CLASSES OF GENERAL INSURANCE BUSINESS

 INTRODUCTION

Most people and most organizations, in every kind of society need some sort of insurance cover. The only exceptions are people without property and dependents. Everyone else has possessions or potential liabilities that need to be protected. Insurance contract represents only one way in which people can guard against misfortune. For example, most primitive societies have developed systems of mutual aid or help so that if one member suffers a financial setback the others club together in order to repair the damage. Such mutual aid probably cannot work unless all members are exposed to roughly the same risks, and will be unfair if some members have a potential for greater and more frequent losses than others. Modern insurance represents a more equitable system. Insurance developed when primitive societies found themselves unable to support trade and manufacturing activities because of the significantly increased size and/or frequency of losses involved. Marine insurance was developed by the great sea-faring traders, the Phoenicians, around 3000 years ago. The earliest record of an insurance policy relates to a Mediterranean voyage in 1347 A.D. Many of the other types of

commercial property insurance date back to the Industrial Revolution, with its growth and of many fracturing enterprises using comparatively expensive buildings and machinery and employing mass-production techniques. Private property insurance did not appear in England until after the Great Fire of London, which in 1666 destroyed a large proportion of London’s buildings.

Nowadays, a wide variety of insurance contracts is available. In Nigeria, the Insurance Act of 2003 classifies insurance business into two main classes of insurance – life insurance and general insurance business

General Insurance Business

Insurance Act, 2003 categorizes general insurance business into 8 groups:

1. Fire insurance business 
2.  General accident insurance business 
3. Motor vehicle insurance business 
4. Marine and aviation insurance business 
5. Oil and gas insurance business 
6. Engineering insurance business 
7. Bonds credit guarantee and suretyship insurance business 
8. Miscellaneous insurance business. 

However, in this unit, we shall be looking at the common classes of general insurance business.

Motor Vehicle Insurance

The first motor car appeared in the United Kingdom in 1894 and by 1898 the Law Accident and Insurance Society Ltd. was providing a limited motor insurance cover. But then, motor insurance was not compulsory and the uncompensated victims of motor accidents suffered much hardship. However, the increased popularity and mass-production of cars after the First World War increased casualty figures and the

Road Traffic Act 1930 in Britain introduced compulsory motor insurance covering liabilities to killed or injured third parties. Nigeria being colonized by the Britain enacted the same Act and it was known as the Motor Insurance (Third Party) Act 1945. Similar compulsory insurance requirements were also introduced in other countries, many of which require damage to third parties’ property to be covered as well. In Nigeria, it is only recently through the Insurance Act 2003 that third parties’ property damage was made compulsory

The conditions of the Road Traffic Acts apply to all vehicles used on the road including private cars, commercial vehicles, motor cycles and certain “special types” i.e., mobile cranes, fork-lifts, trucks and bull dozers.

Scope of Cover

There are four types of cover in motor insurance:

Road Traffic Act Cover

This provides insurance cover for injury or death of third parties (including passengers) arising from the use of a vehicle on the road, but not for damage to their property. It is an offence to use or to permit the use of a motor vehicle on the road unless such cover is in force. There are those who are exempted from the compulsory insurance requirements:

1.  Where the owner of the vehicle deposits and keeps deposited a specified amount with the Accountant General of the Supreme Court. 
2. Where the vehicle is owned and is driven under the control of a local authority, the police or the armed forces. In fact the Road Traffic Act cover is no longer issued by insurers in Nigeria because it is not relevant. 

Third Party Cover

This provides protection against liabilities to third parties for injury or death and for property damage. It also covers legal costs. In Nigeria the Insurance Act 2003 has made this cover compulsory with a third party damage limit of N1,000,000.

Third Party, Fire and Theft Cover

This covers liabilities to third parties as under third party cover plus damage or loss to the policyholder’s own vehicle from fire or theft.

Comprehensive Cover

The comprehensive covers accidental loss or damage to the policyholder’s own vehicle in addition to the cover provided by the Third Party, Fire and Theft policy.

Fire and Special Perils Insurance

The devastating effect which a fire can have on a business premises or private building is common knowledge and the necessity for insurance coverage is evident.

As a result, the Insurance Act 2003 makes it compulsory to insure public buildings. Section 65(1), provides that “Every public building shall be insured against hazards of collapse, fire, earthquake, storm and flood”. Section 65(2) defines “public buildings” to include “tenement house, hostel, a building occupied by tenants, lodgers, or licensee and any building to which members of the public have ingress and aggress for the purpose of obtaining education or medical services, or for recreation or transacting of business”. The nature of the legal liabilities of an owner or occupier of premises is in respect of loss of or suffered by any user of the premises and third parties.

The actual risk of fire occurring on a building varies from building to building, depending on the following factors:

1.  The construction materials used in the building 
2. The usage of the building 
3.  The type of materials stored in the building 
4. The fire-fighting appliance installed in the building 
5.  The standard of house keeping etc. 

