Outline four risks against which a shopkeeper may insure and three features of a Re-insurance company. Also, determine the contribution made by two insurance companies to cover a building loss.

• Fire: Damage to the shop premises, stock, and equipment due to fire.
• Theft/Burglary: Loss of stock, cash, or equipment due to break-ins or robbery.
• Public Liability: Claims from customers or third parties for injuries or damages sustained on the shop premises.
• Loss of Profits: Financial loss incurred due to business interruption caused by an insured event like fire or flood.

• A reinsurance company insures other insurance companies against their own risks.
• It helps primary insurers spread large risks that they cannot bear alone, allowing them to underwrite more policies.
• Reinsurance companies typically deal with large-scale risks and complex financial arrangements, rather than individual policyholders.

Question 3: Elephant Enterprises acquired a building valued at Sh. 1,000,000 on 1 January 2007. The building was insured with two insurance Companies, Zebra and Simba for Sh. 600,000 and Sh. 400,000 respectively. In May 2007, fire damaged the building, causing Elephant Enterprises to suffer a loss of 20% of the building value. Determine contribution made by Simba and Zebra to cover the loss.

• Insurance covers an uncertain event (e.g., fire, theft) that may or may not happen, while assurance covers an event that is certain to happen (e.g., death), though the timing is uncertain.
• Insurance is typically for a short, fixed period (e.g., one year), requiring renewal, whereas assurance is usually for a long term or whole life.
• Insurance operates on the principle of indemnity, aiming to restore the insured to their financial position before the loss, while assurance pays a fixed sum upon the occurrence of the assured event.
• Insurance policies often have a surrender value only if specified, while assurance policies (especially whole life) typically accumulate a cash/surrender value over time.

• Motor Vehicle Accidents: Covers damage to her vehicles, third-party property damage, and injuries to passengers or third parties resulting from accidents.
• Theft of Vehicles: Protects against financial loss if any of her PSVs are stolen.
• Fire Damage: Covers damage to her vehicles due to fire, whether accidental or malicious.
• Passenger Liability: Insures against claims from passengers for injuries or death sustained while traveling in her PSVs.
• Loss of Income/Business Interruption: Provides compensation for lost earnings if her vehicles are out of service due to an insured event (e.g., accident, theft).

• Pecuniary Interest: The insured must stand to gain financially from the preservation of the subject matter and suffer financially from its loss or damage.
• Legally Recognised Relationship: There must be a legal relationship between the insured and the subject matter of insurance.
• Present Interest: The insurable interest must exist at the time the insurance is taken out and, in some cases (like general insurance), also at the time of loss.

• a) Explain the procedure for making an insurance claim.

  • Notification: The insured must promptly inform the insurer about the loss or damage, usually within a specified timeframe.
  • Submission of Claim Form: The insured completes and submits a detailed claim form provided by the insurer, outlining the circumstances of the loss.
  • Provision of Evidence: The insured provides supporting documents such as police reports, medical reports, repair estimates, invoices, and photographs to substantiate the claim.
  • Investigation: The insurer appoints an assessor or loss adjuster to investigate the claim, verify the facts, and determine the extent of the loss.
  • Settlement: If the claim is valid, the insurer will calculate the compensation amount and make payment to the insured.

• b) A farmer's house valued at Ksh. 1,200,000 was insured against fire for 900,000 under the "with average clause". Fire occurred and damaged the house causing a loss of Ksh. 500,000. Determine the value of compensation due to the farmer.

• Principle of Indemnity: Property insurance aims to restore the insured to the financial position they were in immediately before the loss, without allowing them to profit from the loss.
• Insurable Interest: The insured must have a financial stake in the property, meaning they would suffer a financial loss if the property is damaged or destroyed.
• Utmost Good Faith (Uberrimae Fidei): Both the insured and the insurer must disclose all material facts relevant to the contract.
• Subrogation: After paying a claim, the insurer acquires the right to pursue any third party responsible for the loss to recover the amount paid.
• Contribution: If the same property is insured with multiple insurers, each insurer contributes proportionally to the loss, ensuring the insured does not receive more than the actual loss.

• a) Insured: The insured is the person or entity who is covered by an insurance policy and will receive compensation in the event of a covered loss.
• b) Insurance: Insurance is a contract (policy) where an individual or entity receives financial protection or reimbursement against losses from an insurance company in exchange for regular payments (premiums).

• Nature of Event: Life assurance covers an event that is certain to happen (death), while general insurance covers an event that is uncertain (e.g., fire, accident).
• Term of Policy: Life assurance policies are typically long-term or whole life, whereas general insurance policies are usually short-term (e.g., one year) and renewable.
• Principle of Indemnity: Life assurance does not operate on the principle of indemnity, paying a fixed sum, while general insurance does operate on indemnity, compensating for actual loss.
• Surrender Value: Life assurance policies often accumulate a cash or surrender value over time, which can be withdrawn, whereas general insurance policies generally do not have a surrender value.