but had forgotten to tell his
insurers they might pay repair costs because they had already received the premium and the risk had not
increased.

4E AVERAGE

When used in insurance this word does not have the same meaning as in normal use.

In most classes of insurance, average refers to the practice used to combat and penalized under-insurance.
It has been defined as:-

A condition whereby the insurer is liable only for the same proportion of a loss as the sum insured bears to
the total actual value of the property at the time of the loss.

If there is under insurance then the whole principle of insurance is undermined because the insured is not
paying a fair premium into the pool for his risk. If full indemnity was paid for a claim where there is under-
insurance this would be unfair to other contributors to the pool.

Example

Simon Mpofu had a fire at his house in Bulawayo and claimed for $20 000 under his contents policy for
damage to his furniture. An assessor was appointed by the insurer and when he visited the house he found
that the contents should have been insured for $150 000.00 and not the sum insured of $100 000 on the
policy. He also found out that the replacement cost of $20 000 was correct. With the application of
average the claim was settled.

Sum Insured X Loss

Value of goods at risk

$100 000 X $20 000 = $13 333

$150 000

If people insured for less than the value at risk they pay less into the pool, which save them money to begin
with but when a claim occurs fairness is achieved by the application of average.
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4F EXCESS AND FRANCHISE

There are two types of self-insurance, which was dealt with in Chapter 3.

Excess

This is were the insured pays the amount of the excess for every claim and if loss falls below the excess
then no payment is made by the insurers. Excesses can be insurers and are then called “compulsory” or can
be taken by the insured and are then called ‘voluntary”. If voluntary then the insurers allow a discount on
the premium.

Franchise

The insured pays all losses below the franchise amount but all losses above are paid fully by the insurers.

4G CONTRIBUTION

Most insurances are contracts of indemnity and it is only possible to claim the total value of the loss. But
an insured might have two policies covering the same risk with separate insurers. This is still indemnity
because when there is a loss all claim forms require a declaration of other policies. Contribution means that
all insurers contribute to the settlement in the same proportion as the sum insured on their policy bears to
the total sum insured by all the policies.

Example

Patience buys a house with a building society bond and the society arranges insurance for $200 000 which
is their valuation of her house. Her broker points out that the rebuilding cost of her house has increased to
$250 000 and arranges a policy for $50 000 with another insurer for her.

During a heavy storm the roof is struck by lightning and the repair costs are $10 000, which patience wants
to claim. Because there are the two policies she must make two claims and tell each insurer of the existence
of the other policy. The claim will be settled as follows;

Building society policy with sum insured of $200 000 pays:

$200 000 X 10 000 = $8 000

$250 000

Second policy with sum insured of $50 000 pays:

$50 000 X 10 000 = $2 000

$250 000

The similarity between the calculations for average and contribution are coincidental because in Average
the insured is penalized for under-insurance but in Contribution the insured is receiving full indemnity.

4H SUBROGATION

This term comes from Latin words to ask instead of. Subrogation is when the insurers take over from the
insured to recover payment from a third party.

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Example

One evening you have parked your car outside your house and a bus collides with it causing $20 000
damage

There can be no dispute as to the blame and the bus driver is charged by the police.

Your car had comprehensive cover and your insurer paid the repair costs less your excess, which you pay to
the repairer direct. Your insurer will now take steps to recover the full repair costs and when successful
will refund to you the excess and you will not lose your no claim discount because they have recovered
their costs as well.

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CHAPTER 5

UNDERWRITING AND CLAIMS

CONTENTS

5A Proposal Forms 5D Claims

5B Policies Proximate cause

5C Renewals Claims settlement

Professional investigation

Cover under the policy

5A PROPOSAL FORMS

The form is the usual means for the insurers to obtain the information they need about risks to be insured.
In classes of personal insurance a proposal form is completed by the proposer and given to the insurer. This
could be with an insurer direct or with help provided by a broker or another intermediary.

In many classes of business insurance a proposal form would not give sufficient information because the
details of the risk would be so complex that it would not give sufficient information because the details of
the risk would be so complex that it would be impossible to confine them to a proposal form. It is very
difficult to have the right questions on each proposal form to be suitable to cover every possible risk and
therefore the insurers rely on the broker for all the information or, if there is no broker, the insurers will use
their own risk surveyors to visit premises and to discuss risks with proposers. Brokers play an important
part in this process by preparing full details of a risk for an insurer, saving both the insurer and the proposer
a great deal of time and presents the risk to the insurer in a form which can be used by the underwriter.

The questions on a proposal form are s simple and few as possible to avoid discouraging the proposer, but
they are meant to prompt the underwriter if further investigation should be made before acceptance. It is
the duty of the proposer to reveal any other information which he knows and which might have an effect on
the risk, even if there is no specific question on the proposal. Proposal forms will vary in length and detail
depending on the type of insurances and information, which an insurer will need to underwrite the risk.
Certain questions are common to many insurances.

These include for personal insurances:-

1. the proposer’s name, address, occupation and age;

2. details of claims and past or present insurances on the same property;

3. period of time for which the insurance is required;

4. the property to be insured and the sum insured or value.

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For business insurance general questions include;

1. name of the proposing company;

2. postal address would be required as well as the locations from which the company operates, and for
which it
requires cover;

3. a full and exact description of the business or profession carried on by the proposer;

4. the period of cover;

5. history or previous insurances, losses and claims;

There are questions, which are risk specific in the sense that they relate to the form of risk for which cover
is being sought. These are the questions, which will assist the underwriter in determining whether or not to
accept the risk and on what terms and price. In the private car proposal they would include, details of the
drivers because the underwriter will need to know who will be driving the car as this is a fact which would
influence the premium if the risk is accepted.

The pattern which emerges is one of a proposal form, which carries both general and specific questions, all
of which are of importance to the insurer. Proposal forms should be simple to understand and easy to
complete. As most insurers are now computerized the details from the form will be transferred to a
computer file, which is why many proposals are now using boxes for answers.

The completed proposal form is the basis of the contract between the insurer and the insured. At the end of
every proposal form is a declaration to be signed by the proposer. The declaration states that the proposer
confirms that the information he has supplied is true and correct to the best of his knowledge and belief.
This declaration is the most important part of the contract.

5B POLICIES

When a risk is accepted, a policy is issued by the insurer as evidence of the contract between the insurer and
the insured. The proposer becomes the insured once the application is accepted, the first premium paid and
the contract is in force. While the policy acts as evidence of the contract, the contract will not be terminated
if the policy gets lost. The insured can request for a replacement from the insurer.

In earlier days policies were issued of the kind where details had to be typed into various parts of a pre-
printed forms. Now in most cases all the information relevant to the particular risk and the insured is in the
part of the policy called the schedule.

Terms and conditions and exclusions are standard and pre-printed. The actual preparation of the policy
document has become easier and is now often done on computer. Although policy wordings vary for the
different classes of risk, the format is similar.

PARTS OF THE POLICY

Heading

This is insurers name, head office address and logo.

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Preamble or Recital clause

This states the names of the parties to the contract (the insured and the insurer) and refers to proposal as the
basis of the contract. This makes the proposal part of the written contract even though it is not actually
reproduced and printed with the policy document. On all short-term policies issued in Zimbabwe, it is now
standard practice to state in the preamble that the insurance is effective “in consideration of the premium
being paid or payable”. In effect, this means that the insurance is only in force if the premium has been
paid, and claims will only be met if it has been paid. The preamble also states that the insurer will provide
the cover detailed in the policy.

Operative Clause

This is the undertaking by the insurer to pay the agreed amount upon the happening of an event against,
which the insurance is effected. The clause may be brief in some classes if insurance or fairly detailed in
some such as under comprehensive motor policy where all assets of the cover are listed.

Exceptions

Exceptions are any restrictions in the cover provided by the insurance. It is rare to have a policy with no
exceptions as there are always causes of loss, which must be excluded for the premium to be economically
acceptable.

Most policies exclude any losses in connection with radio-activity and nuclear materials and also war.
When the operative clause consists of different sections, as with motor policies, it is usual for the
corresponding exceptions to be incorporated in the particular section to which they apply.

General Conditions

General conditions apply to the whole policy and each section will also have its own specific conditions
peculiar to that class of business.

Examples of general conditions are:-

1. a condition stating that the insured will comply with all the terms of the policy;

2. the requirement that the insured must notify the insurer of any changes in the risk;

3. the procedure to be followed in the event of a loss. This will vary for each type of insurance but
will include reference to the time within which a loss is to be notified for carelessness.

4. the effect of fraud;

5. reference to the fact that the insured is to take all reasonable care to minimize the risk, of loss or
damage of incurring liability. In other words the insured should act as if un-insured, the existence
of a policy of insurance is not to be regarded as a mandate for carelessness;

6. a condition will outline what is to happen if there are other policies in force covering the same loss.
This concerns contribution;

7. a condition allowing the insurer or the insured to cancel the policy at any time and saying how this
is to be done.

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These conditions are all in the printed policy and are therefore regarded as express conditions. There are
also implied conditions, which do not appear in the policy but are very important.

These implied conditions include the fact that the subject matter of the insurance actually exists and can be
identified, that the insured has an insurable interest and that there has been utmost good faith in the
negotiations leading up to the formation of the contract.

There is a further classification of conditions. Conditions can be expressed in the policy or implied and are
important and any breach of the conditions will be serious.

The effect of the breach will vary, which leads us into the further classification. All conditions fall into one
of three types;

A Conditions precedent to the contract

These are conditions which must be met before (or preceding) the formation of the contract itself.
Implied conditions are in this category. If they are not complied with then there is doubt as to the
validity of the entire contract.

B Conditions subsequent to the contract

These are conditions, which have to be complied with once the contract is in force. For example
any condition relating to the adjustment of premiums, or notification of alternatives to the risk.

C Conditions precedent to liability

These conditions relate to claims and must be complied with if there is to be a valid claim. One
example would be the prompt notification of the claims in the proper manner.

The breach of a condition must have a relevance to the loss for the insurer to be able to repudiate a claim.

Example

A specific condition under a motor policy states that the vehicle must be in a road worthy condition at all
times. A claim occurs when the car is damaged by hail when parked outside the insured’s home. The
insurance company appoints an assessor to inspect the car. The assessor finds that the car’s tyres have
worn below the minimum thickness of tread required by law. The vehicle is not in a road worthy condition.

The specific condition states that the vehicle must be road worthy at all times. Does this mean the insurer
can repudiate the claim on this ground? The answer is NO. The fact that the tyres are worn has nothing to
do with this claim. The car was not on the road, it was stationery at the insured’s home. The damage was
caused by hail-an insured peril. The claim is covered. If the car skidded and crushed, the fact that the
tyres had less than the minimum legal tread would have been relevant and the claim would have been
correctly turned down by the insurer.

Policy Schedule

This section contains all details, which make the policy different from any other for that class of insurance.
The information includes most or all of the following;

a) insured’s name and address and occupation;

b) Period of insurance;
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c) Premium;

d) policy number:

e) sum insured of limit of indemnity

f) subject matter of the insurance;

g) warranties special conditions or exclusions.

Signature Clause

This allows for the signing of the policy on behalf of the insurer as evidence of its undertaking to honour its
obligations. The clause is also called the attestation clause because the insurer attests or promises to stand
by its undertaking. The policy is signed by an authorized official such as the Managing Director or Branch
Manager.

Cover notes and certificates

The policy is evidence of the contract and contains all the details of cover, exceptions, conditions, period of
cover, premiums and other relevant information. In certain cases it is necessary to issue further documents
in connection with the cover afforded by the policy.

It is not always possible to issue an actual policy document as soon as the terms of the contract have been
agreed. Preparing the schedule and issuing the document takes time. In the meantime there may be need to
prove that cover is in force and so a cover note is issued by the insurer for the insured.

The cover note simply states that insurance is in force and gives brief details of the cover. Confirmation
that cover is in force need not always be in the form of a printed cover note. It could be a letter from the
insurer to the insured. This may be useful where the insured needs to prove to some other party that
insurance has been effected – a bank for instance.

5C RENEWALS

Before the contract expires, it is usual but not compulsory for the insurers to send a renewal notice to the
insured.

For all classes of short term insurance, the notice becomes the offer by the insurer and payment of the
premium is the acceptance of the renewal terms for further period.

When inviting renewal insurers will tell the insured of any changes in the terms and conditions which they
are intending to apply and the policyholder must notify the insurers of any material changes in the risk of
which they are not aware. A new period of insurance is a new contract to which both parties must be in
agreement. Utmost good faith and the disclosure of material facts are as relevant at renewal as at inception.

The insured must make certain his premium is paid on or before the renewal date to avoid a break in cover.

Adjustable premiums.

There are some types of policies where the premium cannot be calculated exactly in advance. An example
is goods in transit policy for a hauler. The premium for his policy is calculated at a rate applied to the value
of goods he transports during the period of insurance.

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He cannot be certain in advance of exactly how much money he will carry in a year and so he makes an
estimate at the beginning of the year. At the end he knows how much he has carried and declares this figure
to the insurers. They charged a deposit premium at the start based on his estimate and they can now adjust
the premium on the actual figure he has declared. There can be either an additional or return premium.

The sum insured is the value of goods he transports at any one time. It is only the premium which is
adjustable.

5D CLAIMS

The most important that establishes an insurer’s reputation in the eyes of its client is its claims service.
Policies can be prepared promptly; renewal notices and endorsements issued in good time but the whole
effect can be ruined by an inefficient or apparently unfair claims service.

If claims payments are delayed or withheld without satisfactory reasons, policyholders will lose confidence
in the insurer. Handling of claims is the most important part of the insurer’s advertising.

The decision as to whether a claim is covered under a policy is based on three points;

1. Is the contract in force?

Either it is or the policy has been cancelled or lapsed through non payment of the renewal premium.

2. Was the loss caused by an insured peril?

3. Have all the terms and conditions been complied with?

It is easy for insurers to decide whether the contract is in force and the conditions have been complied with,
but it is not always so easy to establish that the loss was caused by an insured peril and sometimes more
than one peril is involved or there is more than one cause of the misfortune and then it is less simple to say
whether the loss was caused by an insured peril.

Proximate cause

The solution can be found by applying the doctrine of “proximate cause”. This means that if a series of
events give rise to a loss, the chain can be traced back unbroken to the first event or cause, this is then the
proximate cause and where that cause is an insured peril, the claim is valid.

The following are two examples of proximate cause;

One Saturday morning, a fire broke out in the shop next to TJ Bazaars in Main Street, drawing crowds of
curious people. As the number of onlookers grew, it became difficult for those at the back to see the drama
of the fire.

Pushing and shoving soon into violence during skirmish, TJ Bazaars windows were smashed.

TJ Bazaars had fire insurance but it was not insured for the damage caused by the mob of people.

The insurer denied liability because the proximate cause of the loss was not fire but the action of an unruly
crowd.

If the damage to TJ Bazaars had been caused by fire spreading from the shop next door, fire would have
been the proximate cause and there would have been a valid claim in terms of the fire policy. Also if stock

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had been damaged by water used to extinguish the fire, fire would still be the proximate cause and there
would be a valid claim under the policy.

Because of his love of motorcycling, Samuel Shonhiwa was advised to take out personal accident cover to
provide a sum in the event of him being killed or disabled in an accident. His insurance company was fully
aware of his motorcycling.

One night he was going along a quiet road in a bad storm when he skidded and landed in a ditch with a
broken arm and leg. Due to his injuries he was unable to move and drifted into unconsciousness. He was
found the following morning and rushed to hospital but he died of pneumonia. Although he had a personal
accident policy, (without a sickness extension) but he died of an illness, his insurers paid the claim made by
his widow. The cause of his death was the accident.

He had been found quickly and taken to hospital but he died from, say, cerebral malaria, the insurer would
have said that the death was not a consequence of the accident but another cause had intervened.

These two different circumstances, demonstrating the principle of proximate cause, can be shown by these
diagrams;

BURST TYRE EXPOSURE PNEUMONIA DEATH

Proximate cause

BURST TYRE HOSPITAL CEREBRAL DEATH

MALARIA

(Broken chain) = no claim

Claim settlement

There are four basic methods of settling claims:

a) Cash
This is the most obvious and in some ways the most suitable method. With liability claims it is the
only practical procedure if payment is to be made to the policyholder in reimbursement of outlays
to third parties.

b) Replacement
It is sometimes possible for the insurer to replace an article rather than pay cash. When speed is
important, such as for glass claims, this is the usual method of settlement.

c) Repair
An adequate repair is indemnity. This is common in motor insurance, where the insurer settles the
repair bill direct with the garage concerned.

d) Reinstatement
This is a term usually found in fire insurance and refers to the rebuilding of premises to the same
condition that it was in before the damage (not always on the same site).

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Professional Investigation

Assessors (sometimes called loss adjusters) are often instructed by insurers to deal with claims following a
loss by theft to investigate a fire and its cause, advice on the amount claimed and the adequacy of the sum
insured. Most assessors are independent of insurers although insurers pay their fees for each claim.

Claims for vehicle damage need instructions to be carried out to discuss the work proposed and to decide
whether the vehicle should be considered a write-off. Some insurers have their own motor engineers, while
others instruct independent motor assessors to act for them.

In the case of complex claims under business interruption policies accountants may be employed and where
the possibility of a court action arises attorneys are called in. the insurer’s claim staff normally deal with
third party claims to the point where litigation is instituted even if the claimant has instructed an attorney at
an earlier stage.

Claims disputes

Disagreements arise over the insurers’ liability to the insured under the terms of the policy and the insured’s
liability to a third party or the amount involved may be in dispute.

