"A principle can be defined as a fundamental part of any discipline that guides its general operation or as a set of rules that act as the foundation of certain belief that have been generally accepted" Honesty can termed as a principle that is crucial in any form of human interaction be it social, business....

1. THE PRINCIPLES OF
INSURANCE IN RELATION
TO CONSUMER NEEDS
ct

2. � Most consumers of insurance products may not
even be aware of the principles that govern
insurance; however we shall try and put
weightiness to the various principles based on
consumer prioritization of their need for Insurance
coverage.
Overview

3. Indemnity is to simply take back the
insured to the exact financial position
that they were in immediately before
a loss occurred.
(This principle states that insurance
is done only for the coverage of the
loss hence the insured should not
make any profit from the insurance
contract) i.e. if a building has been
insured for Kshs. 50M in the event of
loss the Insured should only receive
an amount equivalent to the value
covered and not anything more.
1). Indemnity – 30%

4. ⮚ This very basic principle states that both parties in an
insurance contract should act in good faith towards
each other i.e. they must provide clear and concise
information related to the terms & conditions of the
contract and of the subject matter to be covered.
⮚ The Insured should also provide all the information
related to the property to be insured and the Insurer
must give clear details regarding the contract.
⮚ This may be clearly illustrated by a smoker taking out
a Medical insurance policy, without disclosing the fact
to the Insurer. If at the time of claim the non-
disclosure is noted; then the claim is inadmissible.
Based on this fact the principle of Utmost Good Faith
thus ranks very highly in a normal insurance
transaction/contract.
2). Utmost Good Faith – 19%

5. This can be defined as the legal
right to insure arising out of a
financial relationship recognized
at law.
Simply put one can insure
property that they legally own
such as a motor vehicle or house
as they would suffer a financial
loss in the event that the same is
damaged or stolen.
To an Insured this is of great
importance as the property and
the potential financial loss is their
main motivation to insure.
3). Insurable Interest – 17%

6. “This principle of Insurance states that as
an owner, it is obligatory on part of the
insurer to take necessary steps to
minimise the loss to the insured property.
The principle does not allow the owner to
be irresponsible or negligent just
because the subject matter is insured.
Note
If a fire breaks out in your factory, you
should take reasonable steps to put out
the fire. You cannot just stand back and
allow the fire to burn down the factory
because you know that the insurance
company will compensate you for the loss
suffered”
4). Principle of loss minimization – 12%

7. “This principle applies when the loss
is the result of two or more causes
(risks). The insurance company will
find the nearest cause of loss to the
subject matter of insurance. If the
proximate cause is the one in which
the property is insured, then the
company must pay compensation. If
it is not a cause to the property
insured against, then no payment will
be made by the Insurance company”
Insured's should ensure that they
clearly understand the wordings of
their Indemnity contracts so as to
avoid any disputes at the time of loss
5). Proximate Cause – 8%

8. “Subrogation means one party stands in
for another. After the insured (the
individual) has been compensated for
the incurred loss to him on the subject
matter that was insured, the rights of
the ownership of that property goes to
the insurer i.e. the company.
Subrogation gives the right to the
insurance company to claim the amount
of loss from the third-party responsible
for the same”
Despite this being a major part in the
Insurance process most Insured’s are
actually not even aware of how the
insurance companies follow on their
recoveries from the parties responsible
for the loss; hence the principle is not
ranked highly in the Insured’s needs
prioritization.
6). Subrogation – 7%

9. “Contribution principle applies when the
insured takes more than one insurance
policy for the same subject matter. It
states the same thing as in the principle of
indemnity i.e. the insured cannot make a
profit by claiming the loss of one subject
matter from different policies or
companies.
A car worth Kshs. 5M is insured with
Company A for Kshs. 3M and with
company B for Kshs.1M. The owner in case
of damage to the property for Kshs. 3M
can claim the full amount from Company A
but then he cannot claim any amount from
Company B. Now, Company A can claim
the proportional amount reimbursed value
from Company B”
7). Contribution – 7%

10. Indemnity
30%
Utmost
Good Faith
19%
Proximate
Cause
8%
Subrogation
7%
Insurable
Interest
17%
Contribution
7%
Loss
Minimization
12%
Principles of Insurance in relation to
the Insured’s Needs Prioritization %

11. Prepared by:
Charles Tanu Githinji.
Associate of the Insurance Institute of Kenya
March 2023
Appendix