Chapter Six

Non-life Insurance Policies

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 Non-life Insurance Policies

 Insurance is a financial tool into which many contribute and

out of which the few who suffer losses are compensated.

• In other words, small contribution from many insured will

pay the large losses of the few.

 Insurance can be called a protection of any business

enterprise, i.e., factory may burn, a ship may sink, money

may be lost through dishonesty,

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 Cont…

• Non-life insurance refers to the property and liability insurance.

 Property Insurance

• It may be written to cover either real property or personal property, or

both.

• Real property is the land, everything permanently attached to it, and

all of the interests, benefits, and rights inherent in the ownership of

real estate.

• Personal property refers to the items that people own such as

furniture, appliances, or electronics. In short, these items differ

from real property because they are movable.

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 Cont.……d

• Personal property can be intangible, as in the case of stocks

and bonds, or tangible, such as clothes or artwork.

• It is a contract of indemnity. The contract compensates loss

as defined in the terms of coverage.

 Liability Insurance

• It compensates amounts that insured person become legally

obligated to pay as a result of injury to others or damage to

their property.
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Non-life insurance….
• There is a very wide variety in the way in which companies
organize their business, but the following divisions are not
unusual:
– Fire, including business interruption;

– Accident, including theft, all risks, goods in transit, money,

credit, fidelity
– Liability, including employers' liability, public liability,
products and professional indemnity;
– Motor; engineering; marine and aviation; life and pensions.

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1. Fire Insurance

• The basic fire policy covers the insured property against loss
or damage by fire or lightning.
• As a result of the principle of proximate cause, the following
losses/damages are also covered by fire or lightning.
– Property damaged by water or other extinguishing agents
used for extinguishments purpose.
– Damage done by fire team in the execution of its duties.
– Property blow up to prevent a fire spreading.

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Cont…
• The property insured under fire policy are:
– buildings (office, hospitals, warehouses, factories etc)
– machinery, equipment, furniture etc
– stocks (Inventory stored in a warehouse)

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2. Machinery Insurance

• It was developed to give cover against the economic loss suffered as

the result of damage or destruction of machinery due to accidents.

• All types of machinery, plant mechanical equipment and apparatus may

be covered.

• It includes the following:

– power generating units (boilers, turbines, generators):

– power distribution plant (transformers, high and low tension

equipment)

– production machinery and auxiliary equipment (machine tools,

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wearing looms, paper machines, compressors etc). 8
Cont…
• The sum insured should be the new replacement cost of the

insured machinery (value of the item plus customs duties,

transportation and installation charges).

 The insured is indemnified in respect of total cost of repairs, in

the event of damage which can be repaired.

 In the event of an insured item being totally destroyed, the

indemnity is based on the market value of the item on the date of

loss, the value of any scrap or remains being deducted from the

sum payable to the insured.

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3. Burglary and House Breaking Insurance

• Theft/burglary is another risk to which property, especially

easily portable and valuable stocks, is exposed.
• The subject matter insured can be any of the following.
– stock and materials insured can be property held by the
insured in trust or on commission
– and all other contents within the insured premises such as
machinery, fixtures, fittings, furniture, etc.

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Burglary and House Breaking Insurance…
• This policy pays compensation for:
– losses/damage to the insured property while within the
premises by theft or any attempt threat but only
accompanied by actual forcible and violent breaking into
or out of a building; and
– any damage to the premises falling to be borne by the
insured caused by theft or attempts threat.

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4. Motor Vehicle Insurance

• It is the most familiar of all types of Insurance. For instance

purposes, motor vehicles are classified as follows:

1. Private vehicles used for taxi, domestic pleasure

professional and business cars of the insured. These are
cars not used for carrying passengers for hire or reward.

2. Commercial vehicles – these are vehicles used for

carrying goods or passengers

3. Agricultural vehicles

4. Motor cycles, motor trade, vehicle of special

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Motor Vehicle Insurance…
• The scope of cover for private and commercial vehicles depends on the wish of the

insured.

• It can take any one of the following:

– Third party only: which covers only the insured's liability in respect of death or

bodily injury caused to third parties or damage caused to third party property

through the use of the insured vehicle.

– Third part, fire and theft: this policy covers third party liability as above plus

damage to the insured vehicle caused by fire or loss of the vehicle.

– Comprehensive: this is the widest form of cover that and covers destruction of or

damage to the insured vehicles caused by other accidental causes such as

collusion or overturning and malicious acts in addition to third party and fire and

theft loss discussed above.

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5. Marine Cargo Insurance

• It covers all types of goods transported by sea, air or island

waterways including land transit by road or rail incidents.

• It can also cover sending by ordinary or registered mail,

airmail and parcel post.

• The cover in this policy is normally for agreed value.

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6. Money Insurance

• One of the monetary insurance is money insurance, which compensate

the insured for loss of money sustained as the result of unexpected

circumstances including through the unlawful acts of other persons such

as burglars and robs.

• "Money" is to mean cash, bank notes, currency notes, cheques, post

orders, money orders, postage stamps, and revenue stamps belonging to

the insured or for which the insured is responsible.