Such matters can be resolved in the following ways;

a) Negotiation

A dispute can be settled by discussion between the people concerned, resulting in one point of view
prevailing and an amicable compromise being reached.

b) Litigation

If the dispute cannot be resolved by negotiation court proceedings may be necessary. This is
regarded by insurers as a last resort used only when a substantial sum of money is involved or when
an important point of principle is at stake.

c) Arbitration

An alternative to litigation, but still involving a decision by a person not concerned in the dispute, is
the process termed arbitration. Arbitration involves a party or parties accepted by both sides,
hearing the opposing arguments and giving a decision, which I binding if the arbitration is properly
performed and no new evidence comes to light. The hearing is not conducted in court of law and
any points of law, which arise, are referred to the courts for decision.

Arbitration can only be used where the matter at issue is the amount of claim, usually referred to by the
Latin word “quantum”

Where the insured is being sued by a third party the claim can be passed on his insurer. The insurer will
instruct and pay for attorneys to defend the policyholder. Where the matter goes to court, the insurer will
meet the costs and pay the award to the third party if the case is lost.

Every policy includes a prescription clause stipulating time limits for the presentation of claims.

This clause set the maximum time period allowed for a claim to be lodged. This could be for a period of
twenty-four months or some other time span agreed by the insurer. The qualification to this is where the
claim is subject to pending legal action or in respect of an insured’s legal liability to a third party.
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This clause does not apply to certain classes of business such as business interruption or personal accident
because it may take a long time for the extend of the loss to be shown.

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CHAPTER 6

INSURANCE COMPANIES

CONTENTS

6A Directors and Managers 6D Office organization

6B Structure of Companies 6E Practice of Insurance

6C Staffing of Branch Offices 6F Co-insurance and Reinsurance

6A DIRECTORS AND MANAGERS

The main control of any company is in the hands of a board of directors under the leadership of a chairman.
The members of the board are elected by the shareholder and are answerable to them. Board members are
appointed because of their knowledge of insurance or because of expertise in areas such as finance,
investment, legal matters or marketing.

The board directs overall strategy of the company and meets regularly to ensure that this strategy is being
carried out by the management and staff. Every year the managers prepare a budget setting out the
proposed plan of operation with detailed financial calculations for the next year’s operations. Reports are
sent by the management to the board by during the year which keeps the board informed as to the progress
and financial situation.

On a day to day basis, the running of the company is carried out by the chief executive – Managing Director
if he is a member of the Board, or if not, General Manager. He will have a deputy and manager to support
him in running the company. The number of managers and their functions will depend on the size of the
company and the diversity of its operations.

The typical structure of a short term insurance company is:-

BOARD OF DIRECTORS

GENERAL MANAGER

Marketing Human Commercial Personal Claims Admin Finance

Resources Insurances Insurances

There is only one way in which management teams can be organized. Each company adopts the format,
which best fits, its type of operation and will introduce changes as the company grows.

Each member of the management team has a function in the successful performance of the organization as a
whole.

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Marketing Manager

The term “marketing” applies to two associated but different functions. The first is selling and second is
the support operation to help the selling process.

In the second part, the marketing department carries out market research to find out what the insuring public
wants and then designs and launches the new products.

The marketing manager will control these processes and be responsible for all people engaged in marketing
including branch managers, inspectors and sole agents.

Human Resources Manager

The recruitment of staff; drawing up of conditions of employment, salaries and benefits; training,
development, discipline and well being of staff; industrial relations; succession planning and remuneration
policies are very important and the Human Resources Manager is responsible for the department which
handles all these aspects.

Human Resources manager, particularly in the larger companies, are specialists often with a Bachelor of
Arts degree, which includes majors psychology and sociology. Usually they are also members of the
Institute of Personnel Management (IPM).

Commercial Manager

This official is responsible for the department, which underwrites and administers the insurances for the
commercial and industrial clients. Often there is a further division of the department with a specialist team
handling the motor insurances especially motor fleets.

Personal Insurances Manager

The manager is responsible for the home, personal accident and private motor department.

Claims Manager

This official would be in charge of the department dealing with all insurance claims for the company

Administration Manager

This manager would be in charge of the general administration of the whole company, offices, equipment,
company cars, stationery maintenance and cleaning.

Chief Accountant

This official has the very responsible job of overseeing the company’s finances.

The department records all cash transactions and produces the annual report as well as periodic financial
reports for the board and the executive management. This work is essential to the operation of the company
and the Chief Accountant usually holds a professional qualification.

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Company Secretary

The main function of this official is to ensure that the company complies with the provisions of the
Companies’ Act and other relevant legislation. He keeps records of the shareholders and arranges for
payment of their dividends and the giving of proper notice of shareholders’ meetings.

He is responsible for the minutes of all board and other official meetings. In a small company he may also
have other duties. The Company Secretary usually has a qualification such as FCIS or Bcom.

Investment Manager

Insurance companies have large funds from the payment of premiums, which must be invested to give the
best possible return with financial security. This is the function of the Investment Manager who, with the
assistance of a team of specialists, keeps up-to-date with what is likely to happen with shares in companies
listed on the stock exchange and with fixed interest securities such as government bonds, municipal stocks
and the like. His money management has an important effect upon the competitive position of the
company, as well as the level of the premiums payable by the policyholders.

Actuary

The actuary is either a fellow of the Institute of Actuaries of the Faculty of Actuaries. His work is mainly
concerned with the life side where expert statistical knowledge is required in establishing premiums, in
designing and ensuring the viability of new products and also in valuing the assets and liabilities of the
company to ensure that it is operating on sound lines. The actuary has specific responsibilities in terms of
the Insurance Act as valuator of the company’s business and he will have qualified or partly qualified
actuaries as well as other trained staff assisting him.

The work of actuaries in short – term companies is limited but because of their expertise with statistics,
their involvement has increased in recent years and is likely to develop still further.

6B STRUCTURE OF COMPANIES

Most companies would have head offices in the capital city and branch network across the country in
various locations.

It is interesting to study how these branch networks are structured and controlled. There are three broad
types of organization centralized, decentralized and regionalized. The structure used will depend on the
size of the company, the nature of its business and the particular management style.

The differences between these two systems are:

Centralized

Head office deals with all the administration and the branch offices act as “post offices”, direct everything
to head office for decision and action.

Such a system looks like this:-

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CENTRALISED STRUCTURE

BRANCH BRANCH

HEAD
BRANCH OFFICE BRANCH

BRANCH BRANCH

Decentralised

Here the opposite applies. Branches are as autonomous as possible, making their own decisions and taking
actions in terms of the overall strategy laid down by head office. Here is an example of a decentralized
structure where each branch reports directly to the head office.

DECENTRALISED STRUCTURE

DECENTRALISED STRUCTURE

BRANCH BRANCH BRANCH HEAD BRANCH BRANCH

OFFICE

Regionalized

This system is adopted by larger organizations with regional offices each having a number of branch offices
reporting to them. The regional office would have wide powers of decisions and action in respect of the
branch offices, against in line with the overall policy laid down by head office.

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REGIONALISED STRUCTURE

BRANCH BRANCH BRANCH BRANCH

BRANCH REGIONAL REGIONAL BRANCH

HEAD
BRANCH OFFICE BRANCH

BRANCH REGIONAL BRANCH

REGIONAL

BRANCH BRANCH

6C STAFFING OF BRANCH OFFICES

Branches will vary in the number and type of staff according to the overall size of the company, its
organizational structure and the amount of business carried out in each branch.

A small branch office may only have a manager and a secretary but a large branch would have a branch
manager in overall charge with department managers and their staff.

6D OFFICE ORGANISATIONS

With the development of computer systems the organization and operation of offices have changed
considerably.

The administration of insurance involves a mass of detailed information. This used to mean complex filing
systems with lengthy record keeping and manual calculations. Computers now enable information to be
processed and stored and calculations made with savings in space and time.

Some insurance offices have computers in their head offices linked to terminals in their branch offices. All
the basic information relating to policies is immediately available in the branch office online.

The arrival of the computer and other electronic equipment has led to many important developments among
which are :-

1. Head offices are more streamlined and better able to deal with the overall management of the
company.

2. Branch offices have more management information and do not have to wait for answers from the
head office. They are therefore more efficient and enjoy greater autonomy.

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3. Executives have management information, such as financial reports, new business figures and
claims statistics available in a shorter time and are consequently in a better position to monitor the
progress of the company and make any adjustment quickly.

6E THE PRACTICE OF INSURANCE

In the conduct of insurance, there are various functions, which are common to all classes of business:

Marketing - promoting the company – its image and products: ensuring that the products
offered are consistent with the expectations of the clients.

Underwriting - accepting business, setting the premiums and issuing the policies.

Recording - setting up and maintaining records of each policy

Administration - attending to renewals, endorsement and generally providing service to the

policyholders and brokers:

Claims - When a loss has occurred it is essential that there is speedy and efficient handling
and then settlement of the claim:

Valuation - continuously checking that the company is financially sourced and that the assets
are adequate to meet the liabilities.

The following sections deal with the important day-to-day aspects of business processing as they apply to
various
branches of insurance. Practice varies between companies but the general principles are the same.

Underwriting New Business

When new business is offered for fire, accident or motor insurance it is usual for a completed proposal
form, with
all the detailed information about the risk, to be submitted to new business department for consideration by
the
underwriter.

In the case of large commercial and industrial risks, the proposal form is inadequate and more information
will be required to give the underwriter a complete description of the risk. The underwriter will often send
his surveyor on an inspection and the surveyor will suggest how the risk could be improved and advise the
underwriter of any special features that should be taken into consideration.

When the underwriter has a clear picture, he can quote for the risk, offer special rates or, decline the
business.

When the quotation is accepted by the insured or broker the insurer will consider itself “on risk” and
prepare the policy. The policy will have been captured on the insurer’s computer system, thus providing a
permanent record. Speed is essential in handling these various process, particularly where the insurer’s
agent has issued cover, possibly on a restricted basis, pending the underwriting decision.

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Renewals

Short-term contracts normally run for one year and the insurer is not obliged to offer renewal at the end of
any period of insurance. In a legal sense each year is a new contract and the insured has a duty to disclose
to the insurer any change in the circumstances relating to the risk.

At each renewal the insurer has the opportunity of reassessing his underwriting of the risk and may offer
new terms. There is no legal obligation on the insurers to send renewal notices but it is common business
practice to do so. Renewal notices are normally sent to the intermediary or client six weeks before the
expiry date of the present period of insurance. This is important when the insurers are changing the rates or
terms as it gives the insured or his intermediary time to seek alternative quotations from other insurers.

Sometimes the insurer is asked to advise another party; such as a finance company who has an interest in
the risk, that the contract is due for renewals, so that the organization can ensure that the renewal premium
is paid and its security continues to be protected.

Selling through intermediaries

The term “intermediaries” is used in Zimbabwe to describe the various types of individuals and
organizations through whom insurance is sold. The meaning of some of these terms differs according to the
class of business (life or Short term) with which we were dealing.

Intermediaries seek new business, have proposal forms completed and offer an ongoing service to their
clients. Usually with short term insurance, the intermediary collects premiums and, to a limited extend,
offers cover whilst the proposal is going through the underwriting process. With long term business, the
intermediary, whether agent or broker can accept premiums but can not offer temporary cover.

Intermediaries and their functions are described in Chapter 7.

6F CO-INSURANCE AND REINSURANCE

If the sum insured on a particular risk offered to an insurer is larger than he can accept and he does not want
to decline the business, he can either share risks with other insurers (co-insurance) or effect reinsurance to
protect himself. Reinsurance is part of the basic principle of insurance, the sharing of risks.

Co-insurance

In this system, the broker will offer a risk to a risk to a number of insurers (in the same way as Lloyd’s
brokers offer risks to several underwriters).

When he has placed 100% of the risk, the broker prepares a “placing slip” which is signed first by the
insurer holding the largest percentage and then by the other core insurers who follow the lead of the office
with the largest proportion. It is usual for the master slip to be retained by the leading office, which
forwards copies of the completed slip to the other co-insurers. The leading office then issues a policy,
which lists all the insurers, their percentage of risk and their reference number. the policy number is that of
the leading office and this is termed a Collective Policy.

The leading office deals with policy amendments, notifying co-insurers on changes to the risk by
endorsement and issues the collective renewal notices. Any alterations to the cover requires the approval of
all co-insurers, usually by completion of another placing slip.

Claims are notified to the leading office who will then advise the co-insurers. Each co-insurer is
individually liable to the insured for its proportion of the claim.
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For small losses, the leading office will often settle in full to the insured asking co-insurers for
reimbursement. For large claims, the individual co-insurers liability will be settled by cheques direct to the
insured, after having received copies of the assessor’s final report.

In co-insurance the insured knows of the existence and identity of all the insurers involved because they are
shown on the policy.

Reinsurance

Insurers purchase reinsurance in order to spread the financial consequences of risk. The insurer effects
cover with other insurers (reinsurance outwards) or special reinsurers.

There are two basic methods of reinsurance – treaty and facultative and they are described below.

Treaty – Each insurer negotiates, usually on an annual basis, in advance the terms under which a reinsurer
will accept a proportion of every risk which falls into certain general categories without each risk having to
be submitted for acceptance.

Because the insurer does not see each risk, these treaties are known as “blind”. The insurer sends either
quarterly or monthly bordereaux to the reinsurer with lists of premium and claims. The reinsurer allows
commission to the insurer to cover the insurer’s expenses.

There are four forms of treaty and they operate as follows;

FORMS OF TREATY

PROPORTIONAL NON-PROPORTIONAL
REINSURANCE REINSURANCE

QUOTA EXCESS STOP

SHARE SURPLUS OF LOSS LOSS

Proportional Reinsurance

In proportional reinsurance, the value at risk (sum insured), premium and claims are distributed among the
insurer and reinsurers in direct proportion depending on the nature of the reinsurance contract in place.

Quota Share

A reinsurer accepts an agreed share of all risks written by the insurer in a specific class of business to which
the treaty applies and also takes the same proportion of all premium and claims.

Example

A 75% Quota Share Treaty

Risk $200 000 Reinsurer accepts $150 000 (75%of value)

Insurer retains $50 000 (25%of whole)

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Risk $100 000 Reinsurer accepts $75 000 (75% of whole)

Insurer retains $25 000 (25% of whole)

Surplus

The insurer specifies his maximum acceptance for each class of risk included in the treaty and the reinsurer
agrees to accept multiples of the insurer’s acceptance (called “lines), i.e one line will represent the insure’d
retention.

Example

A 9-line Surplus Treaty

Insurer’s maximum retention $100 000 (1 line)

Reinsurer acceptance 9 x insurer’s retention $900 000 (9 lines)

Insurer can therefore accept $1 000 000 any one risk

Premiums and claims are shared proportionally i.e 10% for insurer and 90% for the reinsurer.

If the number of lines offered by a reinsurer or group of reinsurers is insufficient to meet requirements,
insurers may enter into further surplus treaties or look for another alternatives.

Example

Insurer’s retention for any fire insurance on factories making non-hazardous goods is $500 000.

Re-insurer A has a 5-line First Surplus treaty…………………………………$2 500 000

Re-insurer B has a 3-line Second Surplus treaty ……………………………...$1 500 000

Re-insurer C has a 2-line Third Surplus treaty ………………………………..$1 000 000

Insurer’s retention $ 500 000

Total Acceptance on this type of risk $5 500 000

Proportional re-insurance is suitable for classes of business like fire when maximum payment on a loss can
be determined in advance because the sum insured is the maximum which insurers can be called upon to
pay. Quota share facilities are often granted to smaller insurers where the re-insurer feels that they should
be in a position to review each risk.

Surplus treaties are common to larger insurers and since they are “blind” the re-insurers places the running
of the treaty in the hands of the insurer.

Excess of loss re-insurance is specifically suited to classes of insurance business where the extent of the
outcome is unknown although there is a maximum. A good example would be liability insurance, where a
very high indemnity limit is set with very unlikely huge claim but usual settlements are below.

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Excess Loss

Here the insurer is concerned with the maximum amount he wishes to pay in the event of a loss. Where a
claim exceeds this amount it is paid by the reinsurers. The insurer carries 100% of all losses upto the
excess point and the reinsurer pays all the losses afterwards up to the treaty limit. For classes of insurance
with high limits, the excess of loss insurance is arranged in layers.

Example

Insurer’s maximum retention is $100 000

First Reinsurer $ 900 000 in excess of $ 100 000 $1 000 000

Second Reinsurer $1 400 000 in excess of $1 000 000 $2 400 000

Third Reinsurer $2 500 000 in excess of $2 400 000 $4 900 000

Total acceptance is $4 900 000

TREATIES HOW LOSSES ARE SHARED

Excess of
Insurer $4 900 000 $ 100 000

Third $2 500 000 $ 200 000 $2 500 000

Layer Excess of
$ 240 000

Second $1 400 000 $1 400 000 $1 400 000

Layer Excess of
$1 000 000

First $900 000

Layer Excess of
$100 000 $ 900 000 $900 000 $ 900 000

Retention $100 000 $ 100 000 $ 100 000 $100 000 $ 100 000

TOTAL TOTAL TOTAL TOTAL TOTAL

CAPACITY LOSS LOSS LOSS LOSS
$4 900 000 $ 100 000 $1 000 000 $2 600 000 $5 000 000

The treaties do not cover losses in excess of $4 900 000 so the $100 000 would be paid by the original
insurer. Losses under this class of treaty are not shared proportionately and the reinsurer quotes his own
rate, which he feels will be sufficient to cover expected losses exceeding the insurer’s retention plus his
own expenses.

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Stop Loss

In the type of reinsurance, an insurer protects a class of business where losses can exceed premiums by an
unacceptable level in any one period. This form of reinsurance is generally used for specialist classes such
as hail insurance, where results vary widely from year to year.

Example

An insurer has stop loss cover for 90% of any claims over 70% of premiums in ay one year up to 100% of
the premium. If the premiums were $2 000 000 and losses $1 400 000 or less,

Nothing would be paid by re-insurers. If losses were $1 800 000 the re-insurers would pay $360 000 which
is 90% of the difference between $1 800 000 and $1 400 000.

