2. 2. THE ECONOMIC FUNCTION OF
INSURANCE
• The concept of risk is central to
insurance.
• Risk is the possibility that a peril
or danger may occur and cause
harm to the person exposed.
Risk
Insurance
3. 3. INSURANCE DEFINED
• Insurance is a means of transferring risk by means of
contract.
• The risk is transferred because the insurance contract
determines that the insurer will indemnify or perform a
benefit to an insured if a defined risk occurs.
• In exchange for the transfer of the risk, the insured must
pay an amount (premium) to the insurer.
4. 5. SOURCES OF SOUTH AFRICAN
INSURANCE LAW
Source Description
5.1. Common law • Much of the SA common law of
insurance derives from English law.
5.2. Statutes • Long-term Insurance Act
• Short-term Insurance Act
• Financial Advisory and Intermediary
Services Act
• Financial Services Board Act
5.3. ‘Hard’ and ‘soft’ insurance
law and alternative dispute
resolution
• Codes of good practice.
• Industry bodies’ practice guidelines.
• Special adjudicatory bodies.
5. 6. THE THREE BRANCHES OF
INSURANCE LAW
Branches of
insurance law
Insurance
contract law
Statutory
regulation of
insurers
Law of
insurance
intermediaries
6. The three branches of insurance law (cont.)
Branch of
insurance law
Description
6.1. Insurance contract
law
• Insurance policy is the basis of relationship
between insurer and insured.
6.2. The regulation of
insurers
• Insurers must be registered with supervisory
body: The Financial Services Board
6.3. Intermediaries • Intermediaries ordinarily intercede between
insurers and the insured.
• Distinction between representatives and
independent intermediaries.
7. 7. DIFFERENT TYPES OF INSURANCE
Types of insurance can be distinguished on different
grounds:
Interest
protected
• Indemnity
insurance
• Non-indemnity
insurance
Duration
• Long-term
insurance
• Short-term
insurance
Peril, or event,
insured against
• Fire, death, theft,
political
instability, motor
vehicle
accidents
8. 8. ESSENTIALS OF AN INSURANCE
CONTRACT
• Insurer must undertake to pay or perform some benefit…
• in exchange for an undertaking by the insured to pay a
premium…
• on the happening of an uncertain or unplanned event…
• Which performance will indemnify the insured or make-up for the
materialisation of the risk.
9. 9. INSURANCE CONTRACTS
DISTINGUISHED FROM OTHER
CONTRACTS
Insurance contract
• Performance by insurer
depends on uncertain
event
• Enforceable in court
• Insured has insurable
interest
• Intention to indemnify a
person
9.1. Wagering contract
• Similar in that it depends
on an uncertain event
• Unenforceable
• No insurable interest
• Intention to profit from
risk created by wager
10. INSURANCE CONTRACTS DISTINGUISHED FROM OTHER CONTRACTS
(cont.)
Insurance contract
• Performance by insurer
depends on uncertain event
• Insured has to pay a premium
• Indemnifying risk is primary
undertaking in insurance
contract
9.2. Warranties
• Manufacturer or seller agrees
to indemnify purchaser on
happening of an uncertain
event
• No payment of premium
• Warranty is a subordinate
and an inseparable part of
the contract
11. INSURANCE CONTRACTS DISTINGUISHED FROM OTHER CONTRACTS
(cont.)
Insurance contract
• Insurer undertakes to
indemnify insured
• Payment of a premium
• Insurer’s duty is not
accessory to debt insured
9.3 Suretyship
• A third party agrees to
discharge debtor’s obligation
• No payment of a premium
• Surety’s duty is accessory to
that of debtor
12. 10. FORMATION OF AN INSURANCE
CONTRACT
Requirement Discussion
10.1 Agreement • Must be consensus irrespective of whether
agreement concluded by completing
proposal forms or by direct marketing.
10.2 Proposal forms • Prospective insured makes offer to insurer by
means of printed proposal form.
10.3 Direct marketing • Proposer telephones insurer and makes offer
to insured.
13. Requirement Discussion
10.4 Cooling-off period • In respect of long-term insurance policy
• Can be cancelled within 30 days by
means of written notice
• Premiums returned to insured
10.5 Insurance polices
and policy
documents
• Insurance contract is the actual
agreement whether in writing or not
• Policy document sets out the terms of
policy
10.6 Legality • Contract must not be illegal
• Void, or unenforceable
14. Requirement Discussion
10.7 Disclosure by insured • Insured to disclose all material facts within
his/her knowledge in order that insurer can
evaluate the risk.
• Failure to comply with duty allows insurer to
cancel the policy or repudiate claim.
10.8. Disclosure by insurer
or intermediaries
• Statute imposes wide range of disclosure
duties.
• E.g: Disclose and explain all material terms of
policy, fees to be charged, premiums, cooling-
off period etc.
15. 11. INSURANCE CLAIMS
To determine if the insured has a claim in a particular instance the
following questions should be answered:
1. Is the risk covered by the policy?
2. Are there any limitations on the insurer’s liability?
3. Is the insurer’s liability excluded?
4. Does the risk fall within the dimensions of the described risk?
5. Was the particular peril, in respect of which insurance was
undertaken, the cause of the harm?
16. 12. INSURABLE INTEREST
Indemnity insurance
If he or she stands to lose
something of appreciable
commercial value if the object is
harmed.
e.g. person insures a vehicle
Non-indemnity insurance
Interests protected do not have
commercial value. Amount for
which insurer will be liable is
established by agreement.
e.g. life insurance
17. 13. MANNER IN WHICH CLAIMS HAVE
TO BE BROUGHT
An insurance policy will usually state:
• When and how the insurer should be notified of a claim.
• When and how a claim should be lodged.
• If the claim is refused or repudiated the time within which legal
proceedings must be instituted.
18. Rejection or repudiation of claim
Insurer rejects
or disputes
claim.
Written notice
to insured.
Insured given at
least 90 days to
make
representations.
Insured to
institute
proceedings
within time
specified.
19. Fraudulent claims
Will usually fall into one of these categories:
1. Insured parties fabricate claims.
2. Insured parties often exaggerate claims.
3. Insured fabricates evidence to facilitate a
legitimate claim.
20. Fraudulent claims
Possible terms in
policy
Fraudulent insured will
lose entire claim
Insured will lose all
claims against insurer
The entire policy will be
terminated
21. 14. SUBROGATION
• The doctrine of subrogation allows an insurer to
sue in the name of the insured.
• The insurer incurs a right to make the same
claim for damages as the insured could have
made against the wrongdoer.
22. 14. CESSION
• Insurer further entitled to take cession of the insured’s
rights against a third party who caused the loss.
• Transfer of a right to performance.
• Insurer will be the creditor and will claim in its own name.
23. 14. CONTRIBUTION
• The same risk is insured by more than one
insurer.
• Each insurer to contribute pro rata.
