Test

The Basic Principles

of Insurance:

Module 2

Essence: Providing you with the General Glossary terms
and a basic understanding of insurance terminology.

Loss

•

Loss is the term used to describe the loss of or damage to
property.

•

N.B. Hail claims,counts as a loss

• Loss Types:

• 1. Own damage losses
• 2. Liability losses / other parties
• 3. Sentimental losses
• 4. Consequential losses
• 5. Uninsured Losses

Open Ended

Name one type of loss dealt with in the badger group

1. Own Damage Losses

• Own damage losses refer to the losses Mr. Jones may suffer

due to damage to his own property.

• Own damage losses can have a number of causes. These causes

are referred to as perils (a cause of a loss) eg. fire, flood, hail,
accident, theft, etc.

• If Mr. Jones decides to buy insurance from us he will have a

limited choice of causes (perils) to insure his property against.

• We will not insure certain causes (perils), example: gradually

operating causes, such as rust and disasters, and war.

Vehicle Write Off / Total loss

• A damaged vehicle which is not repairable or one that would

cost more to repair than the vehicle was worth before the
damage occurred is known as a write off.

• Which means the vehicle is not repaired and the client will get

a cash settlement.

• Also known as a "total loss“ (theft is also considered to be a

total loss but isn’t a write off).

2. Liability Losses or Third Parties

• A third party is a person who is not a party to a contract of insurance.
• This is the legal responsibility one person has to another, that is

enforceable by law.

• We all have a right that our things are not damaged. The existence of

this right places a duty on all of us not to damage other people’s
property. We call this a legal duty, because it has consequences.

• If Mr Jones damages a third party’s property, he breaches a legal duty

and his conduct is wrongful. The consequence is that Mr Jones has to
make good the damage that resulted directly from his actions (or
sometimes inaction, such as when you should really do something to
prevent damage but you fail to do what you are supposed to do).

2. Liability Losses or Third Parties

• The law attaches consequences to both intentional and unintentional

breaches of our legal duty.

• Mr Jones therefore incurs liability if he intentionally or negligently

caused damages to the third party’s property.

• Damage to property of a third party
• If damage is caused to a third party’s property (vehicle, wall, house,

traffic light, electrical box, bicycle, etc.), the third party has the right
to claim such damages from Mr Jones.

• In terms of Mr Jones’s policy agreement, he has third party cover and

will be indemnified for these damages by his insurer if he complied
with all the terms and conditions of his policy agreement.

Liability Insurance

• Also known as public liability or third-party insurance.
• It provides indemnity to the insured in respect of his legal liability arising out of

an accidental damage to the property of others or Injury caused to others.

• In Pet Policies this provides Compensation and cost arising from accidental

injury or damage CAUSED by the insured pet / Loss of or damage to property /
Death or bodily injury to any person

• Liability insurance provides a Limit of Liability, which is the maximum amount

that an insurer will pay for one loss in terms of a Liability policy.

3. Sentimental Losses

• In insurance we can only deal with losses that can be expressed in

financial terms. (There must be a monetary value to be able to
insure)

• It is impossible to attach an objective financial value to

inconvenience suffered or to the sentimental value attached to an
article.

• Therefore we cannot insure Mr. Jones against these or similar losses.

• It is also not recognised as an insurable interest.

• An example of this loss type would

• be the loss of a photo album, we
• would cover the album but not
• the photographs in the album.

4. Consequential Losses

• In insurance terms this is a pure financial loss suffered by the

client as a result of the happening of an insured event. The
two losses are separate events. Consequential loss is a loss
directly arising from another loss.

• Example: After an accident, the client wants to claim for loss of

income because he could not work without his vehicle. The loss
of income is consequential loss.

• Example: A client that misses a very important business deal

due to an accident, will not be able to claim for loss of income
as this is a consequential loss.

5. Uninsured Losses (Exclusions)

•

A loss that is not covered by the insurance policy.