Facultative

This is the original method where each risk to be re-insured is offered separately to each re-insurer. It is
expensive and time consuming and only used when treaty capacity is fully taken up or where the insurer has
no automatic treaty facilities.

Legal or Compuslory Cession

In Zimbabwe, it used to be compulsory, in terms of the Zimbabwe Reinsurance Corporation (ZIMRE) Act
1983 that evry insurer should cede 20% of its short term insurance premiums to ZIMRE who would in turn
pay 20% of every claim. The ZIMRE Act was intended to strengthen and stabilize local reinsurance
capacity and it acted as a way of curtailing unnecessary outflows of foreign currency where most of the
risks could be retained locally. The ZIMRE Act was abolished following the privatization of ZIMRE so the
legal cessions were disbanded as well.

Co-insurance and Re-insurance Compared

The following diagrams show the difference between Co-insurance and Re-insurance:

CO-INSURANCE

CO-INSURER CO-INSURER CO-INSURER CO-INSURER

40% 30% 10% 20%

INSURED

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REINSURANCE

REINSURANCE REINSURER REINSURER

30% 10% 20%

INSURER

INSURED

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CHAPTER 7

INTERMEDIARIES

CONTENTS

7A Selling Insurance 7D New Business

7B Contracts and the Agent 7E Renewals

Creation of Agency 7F Amendments

Termination of an urgency 7G Claims Procedure

Classification of Agents 7H Risk Management

Payment of Insurers

7C Brokers and Agents

Duties of an Agent

Liabilities of an Agent

Part-time Agencies

7A SELLING INSURANCE

In the insurance market individuals and companies buy their insurance through intermediaries or deal direct
With the insurer. The intermediary’s function is to advise individuals and business on the buying and to
explain where insurance cover could reduce their financial loss in the event of loss or damage. The
intermediary seeks business from clients on the one hand and on the other has to obtain agencies with
insurers that are able to provide the classes of cover, which his clients need. To begin with, the
intermediary will have to seek to meet the people within businesses who are responsible for handling their
companies insurance arrangements but as he becomes known and respected he will obtain
recommendations. He must learn as much as he can about his clients and business to develop the amount of
business placed through his agency.

The term used is “agency” because all intermediaries are agents in the sense that they are subject to law of
agency. In Insurance a full time professional insurance agent is referred to as a broker. Many agents have
described themselves as brokers but this term can only be used by registered members of ZIBA.

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Whether intermediaries call themselves brokers, consultants, advisers or agents they all fulfill the function
of introducing business from the insuring public to the insurance company market. They must all comply
with the Insurance Act in such matters as the payment of premiums collected on behalf of insurers.

7B CONTRACTS AND THE AGENT

In Chapter 4, the law of contract was discussed. Many contracts of insurance exist with the involvement
of an intermediary who negotiates for the parties involved. As well as the full-time brokers there are also

Those who have another professions or occupation and arrange insurance as an addition to it. These are
called “insurance agents”. In law, everyone who acts on behalf of another is an agent. Do not confuse an
agent in insurance practice and “agent” used in the law of agency.

If we allow someone to act for us or we allow a person to say that he is acting for us without denying it, we
shall probably have to accept responsibility for whatever he does on our behalf. In Insurance the problem is
knowing when an agent is acting for an insured and when he is acting for an insurer. In any one transaction
the agent can sometimes act for both the insurer and the insured, at different times.

The intermediary is considered to be the agent of the PROPOSER

1. If an agent advises on the type of cover or where the insurance should be placed;

2. If the agent advises the insured on how to present his claim:

3. If he completes a proposal on behalf of the proposer, or adds to or alters words written by the
proposer, and the proposer knows, or should have known, what he wrote. Some proposal forms
state that if anyone completes a proposal on behalf of the proposer, that person becomes the agent;

4. If he does not act for the insurer although receiving commission from him.

The intermediary is considered to be the agent of the INSURER.

1. If he is authorized to receive and handle proposals on their behalf, or because he has done so in the
past, he assumes he has the authority to do so again;

2. If he surveys and describes the property on the insurer’s behalf ;

3. If he has authority to collect the premium;

4. If the insurer instructs him to ask questions or have a proposal completed on their behalf;

5. If he does something without authority but later the insurer accepts liability for his action, or where
they have done so in the past, the agent may reasonably assume that they will do so again.

Some of these situations are not clear in law and the legal profession spends time arguing about them.

Because of this all the students can do is to understand the general basis on which to decide when an agent
is acting for the insurer or the insured.

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Creation of an Agency

An agency can be created in a number of ways, the most common of which is called “consent”. This means
that someone is authorized verbally or in writing to act on behalf of another. The agreement, whether
written or spoken will have terms and conditions attached. It would be very foolish to allow someone to
become your agent with unlimited powers to act on your behalf.

In insurance practice anyone dealing with the agent of an insurer assumes that he has certain powers and
whether the agreement grants those powers or not, the courts would probably hold that the agent does have
them. Unless the person dealing with him has been told otherwise, he can therefore claim the existence of
“apparent” authority because it is usual for an agent to have these powers in insurance practice.

If the agent acting on behalf of the insurer does something for which he has no authority it is an
unauthorized act. If the insurer later agrees to accept that the act was carried out on its behalf, this is called
“ratification”. The problem for the insurer is that the agent may repeat an unauthorized act for the same
client who assumes that he has the authority to do so and this could be seen as a case of “apparent”
authority.

Example

An agent knew that the insurer was not prepared to give cover for the temporary storage of hazardous stock
at the insured’s premises but he confirmed to the insured that cover was in force. The insurer agreed and
warned the agent that he must not again confirm cover for this stock. Months later the same situation
occurred and the agent again confirmed cover and there was a loss. The insurer refused to accept liability
for the loss. Their legal advisers told them that they were probably in law because of the agent’s apparent
authority.

Termination of an Agency

An agency can be ended by agreement between the two parties. The insurer or the agent could bring it to an
end, and so would the bankruptcy or death of either party, if they were individuals. If either party is owed
money by the other party at the ending of the agency payment is still due.

For example, the agent may have collected premiums or there may be commission due to him. If the agent
has committed an offence such as a breach of his duty, the insurer can still sue him.

One of the major problems in insurance practice is how the cancellation of any agency is made and brought
to the attention of everyone who needs to be aware of the situation. Even after the termination of their
appointment, some agents have been known to carry on as before and, because they have not heard of the
cancellation, new proposers as well as existing clients have continued to do business with them. The
insurer’s potion in law is very difficulty under these circumstances.

Classification of Agents

Based on the exact letter of agency appointment, which sets out the terms of the contract between the
insurer and the agent, agencies are classified as follows;

Cash Agency

A cash agent has limited powers and acts mainly as an introducer of business to an insurer. He may issue
proposals but all premium transactions are between the insurer and the proposer (later the insured) and do
not involve the agent. If a significant amount of business is likely to be generated a credit agency will
probably be granted, subject to the insurer being satisfied as to financial standing and honesty of the agent.
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Credit Agency

This type of agent has wider powers and is allowed to grant cover on behalf of the insurer in certain cases.
He issues proposals, gives quotations and advise to prospective clients, collects premiums from his clients
and receives statements of accounts monthly which lists all premiums due to the insurer and allows credit
for return premiums and commissions. He accounts to the insurer for new and renewal business and
alterations. Claims are monetary transactions between the insured and the insurer although the agent will
be involved in the negotiations.

Remittance to Insurers

Premiums paid to credit agents by policyholders are subject to regulations in terms of the Insurance Act
1987. Under this, agents and brokers are required to send the premium to the insurers within the stated
number of days.

Premiums received by the intermediary during the period of credit are considered to have been received on
the due date and the agent must send them to the insurer after taking his commission and any credits due to
him.

7C BROKERS AND AGENTS

Although all brokers are agents because they are subject to law of agency it is usual in insurance to use the
term only in for a particular type of agent.

The points to remember are:

1. An insurance broker is engaged only in the business of insurance but an insurance agent often has
some other profession (for example accountant) and is involved in insurance as part of his business
activities. The person who works for a life company is called an “agent” and he is “tied” to that
one insurer and cannot give business to any other insurers;

2. The registered broker to the whole insurance company market and can place his clients’ business at
the terms and conditions available;

3. An insurance broker carries professional knowledge of insurance but an agent does not do so;

4. An insurance broker carries professional indemnity insurance, which is a protection for his clients;

5. The broker can be agent both of the insured and the insurer but an agent is more often regarded as
an agent of the insurer only;

6. Both insurance agents and insurance brokers are paid commission by the insurer on the premiums
of his clients;

7. The commission paid to an agent usually is lower than paid to a broker.

8. A London broker can also be a Lloyd’s broker, that is, he may be authorized to place business at
Lloyd’s.

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Duties of an Agent

1. An agent must act with due care and skill. Insurance brokers claim to be specialists in insurance
and must offer a high standard of skill.

2. He must act within the terms of his agency contract.

3. He must act in good faith and not accept bribes or secret commissions.

4. If an agent receives premium for the insurer he is responsible to the insurer for that money.

Liabilities of an Agent

1. If he acts outside his authority or claims to be an agent when he is not, or is no longer one, then he
will be liable to compensate any party with whom he contracts.

2. If he fails to carry out his client’s instructions correctly and the client suffers a loss, he will be
liable. Brokers insure against this possibility by having professional indemnity cover.

3. Part –time Agencies

Today, the broker has more competition from other people selling insurance than ever before.

Banks and building societies have group schemes to cover damage to the buildings on which they lend
money. They offer a range of life and investment contracts as well.

The travel insurance market is very competitive and travel agents and tour operators battle strongly for such
business. Some companies offer their policies to travel agents and tour operators, who include them in their
holiday packages.

Members of many associations are offered preferential rates because of special agreements made with
insurers.

7D NEW BUSINESS

Insurance is a service industry and new business is important to every broker or agent.

Some people dislike insurance generally and treat it the same as going to the dentist-necessary but nasty!
The way they are received and treated on their first meeting with an intermediary will often determine their
attitude to and opinion of the whole insurance industry.

Many people’s knowledge of insurance is only from gossip and usually wrong. It is difficult to change
wrongly held ideas but once a relationship has developed and confidence in the intermediary is established
then correct views can be shown instead. As insurance staff gains experience, they tend to use technical
terms and abbreviations, which are unknown to the insuring public. It is most important when dealing with
the insured, everyday language is used and not technical jargon.

Classes of insurance need to be treated differently but the intermediary must not assume that the enquirer
knows what he needs. He usually thinks he knows what he wants. It is important for the intermediary to
explain the options available and the policy covers. Many of the phrases and clauses in policies have been
tested in the courts and are therefore frequently used but members of the public often do not understand
these wordings. Efforts are being made by insurers to provide policies in simpler language, particularly for
personal home and motor policies.
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When all the alternatives have been discussed and the enquirer has decided on the cover he needs it is easier
for all concerned if the proposal is completed with the intermediary present. Any queries can be dealt with
at once and the intermediary can make sure the form is fully completed before it is sent to the insurer.

All questions on a proposal form must be fully answered-dashes and “see your records” can lead to disputes
at the time of a claim if the insurer also overlooks them on a proposal. An important question often
answered inadequately is “occupation” Company Director is an occupation but insurers need to know what
is his business. Maybe the insured is a director of a company producing high performance cars, which he
tests – this would mean that for some insurances he would be a high or unacceptable risk.

With a comprehensive motor proposal, proof of no claim bonus earned is needed, and the intermediary
should make sure this is sent with the proposal.

Once the cover is agreed and the proposal completed the intermediary can quote a premium and he can
collect this from the proposer now. Everything can be sent to the insurer and the policy speedily issued.

Insurances for small business as well as personal insurances can often dealt with in the same way unless the
intermediary feels an inspection of the property to be insured is essential before a policy can be issued.
Sometimes insurers will want to survey, particularly for theft insurance, but will agree to temporary cover
being given meanwhile.

For large commercial and industrial risks, the process is more involved. Proposal forms would not give
insurers sufficient information for the underwriter to quote premium or terms. Visits to the premises by the
intermediary are essential and often these are carried out with the insurer’s surveyors.

Where there is an existing insurance it can help to study the policies but it is better for an intermediary to
discuss the insured’s needs and recommend suitable covers.

One of the advantages of a broker, rather than other intermediaries is that he has the means to place the
business with any insurer. The consumer is always cost conscious at the time of taking out or renewing
insurance but their real concern is that a claim will be paid promptly and efficiently. The insurers
willingness to honour their side of the contract quickly is therefore essential to the broker when he
recommends an insurer. He should not be influenced by his particular relationship with any individual at
the insurance company, although a close working relationship is always helpful if there is a dispute.

7E RENEWALS

Short-term insurance renewal notices and receipts are issued to credit agents in time to allow them to be
sent on to the insured some weeks before renewal date and the premium due is debited to their account. If
instructions are given to the insurer for cancellation, the unpaid premium will be removed from the agent’s
account. A person insured through a cash agency is sent the renewal notice direct and must forward the
premium to the insurer before renewal if cover is to continue.

7F AMENDMENTS

During the currency of an insurance contract changes may occur which the insured will discuss with his
broker or agent. Insurers deal with changes by issuing endorsements, which are documentary evidence of
alterations to a policy. These include a change of address, change of name, change of vehicle, change of
bank details and so on.

Some are simply noted in the agent’s records and the information passed on to the insurer because although
there may be a change to the risk it does not alter the information on the policy.
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Where there is an amendment to the sum insured, there will usually be a change to the annual premium and
either a return premium or additional premium charged until the next renewal date.

7G CLAIMS PROCEDURE

Most agents issue claim forms (sometimes called accident report form) and transmit the completed form to
the insurer for attention. They help and advise the insured on the correct completion of the form and in
obtaining the necessary proof required by the insurer. If the loss appears to be serious they may make a
prior verbal notification
to the insurer. Some agents have arrangements with insurers which allow them to give preliminary
instructions to assessors where necessary.

Other agents are prepared to act on the insured’s behalf against a third party if the whole or part of a loss is
uninsured, the simplest example if the recovery of an excess under a motor policy where the Third Party is
at fault.

7H RISK MANAGEMENT

There is much more to the management of risk than simply buying cover for those contingencies, which are
insurable. Risk management takes a far broader view and starts by asking the basic question “to what risks
is the organization exposed”? It then analyses the frequency and severity of the risks individually and
evaluates their likely impact on that business it does not differentiate between insurable and uninsurable
risks.

Once the stage has been dealt with and evaluated, then the way in which the risks can be controlled is
considered. Insurance becomes involved as part of this process because it is the medium by which risks can
be transferred from the area of uncertainty (will there be a loss?) to the area of known cost (the Premium).

When the concept of risk management first came to be used many insurers and brokers saw it as a threat to
their future business. This has not proved to be the case and many brokers have now become involved in its
development and use it to the benefit of the insured and the insurance industry as a whole.

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CHAPTER 8

COMMERCIAL INSURANCE

CONTENTS

8A Background 8G Business All Risks

8B Package Policies 8H Goods in transit

Office Contents 8I Glass

Farmers 8J Liability

Assets all risks 8K Business Interruption

8C Fire 8L Accounts Receivable

8D Theft 8M Group Personal Accident

8E Money 8N Bonds and Guarantees

8F Fidelity

8A BACKGROUND

We have studied briefly the historical background to the different classes of business, which make up the
short term industry and now we shall look at these classes in more detail.

Originally all business insurances were dealt with by separate policies for fire, theft, money etc. These
polices sometimes had the same renewal date for each insured company but each policy had its own
renewal documents and had to be received separately. Insurances have developed types of package policies
for specific circumstances, which make the documentation simpler and the administration easier and less
costly, and there is a less chance of overlooking some form of cover when the policy is arranged or
reviewed.

8B PACKAGE POLICIES

These policies are a collection of individual specifications and schedules, each with their own terms and
conditions grouped together under one document. There are general conditions and exceptions applicable
to all sections.

General Conditions

1. The policy will be voidable in the event of any misrepresentation, mis-description or non-disclosure
of material facts any alteration in the risk if not accepted by the insurer and any breach of warranty.

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2. The insured is obliged to take all precautions to prevent loss or damage.

3. All events, which can result in claim must be reported to the insurer immediately and followed by
full written details within a time specified in the policy.

Any claim involving theft or loss of property must also be reported to the police.

4. If there is other insurance on the same property, the insurer will only be liable for its own
proportional of any claim (contribution)

5. In the event of loss or damage, which could result in a claim, the insurer can take over the property
concerned in the claim for damages against the insured; the insurer can take over the conduct of the
settlement or defense.

6. The insured must take any legal actions to enforce his rights against other parties.

7. No benefit is payable under the policy for fraudulent claims.

8. The conditions for canceling the policy mid-term by either the insured or insurer are detailed.

9. The basis of premium payment on adjustable policies is set out.

General Exceptions

Loss, damage or liability

1. Caused by perils such as war

2. In consequence of the use of nuclear materials

3. To property insured by marine or motor policies.

There are package policies available for various types of businesses and some of these are described below;

OFFICE CONTENTS

This type of policy was introduced to cover the offices of professional people such as lawyers, insurance
brokers and estate agents. Some insurers are prepared to give this cover on offices, which form part of
factories or workshops, but only usually when they are also insuring the factory or workshop.

The policy cover will be:

1. Fire, lightning and explosion

2. Additional perils, as described under 8C fire insurance

3. Theft, but it does not have to follow forcible and violent entry.

4. Accidental damage to mirrors and glass forming part of the office furniture is covered

5. It is also possible to add an extension to cover the costs of reproducing any documents, such as
deeds or plans, which are damaged as the result of an insured peril and also the legal liability
incurred as the direct result of such loss or damage.
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6. An extension for loss of money can also be added.