• The policy cover applies to money in transit between the insured's

premises and the bank or post office, or any agreed points, and money in

the insured's premises whilest in a locked safe or strong room.

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7. Fidelity Guarantee

• It provides compensation to an insured for loss suffered due to the

fraud or dishonesty of his/her employees.
• It help the employer to protect himself from this risk of his staff
especially those whose main duty involves the handling of money or
securities.

8. Workmen's Compensation Insurance

• The Ethiopian labor law proclamation no. 42/1993 holds an employer
liable for death, bodily injury or illness befalling employees from
circumstances connected with their work or at the place of work.
• It protects the insured, employer, from any loss he might have to suffer
as a result of his having to meet such liability.
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9. Marine Hull And Aviation Insurance

• The use of aircraft as a means of transport is increasing each year and

because of the specialist and technical nature of the risks associated with it,

plus the high potential cost of accidents, all aviation risks, from component

parts to complete jumbo jets, are insured in the aviation insurance market.

• Most policies are issued on an 'all risks' basis, subject to certain restrictions.

• The buyers of these policies include the large commercial airlines,

corporate aircraft owners, private owners and flying clubs.

• It is issued covering the aircraft itself (the hull), the liabilities to passengers

and the liabilities to others.

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 THE END OF CHAPTER -SIX

THANK YOU FOR YOUR ATTENTION

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 CHAPTER- SEVEN

RE- INSURANCE

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 Definition and meaning of re-insurance
What is Reinsurance?
• Re-insurance: is insurance of insurance, where
one or more insurance companies agree to
indemnify the risk, partially or altogether, for the
policy issued by another one or more insurance
companies.
• Reinsurance indicates the process where the
original insurer accepted the risk from the
original insured gets the risk covered by another
insurer or reinsurer for the same reason the
original insured got protection.
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 Types of Reinsurance

There are two forms of reinsurance, These are;

1. Participating Reinsurance: Where the proportion of
amounts payable by the insurer and the reinsurers
regarding a loss is determined and agreed before
hand, i.e., before a loss. Here, the insurer’s premium is
also distributed between himself and the reinsurers in
the same proportion.
2. Non-proportional Reinsurance: The reinsurance is
on different terms, and the reinsurers do not stand to
be proportionately liable for a loss. Therefore, the
premium received by the insurer is also not required
to be proportionately distributed to the reinsurers.
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 Reason for Re-insurance
• Risk Minimization By Spreading: The basic
concept of insurance is to spread the risk over as
wider an area as possible as so to decrease the
burden of loss at each stage.
• Risk Transfer: To an insurer, the need for
reinsurance safeguard arises in the same way as
the insured needs insurance protection.
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 Cont.….d

• Flexibility : In the absence of reinsurance, insurers

would have been bound to limit their acceptance
of risk only up to such an amount which they
could possibly digest.
• In other words, the insurers would have been
unable to accept a risk beyond their financial
strength or resources for that class of business.
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 Cont.……d

• Accumulation : Reinsurance reduces the possibility of getting

involved in undesirable additional risk-load, which is otherwise
eminent from the accumulation of risks coming from different
sources.
• Examples of such accumulation are (a) heavy commitment on
the cargoes of the same vessel (b) heavy commitment on the
cargoes lying in the same port possibly because of the arrival of
all vessels at the same time and (c) heavy commitment of an
insurer on the property of a particular hazardous locality from
the view point of fire or conflagration fire.
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 Cont.……d

• Development: The growth of an insurance

company is particularly dependent on sound
financial standing, which is primarily based on the
stability of profit and loss.
• Reinsurance tends to stabilize profits and losses
and permits more rapid growth of an insurance
company.

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 Cont.……d

• Prediction For Rating : An insurer needs to have

large number of similar cases in his book for the
purpose of predicting an accurate rating
structure. But assuming a large number of similar
risks is in itself undesirable unless some
precautionary measure is taken. It may not also
be possible to get a large number of similar cases
by an insurer because of the operation of
numbers of insurers in the market. Whatever it is,
reinsurance takes care of such a situation in both
the ways.
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 Cont.……d

• vii) A New Insurer who has recently started

transacting insurance business cannot certainly
develop and possibly cannot survive in the
absence of reinsurance protection.
• viii) Capacity Relief : Reinsurance which allows
the company (reinsured) to write the bigger
amounts of insurance.
• ix) Disaster Protection: The aim of reinsurance is
to protect the company (reinsured) from a large
single, catastrophic loss or more than one big
losses.
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 Cont.…..d

• Stabilization :It helps to the betterment of the

overall operating results of the reinsured’s from
year to year.
• xi) Surplus Relief : Reinsurance heals the strain on
the company’s (reinsured) /cedent’s surplus
during rapid premium growth.
• xii) Market Withdrawal : Reinsurance provides a
way for the reinsured company to withdraw it
from a market or business or from a geographic
area.

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 THANK YOU!!

THE END OF THE COURSE RISK MGMT &

INSURANCE !!!

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