Fire loss or damage is a waste to the economy and the need to restore the loss with minimal delay underscores the need to have fire insurance protection.

The object for fire insurance is to reinstate or replace property damaged or destroyed or to compensate an insured person for such damages so that he is placed in the same financial position after a loss as he occupied immediately before the loss.

Scope of Fire and Special Perils Insurance

The standard Fire Insurance Policy covers three major perils:

1. Fire (whether resulting from explosion or otherwise) but not occasioned by or happening through: i. Its own spontaneous fermentation or heating or its undergoing any process involving the application of heat; ii. Earthquake, subterranean fire, riot, civil commotion, war and kindred risks; 
2.  Lighting; 
3. Explosion not occasioned by or happening through any of the perils specified in (ii) above; Explosion of boilers used for domestic purposes only; 

Explosion in a building not being part of any gas work , of gas used for domestic purposes or used for lighting or heating the building.

Also, the following known as special perils may be added on payment of additional premium, hence the name, Fire and Special Perils:

1. Perils of a chemical nature – explosion, spontaneous combustion; 2. Social (or, more correctly, anti-social) perils – riot, civil commotion, strikers, taking part in labour disturbance or malicious persons acting on behalf of or in connection with any political organization and malicious damage (unconnected with political organization); 
2.  Perils of nature – storm and tempest, flood, tornado, earthquake, subterranean fire, subsidence 
3.  Mechanical (or miscellaneous) perils – aircraft or other aerial devices or articles dropped thereof. Busting or overflowing of water tanks, pipes or apparatus. Impact by road vehicles, horses or cattle sprinkler leakage. Incidental Fire Losses Sometimes, property is not burned but loss regarded as a fire loss is sustained as a direct consequence of a fire in the following circumstances: Property damaged by water or other extinguishing agents used for extinguishing purposes; Damage done by the Fire Brigade in execution of its duties e.g. in gaining access to a fire; Property blown up to prevent a fire from spreading; Damage caused by falling walls or parts of a building in which a fire takes place; 

Damage by smoke and scorching;

Loss or damage to property removed from a burning building caused
by rain, theft or damage during removal provided that the articles are justifiably removal mitigate a loss.

Fire insurance could be effected on the following assets:

1. Building and contents 
2. Office, furniture, fixtures and fittings; 
3. Plant, machinery, equipment and spare parts; 
4. Trade including raw materials, work-in-progress and finished goods etc. 

 Burglary Insurance

In insurance, burglary or theft is defined as theft involving entry to or exit from the premises by forcible and violent means. This does not include entry to the premises by a key, by a trick or by hiding in the premises whilst open for business (unless the thief subsequently makes his exist by forcible and violet means).

The intention of insurers in a burglary policy is to cover theft of property resulting from the breaking down of the premises.

The object of a Burglary Insurance Policy is to reimburse an insured for losses and damages sustained through burglary and theft.

The word “theft” is usually used for business premises while burglary and house breaking are used for private dwelling houses though all these words virtually have the same meaning

The bases of Burglary Insurance are:

Fill Value Basis – Under this basis the sum insured on each item is equal to its exact value at risk. In the event of loss, if the sum insured is less than the value at risk, what is known as “Average” will be applied. This means that the insured will bear a ratable proportion of the loss in the event of under-insurance.

First Loss Policy –Under the first loss policy basis the sum insured is deliberately limited to a sum lower than the full value of the property with the insurer’s consent. Losses up to this are normally paid without application of Average in the normal way. It is usually taken by an insured who feels that the loss he may suffer cannot be more than a percentage of the value at risk.

Security – The type of security systems employed within and around the building is an important factor. 

Nature of goods stored – The degree of attractiveness of the goods stored matters. For example, jewelry and electronics are more susceptible to theft than items such as deep freezers, furniture etc. 

Money Insurance

In insurance, the definition of “money” is much wider than most people expected and includes such things as “cash, currency notes, bank notes, bonds, bills of exchange, stamps (not forming part of a stamp collection, trading stamps, luncheon vouchers etc.) in other words, items whose negotiability gives them as currency.

Money is property and is at risk from both fire and theft, it is particularly attractive to thieves having all the attributes that the thief likes, such as – high value, small bulk, easy to transport, easy to dispose of , difficult to trace available in both the fire and theft policies. Money is at risk anywhere and particularly so when in transit.

The scope of cover under the money policy is normally on an “all risks” basis and covers loss of money through theft, fire and other causes not specifically excluded whilst

a) In transit;

b) On the insured’s business premises and safe;

c) On bank night safe;

d) In the custody of specified employees;

e) Damage to safe.

A limit premium is imposed for any transit, and a sum insured applies to money in safe, on the insured’s premises and in custody of employees.