7. Office machinery can be insured on All Risks basis at an additional premium.

FARMERS

These policies include sections for;

1. Fire and perils

2. Theft

3. Money

4. Business all risks

5. Houseowners-for the farmhouse

6. House holders and personal all risks

7. Personal and public liability

8. Motor cars, commercial vehicles, tractors, trailers and farm implements. Cover can be
comprehensive; full third party, fire and theft or full third party

9. Cover for injury of livestock by specified perils

10. Damage to crops.

The wordings of the various sections together with the conditions, extensions and exclusions will be the
same as if they were on separate policies.

ASSETS ALL RISKS

The policy form in use in Zimbabwe is a type of combined policy with the addition of “Any other loss”
section. The policy is designed to cover businesses with insurable assets in excess of $5 million. The
policy sections are;

➢ Fire and Perils

➢ Theft

➢ Money

➢ Goods in Transit

➢ Glass

➢ Business All Risks

➢ Business Interruptions

➢ Accounts Receivable

➢ Claim Preparation Costs

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➢ Any Other Loss

The Any Other Loss section covers anything that is not covered by any of the other sections and is also not
excluded by them. An example of what can be covered would be the purchase of goods from the insured
using a cheque stolen from a customer of a forged cheque.

The other sections of the policy have the usual wordings that would be used if separate policies were issued
for each class of insurance and also have different deductibles for each section.

In other parts of the world class Assets All Risks policies in use give much wider cover. They cover
anything that is not specifically excluded which is usually;

➢ Faulty workmanship

➢ Collapse of buildings or boilers

➢ Corrosion and rust

➢ Mechanical or electrical breakdown

➢ Deliberate acts of the supply authorities in withholding electricity , water or telephone

➢ Subsidence or landslip

➢ Theft unless involving forcible and violent entry

➢ Fraud

➢ Unexplained stock shortages.

Damage to:

➢ Fragile or brittle articles

➢ Property actually undergoing any process at the time of damage

➢ Property under construction

➢ Motor vehicles, aircraft, boats, livestock and growing crops

8C FIRE AND ALLIED PERILS

The standard fire policy covers;

Fire Lightning Explosion

The exclusions are damage to property caused by;

1. Its undergoing any process of heating or drying

2. Earthquake or volcanic eruption

3. Nuclear material or radioactivity

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4. War

The policy can be extended, for an additional premium, to cover those additional perils:

1. Storm, water, hail or snow but excluding loss or damage.

a) to property undergoing a process involving the application of water

b) by tidal wave caused by volcanic or earthquake activity

c) in the underground workings of a mine

d) by sprinkler leakage (this can be added as a separate peril)

e) to retaining walls

f) by subsidence of landslip

2. Aircraft or aerial devices or articles dropped there from

3. Impact by vehicles, animals or trees

4. Earthquake excluding damage in underground mines

5. Subsidence and landslip

6. Riot and malicious damage

Underwriting Considerations

Each Fire and Peril risk is considered individually on the information of construction, business occupation,
tidiness and security in the building, fire protection management and previous loss and insurance history.
The underwriter must look at each peril separately because whilst it is good underwriting point for a risk to
be near a river from a fire aspect it might be bad from a Water Damage point of view.

Underwriter can charge different rates for fire and the additional perils and can also impose compulsory
excesses where a particular problem arises.

Each insurance company can, and often does, quote different rates and excesses for each risk.

The policy will always be subject to average to ensure that property is insured for its full value.

8D THEFT INSURANCE

The dictionary definition of theft is “the dishonest taking of another’s property with the intention to
permanently deprive him of it”. The standard theft policy is intended to only cover losses as the direct
result of a break-in or hold-up and not to cover up such acts as shop-lifting which is an almost inevitable
business loss nowadays nor losses only discovered at stock taking times which are often the result of
employee pilferage over some time.

Policies define insurable theft as;

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Theft following forcible and violent entry to or exit from the insured buildings or any attempt thereat or as a
result of any attempt thereat following the use of threat of violence

The policy will usually cover the cost of temporary measures to ensure the property after a loss, such as the
employment of a security guard and also damage to the building caused by thieves during the break-in.

The sum insured is usually on a first loss basis because it is most unlikely that the total contents will be
stolen at one time. It is the insured’s responsibility to decide on the sum insured. Average does not apply
to a first loss policy.

Normal Exclusions are:

1. Collusion – the insured or a family member involved in the loss

2. Money – this is covered by a Money Policy

3. Property covered more specifically under an All Risks policy

4. Damage insurable under a Fire or Glass policy

Underwriting Considerations

Insurers will often want to carry out their own survey of a risk rather than rely on the insured’s description
of the security measures. They will be concerned with the type of goods being insured, physical
precautions such as burglar alarms, burglar bars and also the methods used to secure the insured goods,
particularly when the premises are closed. If attractive goods are visible to thieves then a break-in is more
likely than when the goods are concealed from view. The moral hazard in a theft risk is also important, as
well as the previous loss and insurance history. If a business has been robbed on several previous occasions
without the insured taking steps to improve his security then it is possible that an underwriter will decline
the risk because he will feel that another loss is almost inevitable.

8E MONEY

This has always been important type of insurance and is almost essential now because of the number of
robbers involving money. The policy cover money at;

1. The insured’s premises during business hours whether it is in a safe, a till or secured elsewhere on
the premises

2. In a locked safe or strong room when the business is closed for the day.

3. In transit to and from the bank

These are referred to as the “Major” or “Any Other Loss” limits which is a figure decided by the insured as
the maximum they would have in any of these categories at any one time.

This limit may be increased for a few days over holiday periods especially when bonuses are paid and
therefore more money would be carried from the bank and be kept on the premises.

The other limits are referred to as “minor” limits and the insurers restrict these to reasonable amounts that
could be multiples of the major limit:

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1. On the premises out of hours and out of a safe-petty cash

2. In the home of as employee or director

3. On an employee while traveling on business.

The final limit is for crossed cheques, money and postal orders which are difficult for a thief to cash
insurers usually give a limited amount at no additional premium.

The main exclusions are;

1. Losses due to dishonesty of employees unless discovered in 7 days (sometimes fewer) – this would
then be covered by Fidelity Policy.

2. Losses caused by shortages or omissions

3. Losses arising from confiscation by customs or other authorities.

4. Any losses covered by a Fidelity policy.

The policy can be extended at additional premium to cover death and disability to employees injured during
a
hold-up and damage to their clothes.

Underwriting Considerations

The major limit is the sum insured and insurers will also look at previous insurance and loss history. Again
the moral hazards have to be looked at for this class of insurance and a history of losses would cause the
underwriter to possibly refuse to provide cover.

8F FIDELITY

This insurance is to protect the insured against losses of money and goods caused by the dishonesty of any
of his employees. This applies to directors as well as all other employees.

Because of the worsening claims experience in Zimbabwe all insurers have agreed to charge the same
minimum rates and apply the same compulsory excesses. If the losses of an insured are bad then the
insurers can charge more than the minimum rate. The rates are calculated on the total number of employees
and the indemnity limit required.

Insurers will only underwrite this insurance for a business where they also underwrite the other classes of
insurance because the chances of a claim under a Fidelity policy are high.

8G BUSINESS ALL RISKS

Some businesses and professions need wider insurance cover than that provided by fire and theft policies.
They may need cover for equipment away from the premises. The All Risks policy gives theft cover
without the restriction of forcible and violent entry.

➢ The type of equipment covered would be:

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➢ Computers, calculators and typewriters

➢ Radio, televisions, video recorders and cameras

➢ Medical instruments

➢ Stands and their contents at exhibitions and trade fairs

➢ Tools

The exclusions are loss or damage caused by;

1. Fraud or dishonesty by the insured or employees

2. Mechanical or electrical breakdown

3. Theft from an unoccupied vehicle unless forcible entry

4. Wear, tear and depreciation

5. Rust, moth, vermin

6. Any process of cleaning, repairing, restoring or the like.

Underwriting Considerations

The insurers will usually apply a compulsory excess to cut small claims (which are expensive from the
administration point of view) and otherwise look at the likelihood of damage or loss of the items being
insured, their value and the previous insurance and loss history.

8H GOODS IN TRANSIT

The policies can either be for loss or damage following fire, collision or overturning of the carrying vehicle
or all risks. The all risks cover applies not only during the actual journey but also whilst the goods are
being loaded onto and off the vehicle and during temporary storage during the journey. The goods can
either be insured by the owner or by the carrier and cover can apply to road, rail and postal carryings.

The exclusions for the all risks cover are loss or damage caused by:

1. Breakdown of refrigeration equipment

2. Delay, loss of market and consequential loss of any kind.

3. Leakage or spillage unless following an accident involving damage to the carrying vehicle.

4. Natural deterioration, improper packing or addressing

5. Theft from an unattended vehicle unless the goods are inside a completely enclosed and locked
vehicle or the vehicle is itself in a locked building.

6. Money

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If the policy is in the name of a professional carrier or freight forwarder then at the start of each insurance
period they will estimate the turnover they will achieve for the carrying in the next year and at the end of
the period they will declare the actual turnover they achieve. The insurers charge a deposit premium at the
start and adjust the premium when the actual figure is declared at the end. This is known as an adjustable
policy.

Underwriting Considerations

Underwriters will usually impose an excess to cut out small claims. When deciding on a rate they will
consider the type of goods being carried, the load limit (which the insured supplies) and the past insurance
and loss history.

8I GLASS

Plate glass of any type can be insured against accidental damage and breakage. This can apply to windows,
shelves and glass in office furniture.

The policy will also cover damage to the frames and lettering on windows if they are damaged at the same
time as the glass. The policy also gives cover for temporary boarding up until the window can be fully
repaired.

Underwriting Considerations

The rate will depend on the insured’s occupation, the value and type of glass and the previous insurance and
loss history.

8J LIABILITY

Every person, company and partnership owes a duty under common law to the general public to take care.
If they fail to do so and this results in death or injury to another person or damage to their property then the
one responsible may be held legally liable to compensate the injured person. Liability can arise from the
action of the individual insured, his family, his employees, his sub-contractors or agents acting on his
behalf.

The injured person must prove that the insured is legally to blame for the damage although sometimes it is
obvious who is at fault. If the injured person takes legal action and the insured then defends himself, the
insured will have incurred legal costs even if he is found to be innocent. These legal costs of the insured are
covered as part of the liability policies.

Usually most liable claims are settled without the people involved having to go to court.

There are several types of liability policies as well as the liability sections in combined, motor, travel and
personal policies. The liability sections of combined policies use the same wordings as are used in the
separate policies.

PUBLIC LIABILITY

This policy is designed to compensate a business for their legal liability for death or injury to anyone other
than their employees and for damage to the property of those people arising from the insured’s business.
The liability can arise from the ownership of a building (whether or not it is occupied by the insured) or
from the business carried out whether it is at the premises or away from it.

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These policies do not have sums insured they have limits of indemnity, which is maximum amount insurers
will pay in the event of a claim. Claims are settled on the basis of the insured’s liability for injury or
damage plus any legal costs involved.

The payment for damage to property and minor injuries are easily established but larger claims for death or
disability often involve lengthy medical details and legal actions.

Policies can be extended at no additional premium to give cover for:

1. The personal representatives of the insured if he dies for any liabilities he may have incurred prior
to his death.

2. If in addition to the insured’s main business they also provide first aid, canteen and sports and
social clubs and these could cause injury to other people or damage to their property.

3. Damage to vehicles in the insured’s car park, including employees’ vehicles.

The usual policy exclusions are:

1. Contractual liability – this is when the insured has entered into specific contract with harsher
conditions than would normally apply and therefore the insurer might be asked to pay for claims
that would not have been covered without the contract. It is only these extra liabilities that are
excluded by this clause.

2. Damage to property belonging to the insured, in their control or on which they are, or have been,
working.

3. Damage to property caused by vibration or by the removal or weakening of supports.

4. Liabilities arising from the use of aircraft, vehicles or boats (these liabilities are covered by specific
policies issued for them).

5. Products liability, defective workmanship and professional indemnity

6. Damage or contamination from radioactivity.

The underwriting considerations take into account the business of the insured, past claims record and the
indemnity limit.

Products liability, defective workmanship and professional indemnity are standard exclusions on public
liability policies but they can be added back into the policy at additional premiums.

PRODUCTS LIABILITY

Any company involved in providing goods either as manufacturer, distributor, retailer or hirer should
consider the need for products liability cover. The policy gives cover for the legal liabilities of an insured
for death of or injury to a customer caused by a faulty product and also for any damage to their property.

Examples of possible claims;

1. Electrical appliances with faults can cause fire damage.

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2. Machinery assembled with the wrong size bolts will fail and can cause injury and damage to
property.

3. Animal foodstuffs with the wrong ingredients can cause animals to be sick or even die.

4. Hairdressing preparations with wrong ingredients can cause damage.

5. Food supplied with maybe, a stone in could cause injury.

The claims for products liability can be small or very large.

The premium is charged on the basis of the turnover of the business, exactly what products they are
involved with and the limit if indemnity. Underwriters would certainly consider any previous claims when
deciding whether to accept this risk.

DEFECTIVE WORKMANSHIP

This type of cover is needed for businesses where physical work rather products are involved such as a
vehicle or machinery repairer. If a component is put back wrongly in a vehicle and an accident results then
the damage caused to the vehicle is covered.

The Insurance policy will not pay to replace the actual part, which caused the accident that must be paid by
the repairer who is the insured.

PROFESSIONAL INDEMNITY

This cover protects the clients of a professional firm against the insured’s failure to carry out his
professional duties and obligations.

Examples

An insurance broker confirming cover to a client but failing to arrange the cover with an insurer.

A surveyor giving advice resulting in the purchase by his client of a property with major defects that have
to be repaired at great cost to his client.

A pharmacist giving the wrong medicine to a customer

A lawyer giving wrong advice to a client, which results in the client suffering a financial loss.

This cover is only underwritten by a few insurers in Zimbabwe because of its special nature and although
the claim payment is restricted to the limit of indemnity on the policy the claims can be high. An excess is
always applied by the insurers to encourage the insured to take as much care as possible to avoid claims.

The professional indemnity cover for insurance brokers and agents in Zimbabwe is underwritten by the
Professional Indemnity consortium, which is a grouping of several insurers. This means that there is no
alternative to the rates and excesses given by the consortium.

EMPLOYERS LIABILITY

National Social Security Authority covers all employees for injuries and death at work but employees also
have the right under Common Law to take legal action against their employer. This policy covers any legal
award made against the Insured and also any legal costs involved in defending such an action in court.
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Claims could either be from a single employee or from a group who were all injured at the same time.

RESIDUAL LIABILITY

When an award is made by NASSA to an employee it does not depend on any negligence by anyone. If
they find that an employer was in any way negligent then they will impose a fine. The amounts of fines are
set out in the appropriate act. This policy is to cover the payment of those legally imposed fines.

8K BUSINESS INTERRUPTION

In the past this type of insurance has been known as “Loss of Profits” and “Consequential loss” but the term
in general use now is Business Interruption because the purpose is to indemnify the insured for loss of
turnover and continuing costs as a result of an interruption to the business following damage by an insured
peril. This can be as a result of fire or an added peril or following damage covered by a machinery
breakdown policy.

After the damage has occurred and even after the claim for that damage has been paid the insured is not
back in business in the same way that he was in before the damage. The fire policy may have paid to
reinstate his building, replace his machinery and purchase new stocks but this has taken time and he may
have lost his customers, his skilled workers and he certainly is not making the level of profit that he was
making before the damage.

This policy will pay during the period of interruption for;

▪ Wages for employees the insured needs to keep.

▪ Rent or bond repayments while the building is being reinstated.

▪ Interest payments on money borrowed before the damage, which must be repaid to the lender
whether or not the business is running.

▪ Rent on temporary premises that are leased while the building work is done.

▪ The business is not making money and this policy will pay for the loss in net profit.

One of the features of a Business Interruption policy is that in addition to deciding on the sum insured the
insured must also decide on an indemnity period. This is the time the insured thinks it will take to get back
to the same position of profitability after a claim that he was in immediately before the damage. This must
include the time to rebuild, replace machinery and stocks and regain customers. The factory could be
rebuilt and equipped in 6 months but it could take another 6 months to fully recover and so 12-month
indemnity period is needed.

The principle of a business interruption policy with adequate sums insured and indemnity period is to:

1. Reimburse the charges, which continue whether the business is running profitably or not.

2. Meet any extra charges needed to enable the business to recover quicker.

3. Pay the NET profit, which would have been earned if there had been no damage.

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8L ACCOUNTS RECEIVABLE

This class of business is also a type of consequential loss insurance. This covers the loss of income caused
by the accounts being destroyed by an insured peril and the company then being unable to recover its debts.
This is why the insurance is sometimes called book debts.

Any claim payment is based on the difference between the total outstanding debts and the amounts
recovered after the damage plus the costs of tracing customers’ balances.

The cover is all risks and the premium is based on the amount of cover required and the methods used to
protect the records from damage such as keeping them in locked fireproof cupboards.

This is an adjustable policy because the insured cannot know exactly in advance how much will be
outstanding each month. The sum insured is set at the budgeted figure and the insured submits a
declaration each month of the actual amount outstanding. The premium is then adjusted on the average of
these figures for the year.

8M GROUP PERSONAL ACCIDENT

To provide benefits in the event of accidents to employees, companies may decide to arrange personal
accident cover for them. This is in addition to the statutory cover provided by NSSA and is not dependant
on any negligence on the part of the employer.

The cover is in different sections but only applies when caused by a sudden and unforeseen accident.

1. Death – the benefit is either a fixed amount or a multiple of annual earnings.

2. Permanent Disability – this also can be a fixed benefit or a percentage of annual earnings and the
amount paid is dependant on the degree of disability. There is a schedule of percentages attached to
the policy ranging from 1% for the loss of a little finger to 100% for total disablement.

3. Temporary total Disablement – this applies when the insured person cannot carry out his usual
job for a period of time (usually up to 2 years). Payment is based on normal earnings for the period
of disability.

4. Medical Expenses as a result of an insured accident – there is a specific sum insured for this
section.

Cover can apply either to accidents at work or on “24 hour” basis which means outside working hours as
well. Sometimes a time excess is applied to temporary total disablement to exclude the first days of
absence from work usually 7 or 14 days.

Exclusions relate to hazardous pursuits, flying in planes other than as a passenger on a commercial flight,
alcohol and drugs and infirmities, which existed before an accident. There is also usually upper and lower
age limits.

Premium is based on the benefits, the occupations of various classes of employees (clerical, sales, technical,
manual) and the previous claims experience.

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8N BONDS AND GUARANTEES

A guarantee is an undertaking to pay an agreed amount if an individual or business fails to meet its financial
obligations. The body issuing the guarantee act such as surety – someone who takes responsibility for
another’s performance of undertaking. Guarantees are not contracts of indemnity, there is no financial
measurement of the risk and the loss if it occurs is purely monetary.

Example

ZESA require a deposit to be paid by individual consumers before they will agree to supply electricity to a
home. Businesses are required to provide a guarantee that they will pay their accounts if they do not want
to pay a deposit. Paying a deposit to ZESA means that the money is earning no interest for the consumer
and therefore they obtain written guarantee from an insurer in exchange for a premium which is much
lower than the deposit required by ZESA in the event of the business failing to pay ZESA they will obtain
payment from the insurer.

Performance guarantees are required from building contractors when they are awarded to a contractor.

This means that if the contractor fails to fulfill his obligations under the contract to complete a building as
agreed in a specified time, the principal (the person or company for whom the work is being done) can
demand payment of a specified amount to enable him employ another builder to complete the work. Rather
than keeping money aside for this the contractor will arrange a guarantee with an insurer from the amount.

Before providing a guarantee or bond the insurer will satisfy themselves that the insured is unlikely to
default on their obligations. The insurer will want to see current financial statements and if the amount of
guarantees is large they will require counter indemnities from the directors of the insured company.

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CHAPTER 9

PERSONAL INSURANCES

CONTENTS

9A Introduction 9D All Risks

9B Building House owners 9E Personal Liability

Definition of Buildings 9F Personal Accident

Risks Insured Sickness Cover

9C Contents (householders) 9G Underwriting

Definition of Contents

Risk Insured

Basis of Claim Settlements

9A INTRODUCTION

Every person who owns property or household goods needs to protect themselves from loss or damage.
Buyers in the home insurance market are very aware of price and insurers compete to come up with
products that meet the needs of individuals at affordable premiums.

Insurers offer policies which incorporate Houseowners, Householders and All Risks under one policy and
some will also include Motor and Personal Accident. The basic covers are fairly standard with the
variations between insurers being the extras, which they include, as standard to their policy at no extra
premium.

9B BUILDINGS (HOUSEOWNERS) INSURANCE

The definition of “buildings” given in most policies is:

The private dwelling being brick, stone, or concrete built and roofed with slates, tiles, metal asbestos or
concrete, its outbuildings and landlord’s fixtures and fittings, the walls, gates, fences, swimming pools, and
tennis courts.

Buildings, which are built of the materials in this description are said to be of “standard” construction.
Buildings of other materials can be insured but the premium rate will be higher and the construction will be
shown on the policy.

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Fixtures and Fittings

Anything that would be left when moving house is considered part of the building. This would include
permanent kitchen and bedroom fittings and electrical fittings. If the premises were let these items would
be landlord’s fixture and fittings.

The question of fitted carpets can cause a problem – are they “buildings” or “contents?” If the carpets are
bought with the house and are left behind when selling they are considered as building: if fitted by the
tenant or could be removed without damaging the floor beneath when moving, they are regarded as
“contents”.

Risks Insured

1. Loss or damage to the buildings caused by:

a) Fire, lightning, explosion, earthquake

b) Storm, wind and water, excluding subsidence or landslip and damage to gates, fences or
retaining walls.

c) Impact by animals, vehicles or falling trees.

d) Air craft and aerial devices

e) Bursting or overflowing of water tanks, apparatus or pipes, excluding damage to the pipes
etc themselves;

2. Accidental damage to the water, sewerage, electricity and telephone connections from the property
to the public supply of mains.

3. Accidental breakage of windows, fixed glass in doors and sanitary fixtures except when the house
is left unfurnished.

4. Theft or attempted theft of landlord’s fixtures and fittings. Only following forced and violent entry
or exit if the residence is lent, let or sub-let.

5. Loss of rent payable to the insured as owner if the buildings are damaged by an insured peril to the
extent that they untenanted.

6. Costs following insured loss or damage for:

▪ Architects, surveyors and consulting engineers’ fees

▪ Demolition or debris removal

▪ Charges incurred to comply with building regulations

▪ Municipal fire brigade charges.

Under the liability section of the policy the insured is indemnified as owner in respect of his legal liability
to the public, including his tenants, but not to his own family or employee.

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The buildings policy is designed to provide in respect of loss or damage to the house and outbuildings
(garage, shed, domestic quarters and poultry houses) at the same time, to give the insured and his family an
indemnity for any liability claims which may be made against then relating to the property.

The interests of a mortgagee will be protected by the buildings insurance, even where the insured fails to
comply with any policy condition, if the mortgagee notifies the insurer of the breach as soon as it comes to
his knowledge.

Houseowners policies are usually today on a reinstatement basis with no deductions for wear and tear or
depreciation following a claim but the insurance is subject to average.

9C CONTENTS (HOUSEHOLDERS) INSURANCE

The perils covered by the contents insurance are the same as those under the buildings insurance but with
certain modifications. The liability section relates to the occupation of the building by the insured and his
family and not to the ownership of the building.

Definition of Contents

The policy states that the house which contains the contents is of “standard” construction as under the
building policy other constructions can be covered but at additional premium. The definition of premium
will be:

Household goods and personal effects of every description, the property of the insured or for which he is
responsible or of any member of his family normally residing with him, and fixtures and fittings the
insured’s own or for which he is responsible all in the buildings described in the schedule.

There are a number of exclusions specifying items that are not insured or for which only limited cover is
available.

a) Property more specifically insured

b) Motor vehicles, caravans, trailers, watercraft and livestock

c) Deeds, bonds, bills, documents, medals unless specified.

The total value of platinum, gold and silver articles, jewellery and furs is restricted to one third of the total
sum insured but can be varied for an additional premium. The reason for the restriction is that a household
with a large amount of valuable items is more attractive to potential thieves.

Theft cover is suspended when the house is unoccupied over 60 days in any one period of insurance. This
limitation can sometimes be waived but usually only on payment of an additional premium.

Risks Insured

1. Loss or damage to the contents caused by

a) Fire, lightning, explosion, earthquake

b) Storm, wind, hail, flood excluding loss or damage to property in the open

c) Impact by animals, vehicles or falling trees

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d) Theft of any attempt thereat. Theft when the dwelling is lent, let or sub-let, theft from
outbuildings and loss of money, for a limited amount only, is only covered when there is
forcible and violent entry to the building.

e) Aircraft or aerial devices

f) The bursting or overflowing of water tanks, apparatus or pipes.

2. Accidental breakage of mirrors, plate glass, and glass tops to furniture.

3. Accidental damage to television sets and videos and aerials by external means

4. Policy cover for the property of guests for limited amount unless insured by the owner

5. Policy loss or damage for the property of domestic workers.

6. Compensation for the death of the insured or spouse if fatally injured by fire or thieves on the
premises

7. Medical expenses (not otherwise insured) incurred as a result of accidental bodily injury
sustained by;

a) Any person other than the insured, a member of his family or an employee caused by a pet
owned by the insured and kept on the premises.

b) Any guest or visitor caused by a defect in the premises

c) Any domestic worker arising out of his employment.

8. Loss of rent and additional expenses incurred by the insured for alternative accommodation
when the dwelling in rendered uninhabitable by an insured peril (for a limited amount of time
and money)

9. Liabilities

a) Tenants’ liability for damage to the building and landlord’s fixtures and fittings caused by
perils listed in one above and these liabilities will be specified in the lease:

b) Occupiers’ liability to third parties

c) The insured’s common law liability to his domestic workers.

Extensions of Location

The policy also extends to cover contents while away from the home in Zimbabwe

a) For all the main perils; in any hotel, private home, nursing home, club or school in which the
insured or member of his household is temporarily staying.

b) For fire, lightning, explosion and theft accompanied by forcible and violent entry or exit in any
laundry or other premises for purposes of making up, repair, cleaning or dyeing or in any
business premises where the insured or a members of his family normally living with him is
employed.
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Example

Wendy is a receptionist at a doctor’s consulting rooms, and she is usually alone when the doctor is out
visiting patients, she bought a small radio to keep herself entertained. Although she traveled to work by
car, she left an umbrella and a cardigan in the rooms in case she needed these whilst shopping during
lunch break, and also a few dollars in change in her desk drawer.

When walking down the corridor to open up one morning, she was shocked to see that the glass pane of the
door to the reception area was broken and the door standing open. The rooms were in a mess with drawers
and their contents all over the floor.

The doctor had insured the contents of his rooms but Wendy was worried about the loss of her belongings,
which were missing following the break-in. She did not have to be worried. Her broker pointed out that as
she had a Householders Policy the cover extended to include theft of her property at her work place
following forcible and violent entry.

Wendy was therefore able to recover the value of the radio, umbrella and cardigan but had to accept that
there was no cover for the money as her policy only insured money forcibly taken from her home.

Additional Benefits

In addition to the standard cover granted under Householders’ policies further benefits are often included as
part of the basic package but with monetary limits. These are:

a) Damage to the contents of refrigerators or freezers following accidental failure of the power supply

b) Veterinary Fees following road accidents to dogs and cats

c) Garden furniture for full theft cover up to a specific amount

d) Washing loss or damage from the washing line

e) Costs incurred as a direct result of replacing locks and keys following the loss of the house or car keys.

Basis of Claim Settlements

There are two types of settlement of contents claims and their use depends on the wording of the policy.
The first method makes all allowance for depreciation. The second method settles claims on a replacement
or “new for old” basis.

The first method is based upon the strict principle of indemnity. The insured is placed in exactly the same
position after the claim that he was in before the loss. This means he will not receive sufficient money to
replace all items lost or destroyed unless he can purchase second hand goods.

This example shows how contents claims are settled, allowing for depreciation;

Mr. Phiri suffered damage to his belongings following a burst pipe at his home. Among the items claimed
for were two carpets now ruined. They originally cost $600 each and were bought at the same time 3 years
previously, one was in the passage and the other one in a bedroom. The adjuster and the insured agreed that
the current replacement cost would be $2 000 and the estimated life spans was 6 and 11 years respectively.
The bedroom carpet had much lesser wear and tear. This means that the passage carpet would have lasted 3
years more and the bedroom carpet another 8 years. The claim was settled.

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Passage carpet 3 X $1000 $500

6

Bedroom carpet 8_ X $1000 $727

11

The second method of claims settlement is where claims are settled on replacement basis without a
deduction for wear and tear. Items lost or damaged beyond economic repair will be placed as new. This
method usually excludes clothing and linen, which are settled subject to wear and tear.

The new for old is seen by policyholders as much fairer than the depreciation approach but they must insure
their contents for the current replacement costs, if average is to be avoided.

9D ALL RISKS INSURANCE

This class of insurance covers loss or damage from most external causes and is suitable for jewellery,
watches, cameras, spectacles and property often taken away from the home or subject to accidental damage.
The schedule usually includes an item on unspecified clothing and personal effects. This will include
luggage, sports equipment and other possessions generally carried on the person covered under one overall
sum insured but subject to a limit of any one article. Articles, which cannot be covered by this item,
because of their nature or value, must be specified separately.

Valuation in respect of items of jewellery are needed if the value is in excess of a stated sum – usually
$1000 and some insurers impose warranties requiring regular inspections of the fastenings and settings of
rings, earrings and broaches by a jeweler.

As for all insurances with the title “All Risks” there are exclusions for risks which insurers consider
uninsurable or for which they require additional premiums if they are to be covered. The usual exclusions
on a domestic “All Risks” policy are:

1. Loss and damage to sports equipment whilst in use.

2. Confiscation by customs or other authorities.

3. Theft from unlocked unoccupied vehicles

4. Wear and tear, rust and loss or damage while undergoing processes such as cleaning or repair

5. Mechanical or electrical breakdown

6. Photographic equipment if being used for professional purposes

7. Breakage of glass (other than lenses in cameras and spectacles) not caused by fire or thieves

8. Loss or damage to audio and video tapes other than by fire or theft.

Unless otherwise stated, cover is on a worldwide basis.

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9E PERSONAL LIABILITY INSURANCE

This policy indemnifies the insured and any member of his family who permanently lives with him for legal
liability incurred in their personal capacity. The cover and exceptions are on the same basis as Public
Liability insurance (see chapter 8) but this policy makes it clear that no indemnity is provided for less,
damage or injury suffered by members of the insured’s household or employees. Claims, which may arise
under Personal Liability policies, are negligence in connection with sport and lack of control over pet dogs,
which cause accidents.

9F PERSONAL ACCIDENT INSURANCE

This insurance will compensate the insured if he or she sustains bodily injury by accidental violent external
and visible means.

This insurance will select the amount of benefit for which they require cover, these being:

1. Death – this must occur within “X” months (usually twelve) of the accident for the benefit to be
paid.

2. Permanent Disablement – a schedule will be attached specifying the compensation payable as a

percentage of the amount selected for insurance ranging from 100% for the loss of a hand or foot to
the loss of a little toe 1%.

3. Temporary Total Disablement – this is disablement to an extend prevents the insured from
engaging in his usual business and is expressed as a weekly sum usually payable for up to 104
weeks.

4. Medical expenses – the insured will select a limit for all such expenses incurred following an
accident which are not recoverable from any other source.

Sickness Cover

This cover can be added to a Personal Accident policy, providing a weekly benefit for up to 52
weeks. There is usually a time excess, say four weeks before the insured can begin claiming. This
cover is not readily available in the present market and is only offered by a limited number of
insurers.

Age limit

Persons less than 15 years of age and older than 70 years are not covered by a Personal Accident
policy.

9G UNDERWRITING

A simple form of proposal is used by most insurers. After enquiring the proposer’s name and address, the
location and construction of the premises at which the insurances are to apply, the sums to be insured under
the various sections of the policy must be stated.

For buildings, the cost of rebuilding the property to include all outbuildings and walls. The Insured value of
buildings should be the cost of reinstatement not the market price as the insured will not include the value
of the land.
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For contents, the sum to be insured will depend on whether the cover is on a reinstatement (new for old) or
an indemnity basis (depreciation). Layered premium rates, which decrease as the sum insured rises, are
used because the risk of total loss, other than through fire, reduces proportionately.

For example, one rate will be charged on the first $20 000 insured with a lower figure being applied to the
balance. Rates also vary according to location, mainly because the theft risk is much greater in Harare.

The proposal will ask questions regarding previous insurances such as:

▪ Have you ever been refused insurance?

▪ Have you ever had your premium increased or special terms imposed?

▪ Have you suffered any losses during the past five years?

If the answer is “yes” then further details will be asked for, including the name of the insurance company on
risk at the time.

Finally the proposer is required to sign a declaration that states that to the best knowledge, the information
given on the form is true. By signing he agrees that the proposal will be the basis of the contract between
the insurer and himself.

Surveys are common in commercial insurance but not often carried out on houses unless the contents sum
insured required is high. In such cases, insurers will survey the property and discuss types of locks to be
fitted to doors and windows, the installation of burglar bars on all opening windows and perhaps request the
fitting and maintenance of a burglar alarm. Some insurers allow a premium discount for an approved
alarm.

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CHAPTER 10

TRAVEL INSURANCE

CONTENTS

10A Introduction Medical and Other Expenses

10B Policy Cover Cancellation Charges

Baggage Hijacking

Personal Accident Travel Delay

Personal Liability 10C Rating

10A INTRODUCTION

The first of travel insurance were annual personal accident and all risks contracts, which covered the
insured and his accompanying possessions while anywhere in the geographical area specified in the
policies. Not all travelers held such insurances and as both business and holiday journeys became more
common individual policies were introduced. The first form of cover was the Traveller’s Baggage policy,
which covered the insured’s clothing and personal effects, and the Personal Accident policy, effective for
the particular trip.

In business traveling now occupies a part of the time of many executives, while holidays away from home
have become a feature of a number of people. It is with these developments that travel insurance has
involved as a source of business for the insurance market. Package policies have been devised to include
covers in addition to the basic baggage and personal accident insurance, personal liability, medical and
other expenses, cancellation charges, hijacking and delay.

10B POLICY COVER

BAGGAGE

The insurance provided under this section is for loss of or damage to the insured’s personal luggage and
money by accident whilst away from his usual home. Luggage includes the contents as well as the
containers themselves and also articles worn or carried. Cover is on an “all risks” basis with the excess
similar to those normally applicable to a Personal All Risks policy.

Variables: (between insurers)

a) An extra monetary benefit if baggage is delayed for more than 24 hours because the insured may
have to buy urgent replacements.

b) A single item limit for jewellery and valuables, which are not specified.

c) A limit on cash and travel documents:

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d) The sum insured on baggage will either be subject to average or there will be a warranty that the
sum insured represents its full value.

Personal Accident

Compensation is payable for accident death, loss of limbs or sight or for permanent disablement. In
addition, a weekly benefit is provided for up to 104 weeks if the insured is unable to carry out his usual job
due to temporary total disablement following an accident either as a stated sum or as a percentage of the
capital sum insured.

The exclusions are those usually found under an annual personal accident policy, eg use of drugs or alcohol,
suicide, taking part in hazardous pursuits not advised to the insurers and any physical or mental defects
existing at the time of arranging the insurance.

Variables:

a) Upper and lower age limits with restricted cover:

b) Winter sports but included with an additional premium:

c) Cover limited to non-occupational accidents:

Personal Liability

This section of the policy covers the insured’s legal liability as a private individual for accidental bodily
injury to others (excluding family) and accidental damage to property. For example, a person on holiday
may cross a road carelessly, force a car to swerve and cause it to collide with other vehicles and injure some
of their passengers. If the case goes to court after the insured has returned home, it would be costly for him
to defend the charge without the backing of personal liability insurance.

Variable: Sometimes this cover is not available under a Travel Policy.

Medical and Other Expenses

The cover provided under this section is for the costs of medical, surgical, hospital or other attention or
treatment given or prescribed by a qualified member of the medical profession as a result of an accident or
illness. Some insurers have an association with one of the international medical assistance organizations.

They will direct a claimant to the best local professional facility that the particular illness or accident
requires and guarantee direct payment of the costs, subject to the adequacy of the sum insured. These
organizations can also provide a qualified nursing escort service to accompany a seriously injured or sick
person back to their home. Despite any medical aid benefits a person may have arranged, medical expenses
insurance for overseas travelers is always recommended, particularly because of high charges payable in
other countries.

In addition to the reimbursement of medical costs incurred, this section usually gives other related benefits
for an accident or illness, but again subject to the sum insured being adequate:-

a) Additional accommodation charges incurred by the insured, or by a relative or friend remaining with the
insured:

b) Increased cost of return travel and reasonable travel charges incurred by the insured:

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c) In the event of death, costs of taking the body or ashes of the insured home:

d) Loss of accommodation or transport charges and additional travel expenses paid or payable and not
recoverable from any other source, resulting from shortening of the journey or holiday already begun
because of the death, injury, or illness of the insured or the person with whom he is traveling or of a
close relative or business associate.

Variable:

a) The cover may be with or without excess:

b) Upper and lower age limits for which this cover may be granted:

c) The period during which medical expenses incurred will be reimbursed.

Cancellation Charges

This section of the policy covers the reimbursement of deposits or other charges, which are forfeited and
not recoverable from any other source because of cancellation of the journey or holiday before it begins
caused by an accidental cause outside the control of the insured. The cover is intended to cater for when the
insured is unable to travel as planned, because of some misfortune occurring. Illness is the most common
reason for canceling a trip but others might be retrenchment or a fire or burglary at home just before the
journey, which prevents the insured from traveling.

This cover must be taken out immediately after a booking. Infirmity or illness which exist at the time of
booking are excluded and two other important exclusions are changes in financial circumstances which
means the insured cannot afford to travel and a change of mind to travel.

Example

The insured person’s business partner is taken seriously ill a week before the holiday – COVERED

The insured person’s friend with whom he intended to travel changes his mind – NOT COVERED. There
is no reason why the insured cannot travel though he might not want to go on his own.

Hijacking

The benefit payable is a fixed amount per day if the insured is prevented from reaching his destination
because of the hijacking of the transport in which he is traveling.

Travel Delay

Most travel policies contain a clause to extend the period of the policy if any transport in which the insured
is traveling as a fare-paying passenger is delayed through no act of the insured.

10C RATING

Apart from the scope of the cover afforded by the policy, the two main rating factors in travel insurance are
the sums insured/indemnity limits and the period cover.

No two packages are the same and premiums rates vary from company to company. For example, different
age brackets are applied for personal accident insurance and the amount of the medical expenses benefit is
uniform.
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For their own interest and information, students should obtain a few travel insurance policies and compare
the benefits alongside the corresponding premiums.

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CHAPTER 11

MOTOR INSURANCE

CONTENTS

11A COMPULSORY VEHICLE INSURANCE 11G COMMERCIAL VEHICLE

11B RTA POLICY 11H MOTOR CYCLES

11C LICENSING DATES 11I MOTOR TRADERS

11D COVER NOTES 11J MOTOR FLEETS

11E WIDER COVERS 11K CLAIMS PROCEDURES

11F PRIVATE CARDS 11L CLAIMS AGREEMENTS

11A COMPULSORY VEHICLE INSURANCE

Motor vehicles driven by petrol engines first appeared in the 1880s and some years later insurers began to
cover them against the risks of fire and theft and liability. Insurance was on a voluntary basis and with the
ever increasing number of motor accidents often the injured person found that the motorist was uninsured
and without the means to pay for the damage or injuries. In 1930 the UK Government introduced its first
Road Traffic Act which has been much amended since to take into account changing road vehicle
conditions.

The latest Road Traffic Act in Zimbabwe was enacted in 1976 and has been amended in part since. The
part which concerns the insurance industry is Part III which refers to the “ Compulsory Insurance against
Third Party risks arising out of use of motor vehicles.”

Policies issued in terms of the Act are referred to as “Full Third Party” (FTP).

The Act Part III is summarized below:-

a) A vehicle or trailer cannot be used on a public road unless there is FTP insurance in force covering it.

b) A FTP policy can only be issued by an “Approved Insurer”

c) The FTP policy provides the user of the vehicle with legal liability cover for the death of or injury to any
other person except an employee of the insured (all employees with a few exceptions are covered for
accidents arising out of their employment under NSSA) and non-fare paying passengers.

d) For fare paying passengers limits of liability for death or injury are:-

Any one person $ 40 000

Any one accident $400 000

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For all other accidents there is no monetary limit

e) An injured person or relative of a dead person can claim directly against the insurer – they do not have to
make
a claim against the driver or owner first and it must be made within 2 years of the accident.

f) Some vehicles – farm tractors, mine vehicles and forklifts do not have registration numbers nor are they
licensed but if they are used to any time on a public road they must have FTP cover.

g) The FTP policy has exceptions but the insurer cannot reject a claim from a third party because of an
exception.
The insurer must deal with the third party claim but then recover the claim costs from the insured if an
exceptions is applied.

11B THE FTP POLICY

The policy is designed to apply to all types of vehicle and trailer and all insurers provide the same wording
for the same cover at the same premiums.

The policy can be summarized as follows:-

SCHEDULE: The insured’s name, address and business. Vehicle or trailer’s make, model, year,
registration number and engine and chassis numbers.

Use of vehicle

Period of insurance

Premium and stamp duty.

USE: The rating depends on the use category

a) Social, domestic and pleasure for cars

b) Business use for private cars.

c) Carriage of fare paying passengers.

d) Carriage of own goods for commercial purposes.

e) Carriage of goods for reward using commercial vehicles

f) Motor dealers and garages

g) Trailers.

Exceptions

a) When the vehicle is not used in accordance with the “Use” clause.

b) When the driver does not have a license for the type of vehicle being driven.

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c) When the insured or the driver, with the knowledge of the insured is under the influence of alcohol or
drugs.

d) Arising from contractual liability.

e) From employees arising in the course of their employment.

f) From passengers unless they are paying a fare.

g) Liability arising through war, radio activity, nuclear material.

h) Compensation for damages in respect of judgements not delivered by or obtained from a court in
Zimbabwe in the first instance.

i) Costs of litigation not incurred in and not recoverable in Zimbabwe.

CONDITIONS

These are the usual conditions but there is an extra one that states that if a claim is met under the provisions
of the Road Traffic Act that would have been excluded by the policy then insurers have the right to recover
from the insured or driver.

There is no excess on FTP policies because payments are always to third parties. Underwriting is restricted
to acceptance or refusal and most underwriters, though not actively encouraging FTP business, will not
refuse to issue a FTP because it is a legal requirement for vehicles to have at least FTP cover.

11C LICENSING DATES

The law stipulates that all vehicles registered in Zimbabwe must be licensed to:-

31st January 31st May, or 30 September.

Sets of Motor Trade Plates must be licensed to 31st December. This means that all Motor policies expire on
one of the dates mentioned and become due for renewal on 1st February, 1st June, 1st October or in the case
of Motor Trade Plates 1st January.

11D COVER NOTE (CERTIFICATE OF INSURANCE)

There are times when the owner of a car must produce evidence that he has insurance in terms of the Road
Traffic Act. These are usually when he wants to license a vehicle or to satisfy police in the event of an
accident.

To produce a policy is not always practical so the “Cover Note” was introduced. The format is:-

▪ Name and address of policyholder

▪ Date of commencement and expiry of insurance

▪ Make of vehicle and registration number

▪ Policy number
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It is designed and dated by a person authorized to do so by the insurer. Some also show the time at which it
was completed. This is done to prevent an uninsured motorist who is involved in an accident obtaining
cover after the accident.

It is against the law to “back date” a Cover Note. When one is lost and the insured asks for a copy, a new
one should be issued showing the period of insurance commencing from the date the cover is written. If an
insured has had an accident and mislaid his cover note an insurer will give him a letter which confirms that
he had FTP cover from a particular date and that it is in force, this will satisfy the police.

Insurance brokers and selected agents are supplied with pads of cover notes, which enables the broker or
agent to give a policyholder proof that he has FTP cover.

Cover notes are numbered to help insurers maintain control of their use. Spoiled certificates must be
accounted for.

11E WIDER MOTOR INSURANCE COVER

Many owners of vehicles want cover wider than the minimum laid down in the Road Traffic Act. The table
shows the types of policy available and the cover offered by each. See how the cover builds up from the
basic FTP policy.

FULL THIRD PARTY FULL THIRD PARTY COMPREHENSIVE

FIRE AND THEFT

Liability for death or bodily FTP Cover FTPFT Cover

injury to others

PLUS PLUS PLUS

Damage or loss by fire or theft to Accidental damage to insured’s
Damage to property of others up insured vehicle vehicle Medical expenses. Towing
to a limit of $250 000.00 charges

11F PRIVATE CAR INSURANCE

This class of insurance relates to the various types of private passenger carrying vehicles, which are used
for social, domestic and personal business purposes.

There are three basic forms of policy cover – Comprehensive Full Third Party Fire and Theft and full Third
Party.

It is usual for insurers to issue a comprehensive policy for the insurance of private motor vehicles, with
deletions of the appropriate sections if limited cover is required.

Full Third Party

In insurance there are two parties to the contract, the insured and the insurer and anyone else is a “ third
party” The Third party section of the private motor policy indemnifies the insured against all sums which
he is legally liable to pay in respect of death of or bodily injury to any third party and damage to their
property in an accident involving the insured vehicle. Specifically excluded is liability for the death of or
injury to members of the same household as the insured or to persons in his employment (as these cannot be
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considered as completely separate and independent “third parties”) and damage to property belonging to
him or his custody or control.

The cover applies to the insured and any licensed driver who is with the insured’ permission.

Full Third Party and Fire and Theft

To the basic Third Party insurance, cover can be added for damage to the car by fire, self-ignition, lightning
or explosion and for loss or damage by theft. Cover is included for spare parts and accessories in or on the
car. If the vehicle is stolen and then recovered in a damaged state, the cost of repairs is covered as the
proximate cause of the damage was theft.

Comprehensive

In addition to the third party, fire and theft cover, accident damage to the car itself is insured under a
Comprehensive policy, with other additional benefits. Payment will be made for the protection and
removal of the car to the nearest repairers if it is immobilized in an insured accident. Insurers pay the
market value (or the maximum indemnity as specified on the policy if less) where damage to a car makes it
beyond economical repair. The salvage then becomes the insurer’s property. Where a hire purchase
agreement is in existence, the amount outstanding must first be paid to the finance company, with the
insured receiving the balance if any. It is customary for a motor assessor to inspect a vehicle before a
repairer is authorized to proceed.

To avoid delays, policies allow the insured to give instructions for repairs up to a certain figure e.g
$2 000 000, provided a detailed estimate is immediately forwarded to the insurer.

Broken windscreens and windows are included in the “damage” cover, but insurers treat such claims
differently from other damage. It is market practice to replace the glass without the insured losing his “no
claims discount” by paying a contribution of 33% towards the repair cost.

A comprehensive policy also pays medical expenses, which are incurred by occupants of an insured vehicle
following an accident up to a specified limit.

The loss or damage section of the policy excludes:-

a) Any consequential loss, wear and tear, depreciation and mechanical or electrical breakdowns:

b) Damage to tyres by the application of brakes, road punctures, cuts or bursts (it is damage to the tyres
which is excluded, not any subsequent damage if the burst causes an accident.

c) Damage to the springs due to uneven road surfaces.

General Exceptions

a) Any loss or liability related to nuclear or radioactive materials:

b) War, and the like

c) Any loss or liability occurring outside the territorial limits which are usually Zimbabwe, South Africa,
Botswana, Lesotho, Malawi, Namibia, Swaziland, Zambia and Mozambique.

d) Loss or liability incurred while an insured motor car is:-

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1. being used otherwise than in accordance with the use stated in the policy:

2. being driven by anyone who does not hold a license to drive the car where a license is required:

3. being driven by someone under the influence of drugs or alcohol, including the insured and anyone else
who to his knowledge is “under the influence”.

Policy conditions require notification as soon as possible of an accident, loss or damage with full particulars
in writing within say 30 days of the occurrence. This condition refers to all accidents, not only those for
which the policyholder intends to make a claim. Rather than stating the maximum number of days within
which a claim should be reported, current wordings stipulate that this should be done “as soon as reasonably
possible”. The reporting of an accident to the police, particularly if there are any injuries is a matter of law.

The reporting of lost or stolen articles must be made to police “as soon as practicable after the event”.

Insurers also insist that any written or summons sent to them immediately and that they be notified in
writing as soon as the insured has knowledge of any impending prosecution or inquest which may give rise
to a claim. This is to enable insurers to defend any action on their insured’s behalf.

In Chapter 4, the principle of subrogation was mentioned. The right is available automatically to the insurer
after payment of a claim, but there is a policy condition by which the insurer is entitled to take charge of the
claim immediately and conduct the defense or settlement and or prosecute other parties in the name of the
insured.

Subrogation is the right of an insurer to stand in the place of the insured and avail himself of all the
insured’s rights and remedies. If the insured has any other means of recovering a loss paid by the insurer,
this right passes to the insurer.

Among the policy conditions is one, which entitles the insurer to cancel the policy by sending written notice
to the insured and returning the unexpired portion of the premium to him. The insured may also cancel
mid-term and is entitled to a refund of premium but it will be less than a proportionate refund and will
depend on there having been no claims during the period of insurance.

Other general conditions of a private motor policy relate to:-

a) Taking all reasonable precautions and maintaining the car in a roadworthy condition:

b) Not admitting liability or making any offer: promise or payment following an accident (this could
prejudice the insurers in any subsequent negotiations.

c) Notifying the police in the case of theft or other criminal act and co-operating with the insurers in
securing the conviction of any offender.

d) Contribution: if the insured vehicle is covered by more than one insurer then each will bear a
proportionate part of any loss, damage or liability.

e) Maximum liability under the Third Party section: for major claims where it is clear that the total
amounts to be paid are going to exceed the indemnity limit, the insurer can pay to the insured the full
specified limit of its liability under this section and relinquish any further interest in the claim from the
date of payment. By doing so, they avoid additional legal costs which would be pointlessly incurred.

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f) Repudiation of liability: There is usually a condition that where an insurer disclaims liability no benefit
can be available if an action by the insured has not begun within three months from the date the
disclaimer and otherwise within twelve months of the accident unless there is a pending legal action or
the claim is under the Third Party section.

No Claims Bonus

This is a system applying only to comprehensive policies. If no claim is made in one year then the
premium at the next renewal of the policy will have a discount.

Insurers have rating schedules, which give lower premiums where no claims have been made for each car
specified or any car replaced.

Insurance is a means whereby the contributions of the many provide compensation to the few who suffer
losses. It could be said that the awarding of a discount to those who do not make a claim is against the
basic principle of insurance. By granting a no claim discount it seems to defeat this objective by charging a
lower premium to those who do not claim. This is now an accepted part of motor insurance worldwide and
it does help to keep the overall cost of claims down because minor damage will be dealt with by the insured
to maintain his No Claim Bonus. The amount of the concession varies between 5% for one year’s claim
free driving to 50% for six years without claim. The example, which follows, shows the important point
that a “no claim discount” is NOT a “no blame discount”

Charles parked his car carefully in the supermarket parking area and went inside to shop. An hour later he
returned to his car and was shocked to see a dent in the driver’s door, the front off-side wing hanging off
and a piece of his headlamp glass lying on the ground. No one had seen anything happen, the parking space
next to his car was empty and he could not remember anything about the vehicle, which had been there
when he parked. Charles reported the matter to the police and submitted a claim to the insurers who paid
the cost of repairs less the first amount payable (excess)

When his renewal notice arrived three months later, the premium had been increased. Charles asked his
broker for an explanation as he had never had an accident or been prosecuted for a traffic offence.

The broker explained “You make a claim under your policy without which you would have had to pay the
full repair cost of $5 700. That is why you had insurance in the first place to prevent yourself against
incidents like this. The question of blame does not arise”.

If however the offending vehicle had been identified and liability clearly established, Charles’ insurers
would have had an opportunity to recover their outlay.

Assuming that they were successful, Charles’ no claim bonus would not have been affected.

Insurers allow new proposers to retain the discount earned with a previous insurer, subject to proof of
entitlement.

Average Condition applicable to section 1 – Loss of or damage to the vehicle other than glass claims
as defined.

If in the event of any claim for loss of or damage to any vehicle (including its accessories) described in the
schedule, the insured’s estimate of value and the inflation provision, if the insured as stated in the schedule
(hereinafter referred to as the Total Sum insured) plus 20% is less than the pre-accident Market value (as
defined) then the liability of the company for such loss or damage will be reduced in the same proportion as
the Total Sum Insured plus 20% bears to the pre accident market value. The maximum liability of the
company shall in no case exceed the Total Sum insured or the Market value whichever is the less.
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If however the estimated repair cost exceeds 70% of the Total Sum Insured this Average Condition will not
apply. In which event the maximum liability of the company shall be the Total Sum Insured and the
damaged vehicle will become the property of the company. However the insured will be given the option
of retaining the damaged vehicle on payment to the company of 30% of the Total Sum insured.

Definition

Market Value

The current market value of the insured vehicle taking into account its mileage, general condition and what
a well informed willing buyer would pay a well informed willing seller for a similar vehicle of the same
kind and in the same condition. In the event that the company and the insured are not able to agree on the
Market Value the same shall be referred to an agreed registered member of the Motor trade Association
whose valuation shall be final and binding on both parties and will not be subject to appeal.

First Amounts Payable

There is a certain portion of any claim for damage to the insured vehicle, which is uninsured. The
policyholder shares the cost of the claim by paying the uninsured portion. This portion is known as the
“First Amount Payable” or “Excess”. The insurer is able to lower its expenses by cutting out smaller claims
falling below the excess which are settled by the insured personally.

The following is a list of typical First Amounts Payable:-

a) Basic Excess 3% of value

b) While driven by a person under 25 years 3% of value

c) While driven by a person who has held a full driving license for under 5 years 3% of value

d) Theft or attempted theft of accessories 25% of loss or

damage

e) Windscreen contribution 33%

These First Amounts Payable are all added together where applicable. A twenty year old with a full license
for one year only and driving a car insured would have to pay substantially towards the repair costs if he
had an accident.

Underwriting Factors

In rating tables these factors decide the premium

▪ Use

▪ Value of car

▪ No Claim Bonus

▪ Cubic Capacity

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Use

This tells the insurer of the exposure factor. A car used by a retired person for shopping and other local
purpose is on the road for less than one used by a sales representative traveling over large distances and
using the car everyday.

Insurers have two different use categories for rating.

Table 1 For social, domestic and pleasure and business use by the insured

Table 2 For cars owned by companies and partnerships and therefore often used by several people
for business.

Value or the car

The value of the car together with other factors determine the premium and terms the insurer will charge.

11G COMMERCIAL VEHICLE INSURANCE

Included in this category are vehicles designed for the carriage of goods (other than light vehicles which are
generally rated as private cars).

Policy Forms

These are similar to those described for private car insurance

POLICY COVER

Full Third Party

The cover provided is similar to that under the private car policy with the following added

a) The insured will be indemnified where he is legally liable for third party property damage or personal
injury to accidents caused by the loading or unloading of the truck.

b) Third party cover applies whilst the insured vehicle is towing a disabled vehicle provided that no
payment is involved. This provides cover for when a vehicle maybe from the same company has
broken down but it does not cover towing by a professional breakdown company) The policy does not
cover any damage to the towed vehicle or property on it.

Full Third Party Fire and Theft

Again the cover is similar to that for private cars but with the differences in full party cover above.

Comprehensive

There is no separate windscreen cover or medical expenses

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General Exceptions

The same as for the private car policy.

No Claims Bonus

With Commercial vehicles, the discounts based on the number of years during which a vehicle or its
replacement, must “earn” its own No Claim Discount.

First Amounts Payable

Similar excess are imposed as for private car insurance but it is also normal to apply additional excess
determined by the weight or carrying capacity of the vehicle. The larger the truck, the higher the
compulsory excess.

▪ Underwriting Factors

▪ Use for carriage of own goods or haulage for a fee

▪ Value

▪ Gross vehicle Mass (weight and carrying capacity)

▪ No claim discount entitlement

11H MOTOR CYCLE INSURANCE

No cover applies if a passenger is being carried on the pillion or in a sidecar unless specified in the policy.

The basic premium is determined by:-

a) Cover Comprehensive full third party, fire and theft or third party only

b) Use either social, domestic and pleasure including use only by the insured for his own
business or for a company’s business.

c) The cubic capacity

d) Value

The theft of accessories and spares is not covered unless the cycle is stolen at the same time.

11I MOTOR TRADERS INSURANCE

A motor repairer or distributor can have many vehicles in his garage at the same time, either owned by him
or being sold, repaired or serviced by the business. Other than the company’s own vehicles, they are
changing all the time and it is impractical to specify each one for which insurance is required. A motor
repairer needs special cover for his operations and this is done by special policies.

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The cover comprehensive: full third party, fire and theft or full third party only is the same as under
standard commercial vehicle policies but the description of vehicles and the defined events covered must be
different because of the insured’s business.

Motor Trade External Policy

This policy covers vehicles only while they are on the road or temporarily garaged during the course of a
journey elsewhere than at any business premises owned or occupied by the insured. Vehicles are defined as
those which are the garage’s own property or in their custody or control which includes their customer’s
vehicles. It also covers vehicles being towed to his garage when they have broken down.

Cover is restricted to business use by the insured including driving tuition and demonstration where
required with social, domestic and pleasure uses being included for the insured and their employees at an
additional premium.

The premium for the cover is based on wages paid to all employees including an amount for each partner of
the firm.

Motor Trade Internal Policy

This cover applies only to accidents at the insured’s premises. All vehicles are insured on a
“comprehensive” basis but accidental damage insurance applies only to the insured’s own vehicles. As far
as other vehicles and property are concerned, the cover is restricted to loss or damage caused by:-

a) Injury or damage caused by fire, explosion or theft.

b) a defect in the premises, plant or machinery

Exceptions include:-

a) injury or damage caused by fire, explosion or theft

b) damage sustained while a vehicle is being worked on

c) defective workmanship

The premium for this insurance is based on the total wages paid to all employees including an amount for
each partner.

The reason that the premium is based on wages is to give the underwriter some idea of how much work is
done by the garage. The underwriter can then estimate how many vehicles can be in the garage at any one
time and then the chances of an accident either at the garage or on the road.

11J MOTOR FLEET INSURANCE

Where a business has 20 or more vehicles of one or more types, it can insure under a Motor Fleet Policy.
The cover for vehicles insured under this policy is identical to that described for the various categories of
vehicle already mentioned in this chapter. The First Amount Payable is not usually imposed by the insurer
but is decided on by the insured and is for all claims. It is sometimes a percentage of the loss but is more
usually a fixed amount for each type of vehicle. The method of calculating the premium is different. It is
based on the anticipated loss ratio for the next year by considering the claims for the previous three years.

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Starting with the actual losses in the past the insurer will “load” the figures to allow for inflation over the
past years: calculate the average claims cost per year on the loaded figures and so arrive at a premium based
on the anticipated maximum loss ratio for the coming year. The example shows the procedure involved
(“round” figures used).

POLICY ACTUAL INFLATION “LOADED”

YEAR CLAIMS LOADING CLAIM

1993/94 $50 000 + 90% = $ 95 000

1994/5 $70 000 + 60% = $112 000

1995/96 $90 000 + 30% = $117 000

$324 000

Average $324 000 $108 000

Plus loading for future inflation, say 20% $ 21 600

Anticipated claims costs for 1996/97 $129 600

If the insurer is prepared to charge a premium on a loss ratio of 70% leaving 30% for brokers commission,
administration and profit margin, the premium for 1996/97 would be:

$129 000 X 100 = $185 143

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This method means any motor fleet policy is rated on the basis of its own loss experience.

11K CLAIMS PROCEDURES

Motor Accident Claims or Report Forms are sent to the insured by the broker or the insurer. An insured
must report all accidents whether or not he is claiming under his policy, which is why many insurers head
their forms “report” not claim. The insured may or may not decide to claim directly against a third party
but the third party may claim against him.

Often the third party claim reaches the insurers first, and they must contact their insured for a completed
form to enable them to act on his behalf. If the insured does not give his insurer the information, then the
insurer has the right to handle the matter themselves under the claims conditions.

The first notification is often a telephone call to the insurer or broker. A claim form is always required to
enable the insurer to check on the currency of the insurance, license details and age of the driver and details
of the accident. If another person or vehicle is involved, a police report will be needed.

The claim form must be fully completed. Replies such as “See your records under the claims history
question and “Pleasure” under the question dealing with use at the time of the accident are not acceptable.
Full answers must not always be given so the insurer can know that at the time of the accident the
ownership and use of the car are the same as given by the insured on the proposal form.

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If there were independent witnesses (individuals who saw the accident and who were not in either car or
known to any person involved) they should be asked for a statement while the accident is fresh in their
minds.

If the policy is comprehensive, insurers are concerned with two aspects. First the insured car , how much
damage has been done and should an assessor see it? Is the damage so extensive that the vehicle is beyond
economic repair and it will be treated as a total loss or “write off”. There are an increasing number of theft
claims and sometimes the car is stolen but later found in damaged condition. These claims are met under
full third party, fire and theft and comprehensive policies because the proximate cause is theft.

The second aspect is the third party question. Many situations in the past involved disputes between the
insurers regarding liability. Some ended in the courts and others took a long time to resolve particularly
where no independent evidence existed and the accounts of the collision varied widely.

11L CLAIMS AGREEMENTS

There was a need for insurers to decide on a way of reducing their costs both for legal fees and their own
staff’s time in dealing with these disputed claims and of settling them quickly. If they had not done so the
costs would have probably resulted in the increased premiums for every insured person.

Knock for Knock

This is the best-known agreement. It can only apply to an accident where all vehicles involved have
comprehensive cover. It means that each insurer pays the repair costs of their own insured’s vehicle and
does not attempt to recover from a third party. The only time apportionment of blame arises is when one of
the vehicles will lose its No Claim Bonus.

Example

Patience parked her Mazda 323 in the street and went up to look in a shop window. On hearing the sound
of breaking glass she turned around.

A man driving a Sunny had driven into the back of Patience’s car and damaged a rear light, the bumper
and the boot. Patience notified her insurer, as did the owner of the Sunny. The insurers were both parties
to the Knock for Knock Agreement and both vehicles were insured on comprehensive policies. Patience’s
insurer paid her repair costs of $2 200, less the $250 First Amount Payable, while the other insurer
reimbursed the $250 to her as there was no doubt as to who was responsible for the collision. Patience’s
No Claim Bonus was not reduced because if there was no Agreement, her insurer would have recovered the
full repair costs from the insurers of the Sunny together with Patience’s $250.

Even if the Sunny had suffered no damage the owner’s No Claim Bonus would have been affected as he
caused the accident and his insurers would have paid for the damage to Patience’s car under the Third
Party section of his policy.

Immobile Property

This agreement applies to damage caused by a vehicle to property that is insured against impact damage.
Motor insurers pay 75% of the repair costs and the property insurers the balance.

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APPENDIX

GLOSSARY OF TERMS

ACCEPTANCE absolute and unqualified agreement to the terms of an offer, so

creating a contract.

ACCIDENT unforeseen event or occurrence

ACCOMMODATION BUSINESS normally unacceptable business taken by an insurer as a goodwill

gesture in the hope that further business will follow.

ACTUARY professional person whose duties include:-

(a) calculation of life assurance premiums

(b) valuation of the liabilities of insurers to ensure they are

financially
sound.

ADJUSTABLE POLICY policy where the extent of premium cannot be known in advance
(e.g goods in transit insurance) A provisional premium is charged
and adjusted at the end of each period of insurance on the actual
value of goods carried.

AGENT a person who acts on behalf of another and in the case of insurance
is the intermediary between the proposer and the insurer.

ARBITRATION means of settling disputes legally without going to court where the
dispute concerns the amount of a claim and not liability. Qualified
people whose appointment has been agreed by the parties
involved, will hear the case and give a decision.

ASSET property or financial commodity, which can be converted into

cash.

ASSURANCE term interchangeable with insurance, usually used to refer to Life

and Pension business.

ATTESTATION signing clause in an insurance contract.

AVERAGE in short term insurance, this is a policy provision which reduces a

claim payment where under-insurance is discovered.

BETTERMENT value of the improvement

BLANKET POLICY policy covering several items under one sum insured.

BORDEREAUX sheets of information prepared by insurers detailing transactions

under reinsurance treaties
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BROKER professional full-time independent intermediary

BROKERAGE commission paid to brokers by insurers when placing business

with them

BURNING COST method of calculating motor fleet premium taking account of

previous claims.

BUSINESS INTERRUPTION insurance which gives cover for consequential loss arising directly
from material damage loss insured e.g fire damage

CANCELLATION CLAUSE clause in a policy which allows one party to cancel the contract
following due notice to the other.

CAPTIVE COMPANY insurance company set up by a parent company to underwrite the

parent’s insurance business.

CATASTROPHE type of excess of loss reinsurance, which protects the insurer

against losses arising from major catastrophes.

CERTIFICATE OF INSURANCE document issued by an insurer to certify cover is in force – mainly

marine

CESSION the part of an insurance transferred to a reinsurer. The transfer of

right, title and interest under a contract.

CHANCE probability or likelihood of an event happening

CLAIM FORM form supplied by an insurer to enable an insured to lodge a claim

in terms of the policy.

CLAIMS RATIO ratio of claims to premiums

CO-INSURANCE division of a risk between two or more insurers where each is

individually liable to the insured for the proportion.

CO-INSURER insurer who shares with others in co-insurance

COLLECTIVE POLICY policy issued by the leading insurer on behalf of all the co-insurers

COMMISSION payment made to intermediaries by insurers when placing business

with them also known as brokerage.

COMMON LAW that part of a country’s legislation built up from customs and
usages and recognized by its courts and thereby given the force of
law

COMPOSITE INSURER insurer underwriting both life and non-life business.

CONDITION part of a contract, which must be compiled by one party or another

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CONSEQUENTIAL LOSS the term was used to describe what is now known as BUSINESS
INTERRUPTION.

CONSIDERATION payment or promise of payment for goods or services – premium

in insurance.

CONTINGENCY unforeseen occurrence

CONTINGENCY FUND monies put aside by a company in order to pay for unexpected
losses

CONTRACT an agreement made by two or more parties with the intention of

creating a legal obligation between them.

CONTRACT OF INSURANCE agreement between insurer and insured whereby in return for the
payment of a premium, the insurer undertakes to indemnify the
insured upon the happening of a specified event.

CONTRIBUTION principle whereby two or more insurers covering the same risk
contribute proportionately to any losses.

COVER the protection provided by insurance.

COVER NOTE temporary evidence of the granting of insurance

DAMAGES money claimed by or awarded to a third party as compensation for

injury or loss.

DECLARATION the statement on a proposal form signed by the proposer certifying

the truthfulness and accuracy of the information supplied.

DECLARATION POLICY policy requiring the insured to declare at specified periods the
value of changing items, such as stocks to enable the insurer to
adjust the premium.

DEDUCTIBLE excess, the first part of a loss which is payable by the insured.

DELEGATED AUTHORITY authority given to an agent by an insurer to act on its behalf in

accepting risks within agreed guidelines.

DEPRECIATION extent to which property and goods have diminished in value due
to wear and tear.

DIRECT INSURANCE insurance contract between insurer and insured without an

intermediary.

DISCLOSURE duty of all parties to a contract of insurance to reveal all material

facts to each other before the contract is concluded and prior to
each renewal.

EARNED PREMIUM part of a premium relating to a completed or expired period, the

actual premium chargeable under an adjustable policy.

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ENDORSEMENT documentary evidence of a change to a policy of insurance.

EX GRATIA PAYMENT payment made to an insured where there is no liability under the
policy.

EXCEPTION loss specifically excluded from the cover.

EXCESS that part of a loss for which the insured is liable.

EXCESS OF LOSS form of reinsurance where the insurer agrees to pay the balance of
any losses exceeding a stated monetary amount.

EXECUTOR person named in a will who has agreed to carry out its terms

EXPERIENCE comparison of claims to premiums for one policy or an entire class

of business.

FACULTATIVE REINSURANCE reinsurance arranged on an individual risk basis.

FIRE accidental or fortuitous ignition of something that should not be on

fire.

FIRST AMOUNT PAYABLE amount payable by an insured in the event of a claim under a
policy – excess.

FIRST LOSS POLICY policy where the insurer pays losses up to a given limit selected by
the insured.

FLEET INSURANCE motor policy for a group of vehicles with premiums calculated on a
burning cost basis.

FRANCHISE amount of a loss at or below which no claim is payable by the

insurer. above that amount, the loss will be met in full.

FUND common pool into which premiums for each class of insurance are
paid and from which losses are met.

HAZARD physical or moral feature, which affects the likelihood of a loss

occurring or influences the amount of the loss.

INDEMNITY placing of the insured in the same financial position after a loss
that he was immediately prior to the event.

INSPECTOR official of an insurance company whose duties involve the selling

and servicing of its policies either directly to the public or through
intermediaries.

INSURABLE INTEREST principle, which requires a person taking out insurance to have a
legally recognized relationship to the subject matter of the
insurance.

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INSURANCE risk transfer where the responsibility for paying losses passes from
one party (the insured) to another (the insurer) on payment of a
premium

INSURANCE POLICY document, which is evidence of a contract of insurance

INSURED person or organization purchasing insurance

INSURER company transacting insurance business

INTERMEDIARY person who arranges insurance on behalf of another.

KNOCK FOR KNOCK agreement between motor insurers where following a collision,
each pays the costs of repairs to its own policyholder’s vehicle
regardless of fault provided the vehicles involved are insured on
comprehensive cover.

LAPSE canceling of an insurance policy by the non-payment of the

renewal premium or by the insurer’s decision not to invite renewal.

LAW rules enacted or customary in a country ordering or prohibiting

certain actions.

LEADING CASE legal case where the decision has been widely followed.

LEADING INSURER insurer who accepts the largest share of a risk on a co-insurance
agreement.

LIABILITY claim upon one’s assets by another person

LIMIT OF LIABILITY maximum amount that an insurer can be called upon to pay for a
loss in terms of a liability section or policy.

LINE share of an insurance when the cover is divided among two or

more insurers.

LLOYD’S OF LONDON the market of individual underwriters.

LOSS ASSESSOR independent professional person who assesses the size, cause and
value of loss on behalf of an insurer.

LOSS PREVENTION actions taken to prevent losses occurring.

LOSS RATIO ratio of claims to premiums.

MARKET VALUE price at which an item can be bought or sold at any specific time.

MATERIAL DAMAGE WARRANTY before a business interruption claim is considered, a material

damage claim under property insurances must have been admitted.

MATERIAL FACT anything which would affect the judgment of a prudent underwriter
in accepting or deciding terms for a risk.

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MISDESCRIPTION false description of a material fact.

MISREPRESENTATION false statement of a material fact, which can be innocent, or

fraudulent.

MORTGAGE BOND loan made for the purpose of purchasing, adding to or improving
property.

NAME underwriting member of Lloyd’s

NEGLIGENCE failure to act in what the law considers being a reasonable manner.

NET CLAIMS insurers own share of claims payments after deduction of the
amounts payable by the insurers.

NEW FOR OLD insurance where the replacement value of property, which has been
lost or damaged, is payable without deduction for wear and tear.

OFFER communication of the proposed terms of a contract by one party to

another.

OPERATIVE CLAUSE clause in a policy, which sets out the circumstances in which the
insurers will make claim payments.

OUTSTANDING CLAIMS funds put aside by insurers to cover claims incurred but not yet
paid.
RESERVES

OUTSTANDING LOSSES claims not yet paid where estimated figures are used in the
insurer’s accounts

PACKAGE POLICY policy combining several different types of insurance.

PERIL contingency or fortuitous happening, which could cause losses.

POLICY written evidence of the terms of an insurance contract.

POLICYHOLDER the insured person

POOLING basis of insurance whereby premiums are put together and used to
pay losses.

PREAMBLE CLAUSE clause in a policy, which sets out the essential elements of the
contract.

PREMIUM money paid by the insured to the insurer for cover provided in the
policy

PRINCIPAL person instructing an agent to act on his behalf

PRO RATA PREMIUM premium based on the number of days the insurer was actually on
risk

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PROBABILITY chance of an event occurring.

PROPORTIONAL TREATY reinsurance where reinsurers take a given proportion of the direct
insurer’s premiums and losses.

PROPOSAL FORM written application for insurance to obtain from the proposer all the
information relating to the risk.

PROPOSER individual or organization seeking insurance.

PROPRIETARY COMPANY company owned by its shareholders.

PROVISO policy condition whose observance is essential for the enforcement

of the contract.

PROXIMATE CAUSE direct cause of a loss uninterrupted by any other event.

QUOTA SHARE proportional reinsurance where the reinsurer accepts a fixed

percentage of every risk written by the ceding company.

RATE sum charged per unit of exposure by which the premium is

calculated.

REINSTATEMENT making good of damaged property.

REINSTATEMENT OF SUM INSURED restoration of the sum insured after it has been reduced by the
payment of a claim.

REINSURANCE BROKER intermediary who places reinsurance business with reinsurers on

behalf of insurance companies.

REINSURER insurance or Reinsurance Company which accepts contracts of

reinsurance.

RENEWAL process for continuing insurance for a further period after the
current period of cover has ended.

RENEWAL NOTICE notice issued by a short term insurer to remind a policyholder that
his contract will shortly terminate.

RENEWAL COST the current purchase price of a similar article

REPRESENTATION written or spoken statement made during contract negotiations.

RETENTION LIMIT maximum liability which an insurer wishes to keep for his own
account for a particular risk.

RISK situation which cannot be controlled or exactly foreseen and the

subject matter of an insurance contract.

RISK MANAGEMENT business discipline used by commercial and industrial

organizations to manage those risks, which can cause losses.

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SALVAGE whatever is recovered of an insured item on which a claim has
been paid.

SCHEDULE list of exclusive details of the insured and the subject matter on
each insurance policy.

SELF INSURANCE insurance which a business organization finances internally by

establishing a fund from which to meet losses.

SHORT PERIOD RATE rate of premium applied to insurances in force for periods of less
than a year, which is proportionately higher than the annual rate.

SHORT TERM INSURANCE insurance which operates on a year to year basis and which may be
cancelled by the insurer or the insured.

SLIP form submitted by a broker to underwriters containing particulars

of the risk proposed for insurance usually at Lloyd’s.

SOLVENCY MARGIN minimum size of shareholders’ funds required by the supervisory

authorities.

SPECIAL PERILS extra risks added to a policy to give cover not given in the basic
wording. The term usually applies to the perils added to a standard
fire policy.

SPECIFICATION form on which details of large risks are set out and added to the
policy.

STATUTE LAW laws passed by a country’s parliament.

STOP LOSS reinsurance used as a means of limiting aggregate net losses for a
particular class of business in any one year.

SUBROGATION right of one party to stand in the place of another and take up their
legal rights against a third party.

SUM INSURED monetary limit of the insurer’s liability under a policy

SURPLUS that part of the sum insured which the insurer reinsurers.

THIRD PARTY person who is not a party to the contract.

TREATY REINSURANCE contract between an insurer and a reinsuring company under which
the reinsurer agrees to give and reinsurer agrees to accept
reinsurance for risks falling within the terms of the agreement.

UNDER INSURANCE insurance of a sum insured less than the value at risk.

UNDERWRITER person who makes decisions on whether or not to accept insurance

business.

UNDERWRITING process of assessing a proposal for to decide on its acceptability

and terms.

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UTMOST GOOD FAITH duty imposed on both parties to an insurance contract to disclose
all material facts.

VOID CONTRACT contract that cannot be enforced by either party.

VOIDABLE CONTRACT contract which one party can choose not to enforce.

WARRANTY condition which must be complied with absolutely.

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 APPENDIX B

TEST PAPERS

The Test Papers are meant to help you prepare for the examinations.

Each Test Paper should take 2 hours. Questions in Part A are meant to have very short answers just few
words and there is no need to repeat the question and they earn 2 marks each. You will not spend more
than 40 minutes on Part A and remember this is thinking time as well as writing time. Answer all questions
in Part A, you must answer Part B which requires a longer answer and can earn you 20 marks.

In Part C you choose 2 from 4 questions, so first read all thoroughly and then choose the one you know
most about. Spend 20 minutes answering this question “Then re-read the remaining 3 questions and again
choose the one you know best and you now have 15 minutes to complete the paper.

These questions are similar to those used in the examinations and are therefore good practice and you
should carry out the tests in conditions as near to examination condition as possible – no text book, quiet,
no interruptions and time yourself.

When you are answering a test or examination you should follow these rules:-

▪ Read the question carefully

▪ If you do not know the answer to Part A question then leave a space and go back to it. Do not
answer Part A out of order.

▪ Use a few words as possible for Part A, B and C. Examiners and tutors can easily spot repetition
and information not asked for in the question will get no marks.

▪ When answering Part B and C questions use headlines and examples. If the question asks for a list
then number the points and list them. Do not mix all the facts together.

▪ If the questions ask you to write a letter then set out the answer as a letter.

▪ The quality of the answer and the correct facts are more important than the length of the answer.

▪ It is easy to mark answers that are written clearly and tidily – it is difficult to mark answers which
are untidy, jumbled and badly written. If the examiner or tutor cannot read the answer you can not
get any marks.

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 TEST PAPER 1
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is risk?

A2 Give 2 examples of physical hazard in Personal Accident Insurance

A3 What is a premium?

A4 Who is the insured?

A5 What is an underwriter?

A6 Name 2 of the investment markets used by insurers

A7 What is the difference

A8 What is hazard?

PART B

B1 What 5 factors are necessary to make a risk insurable?

PART C

C1 What are the physical hazards in the fire insurance

C2 List the 5 advantages of insurance

C3 List the 3 classes of people who affect the moral hazard of a risk and explain how they do this?

C4 Give an example why an ordinary member of the public owing a car should have insurance and the
consequences if he does not.

The Insurance Institute of Zimbabwe

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 TEST PAPER 2
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is products liability insurance?

A2 What are the 2 types of Goods in Transit insurance?

A3 What are the 3 basic covers provided by a standard fire policy?

A4 What does Fidelity insurance cover?

A5 Under a Theft policy what is required for a claim to be admissible?

A6 What does an FTP policy cover?

A7 What are the two main types of motor policy that offer wider cover than FTP policy?

A8 What is covered by Glass policy?

PART B

B1 Describe briefly the cover given by All Risks policies and list items which can be covered by:-

a) Personal All Risks policies

b) Business All Risks policies

PART C

C1 Explain what cover is provided by Employers’ Liability and Residual Liability policies and what is
covered by NSSA?

C2 List the extra perils, which can be added to a standard fire policy?

C3 Why do business need Public Liability insurance?

C4 What are 4 forms of Marine policy and describe them briefly.

The Insurance Institute of Zimbabwe

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 TEST PAPER 3
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What does the Special Risks Consortium do?

A2 Does the insured know if his policy has any reinsurance?

A3 What does an intermediary provide a link between?

A4 Who owns a proprietary company?

A5 What is a captive insurance company?

A6 What is in the National Bureau of Zimbabwe concerned with?

A7 Who are the sellers of insurance/

A8 Who can place business at Lloyd’s?

PART B

B1 List the 4 types of intermediaries and explain why they are different from each other

PART C

C1 Describe the functions of Insurance Council of Zimbabwe.

C2 List the 7 advantages of self-insurance.

C3 List the 10 disadvantages of self-insurance

C4 Why do business decide to self insure and give an example.

The Insurance Institute of Zimbabwe

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 TEST PAPER 4
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is a material fact?

A2 What is subrogation?

A3 What is depreciation?

A4 What is contribution?

A5 What is an ex gratia payment?

A6 How do insurers deal with under-insurance?

A7 What is the basis of indemnity when settling a damage claim for stock?

A8 If the claim is for $550 how much will the insurers pay if:-

a) There is an excess of $50

b) There is a franchise of $100

PART B

B1 What is insurable interest and why is it necessary?

PART C

C1 Mr. Moyo has insured the 2 buildings he owns for a total of $500 000 but when fire destroys one
building, the assessor calculates the rebuilding cost of the 2 buildings to be $750 000. Mr. Moyo
had believed only in one building being damaged and therefore insured for the value of the largest
building which was $500 000. Write him a letter explaining why the insurer is not going to pay
him the full $500 000 which is the rebuilding cost of the largest building which has been destroyed.
In the letter also tell him how much he is to be paid.

C2 List 5 elements for a legally valid contract and briefly explain them.

C3 What is the definition of a material fact and why it cannot apply to personal accident policies.

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 TEST PAPER 5
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is a Cover Note?

A2 What is a proposal form?

A3 Who pays the loss assessors fees?

A4 What types of claim do insurers usually settle by “replacement?

A5 Name 2 of the 3 factors which determine whether a claim is covered?

A6 Name 3 ways of settling claims disputes?

A7 Is a proposal form necessary for every insurance policy?

A8 Name 2 exceptions from a personal accident policy

PART B

List 5 General Conditions you would expect to find on most policies.

PART C

C1 What are the 4 methods of settling claims and give an example of the type of claim to be settled by
each method.

C2 Explain “proximate cause” and provide one example, not in the book.

C3 Give details of any 8 questions you would expect to find on a proposal form for home insurance.

C4 Explain the process of renewing a policy.

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 The Insurance Institute of Zimbabwe

TEST PAPER 6
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is the job of a Company Secretary?

A2 What is the title of a person responsible to the board of directors for the running of the company?

A3 What is the job of a Human Resources Manager?

A4 Draw a diagram of a centralized company.

A5 What are the 2 basic methods of reinsurance called?

A6 What is the job of an investment Manager?

A7 How are the members of the board of directors appointed?

A8 Why do insurers use reinsurance?

PART B

Explain by using diagrams the difference between reinsurance and co-insurance.

PART C

C1 The Very New Insurance Company has an acceptable limit of $500 000 for fire risks. A broker
offers $4 million risk with the possibility of the insurer taking over all the proposer’s business.

What can the Very New Insurance Company do to obtain the business?

C2 The growing Insurance Company now has 6 branches in different parts of the country, all fully
controlled by the head office. What could the company do to improve its efficiency?

C3 The busy Insurance Brokers have offered a large industrial fire risk to an insurer for consideration.
Explain what actions the company would take up to the time the policy is prepared.

C4 Explain the difference between treaty and facultative reinsurance and then explain one type of
treaty reinsurance by means of a diagram.

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 The Insurance Institute of Zimbabwe

TEST PAPER 7
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 How are amendments to policies dealt with?

A2 How can a proposer prove his right to a “no claim discount”?

A3 Why cannot insurers give agencies without imposing conditions?

A4 How does an agent receive payment for his service?

A5 Why does the term “agent” really apply to all intermediaries?

A6 Give an example of a liability of an agent?

A7 Does an insured have to go through a broker?

A8 List 3 ways an agency can be terminated.

PART B

List 3circumstances where the broker is considered to be the agent of the proposer and 3 where the broker is
considered to be the agent of the insurer.

PART C

C1 List the 4 main duties of an agent and the 2 liabilities of an agent.

C2 You are motor clerk at the Local Insurance Brokers and are sent to reception when a new enquirer
calls in to ask for insurance on his Nissan Sunny. Briefly explain the actions you would take.

C3 List 5 differences between a broker and an agent.

C4 What is Risk Management and how does it benefit the insurance industry?

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 The Insurance Institute of Zimbabwe

TEST PAPER 8
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 Give 2 types of property excluded from an Assets All Risks policy

A2 What does Any Other Loss section of an Assets All Risks policy cover?

A3 What type of theft is not covered by a Theft policy?

A4 What is the usual “minor” limit under a Money policy?

A5 Give 2 exclusions from Goods in Transit policy

A6 In a Fidelity Guarantee policy what 2 facts are needed for insurers to rate it?

A7 When is a performance Bond needed?

A8 In business Interruption insurance, what is the recovery time known as?

PART B

What types of liability insurance would be needed by a bakery?

Explain your reasons for these recommendations

PART C

C1 A factory employs 50 people engaged in the production of costly and beautifully carved wooden
furniture. The owner has a fire and perils but is not sure whether he needs Business Interruption
insurance. Write to him explaining what the policy covers and why you think he should have the
cover.

C2 Write to an insured who already has a theft policy explaining why he needs a Money policy and
how the money is insured.

C3 List the covers provided by a Farmer’s policy.

C4 List the covers provided by an Office Contents policy.

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 The Insurance Institute of Zimbabwe

TEST PAPER 9
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What is the claim settlement basis under House owners’ policy?

A2 What determines whether fitted carpets are “buildings” or “contents?”

A3 What is “standard construction” under a House owner’s policy?

A4 What is the cover under a House owner’s (contents) policy for domestic workers belongings?

A5 Name 4 exclusions under a House owner’s policy.

A6 Name 2 items that are considered as “personal Effects” under an All Risks policy?

A7 What is the age limit under a Personal Accident Policy?

A8 What is covered against accidental damage under a Contents policy?

PART B

Explain the difference between liability covers provided by Buildings and Contents policies.

PART C

C1 Write to an insured telling him where his household contents are covered away from his home.

C2 Write to an insured explaining exactly what insurers mean by “buildings” under a House owners
policy (Tell him what buildings are covered?)

C3 What property is a Personal All Risks Policy intended to cover and list the usual exclusions?

C4 Explain the 4 benefits covered by a Personal Accident policy.

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 The Insurance Institute of Zimbabwe

TEST PAPER 10
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What benefit is offered for hijacking “in Travel Insurance?”

A2 What are the 2 main rating factors in Travel Insurance?

A3 Give an example of an occurrence, which may lead to a “Personal Liability” claim

A4 State typical exclusions under a Personal Accident Travel policy.

A5 Is it necessary for a traveler effecting luggage insurance to insure for the full value of the personal
effects he is taking with him.

A6 What is meant by “temporary disablement” as insured under a Personal Accident Travel policy?

A7 Is money insured as luggage?

A8 What is the variable under Personal Liability section of Travel Policy.

PART B

A proposer has paid a Travel Agent a deposit for an overseas holiday. Explain to him the kind of problems,
which could occur and would not be covered if he effected an insurance cancellation Charges.

PART C

C1 What are the “other” expenses insured under a Travel “Medical and other Expenses” insurance?

C2 State the cover and variables which may be found in Baggage insurance policies issued by different
insurers.

C3 What is the cover provided under the Personal Accident section of Travel policy and list the
exclusions and variables.

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 The Insurance Institute of Zimbabwe

TEST PAPER 11
Allow 2 hours to complete

Part A - answer all 8 questions

Part B - answer the question

Part C - answer 2 of the 4 questions

PART A

A1 What are the 3 motor vehicle licensing dates in Zimbabwe?

A2 Name 2 types of Motor Traders Policies

A3 What are the 4 Forms of cover under a private car policy?

A4 How does settlement of a claim for a broken windscreen differ from other forms of accidental
damage?

A5 What are 4 underwriting factors considered in the premium rating of a private car?

A6 What is a third “Party”

A7 What is the main benefit to the insured of the “Knock for Knock” Agreement?

A8 Under a Motor Cycle policy is theft of accessories covered?

PART B

By means of a diagram show the different types of cover under the 4 private car policies.

PART C

C1 List the first Amounts payable on a private car policy and why each is imposed

C2 When is a Cover Note or Certificate of insurance needed? What details are on it and who can issue
one?

C3 What is the definition of vehicles under Motor Traders External policies and what is the cover for
customers and “own” vehicles under Motor Traders Internal policy?

C4 By means of a calculation show how the premium is calculated for a motor fleet policy based on the
claims experience.

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