•

War, Nuclear Acts or Terrorism, riots and strikes – any
damages caused by these events will be covered more
specifically under SASRIA (South African Special Risks
Insurance Association)

Road Accident Fund (RAF)

• The RAF is responsible for providing appropriate cover to all

road users within the borders of South Africa. The premiums
collected for this insurance is done through fuel levies. The RAF
compensates third parties that are injured or killed in incidents
involving vehicles on South Africa roads. Regardless if they are
injured in a vehicle or a pedestrian, they will have cover.

Indemnity

•The term indemnity means that the insurer places the
insured in the same financial position or as close thereto
as possible after a loss as he/she was in immediately prior
to the occurrence.

•If the client has appropriate cover the insurer will
indemnify(pay) for the insured loss according to the
stated sum insured (monetary limit of the insurer's liability
under a policy).

•We can indemnify a client by 4 methods: Pay for an item;
Replace the item; Repair the item and Re-instatement (A
combination of any of the previous 3)

•On Pet Policies the main form of indemnity is via Reimbursement

Reimbursement: the action of repaying a person who
has spent or lost money. We ‘Reimburse’ a client after
they have provided proof of costs. Ultimately This refers to
the amount we pay towards your insurance claim.

Word Cloud

What comes to mind when you think about indemnity?

Buildings Insurance

• Is a policy that covers the structure of a house or other buildings

against a number of different perils.

Forcible Entry or Exit

• In insurance, cover is sometimes restricted to there being signs

of force into or out of the premises or vehicle.

• Important considerations are visible means of entry which is

easily verified. i.e. broken window or door lock.

• The insurance company may not pay claims if there are no

visible signs of forcible entry or exit because clients may leave
doors or windows open.

Replacement Cost

• Replacement cost is the value of property as indicated by the

current purchase price of a similar article.

• If an item has been damaged and it can be economically

repaired we will either arrange or authorise repair and we will
pay the cost of repair. Otherwise, we will replace the item with
a new one of similar quality through our preferred suppliers, or
at our option, we will pay the replacement cost of a new item
of similar quality.

Average

• In general insurance, this is a policy provision that has the effect of

reducing a claim payment where under-insurance is discovered.

• Under-insurance is when property is insured for less than it

would cost to replace with a new item.

• It is important that the client insures their property for the

correct value. If, when the loss or damage happens, the sum
insured on the schedule is less than the cost of replacing all the
contents as new, we may only pay for part of the loss or damage.

• Average is only applied to home contents and building insurance.

Average

• The following calculation is used when under-insurance is discovered:

•

CLAIM PAYMENT:

• CLAIM AMOUNT X INSURED AMOUNT ÷ BY NEW REPLACEMENT

VALUE

• Example:
• The insured submits a claim for R50,000
• He was insured for R200,000
• Upon investigation it was found that the insured’s entire household

contents comes to a replacement value of R350,000

• The claim payment will be calculated as follows:

•

Claim amount (R50,000) x Insured amount (R200,000)
•

÷ by new replacement value (R350,000)

•

= claim payment (R28,571.43)

Portable Possessions Insurance (All Risk)

• A Portable Possessions (All Risks) policy covers loss of or

damage to personal belongings in your possession (usually
carried on or by a person), property likely taken outside of the
home.

• If an item is specified and the loss happens outside the home it

will be covered under the All Risks policy.

• These items have no territorial limits (can be taken outside of

the South African border).

• Examples of items would be: cameras,

clothing, jewellery, laptops, cellphones, etc.

Loss Ratio

• The loss ratio is the difference between the ratios of premiums

paid to an insurance company and the claims settled by the
company.

• This is used as a means of measuring the company’s financial

performance by dividing the claims paid out by the premiums
received.

Premiums paid by

clients

Compared

Claims paid to

clients

Claim

• A claim is a formal application made by the

insured for payment (indemnity) after the
occurrence of loss or damage covered by the
policy.

• When a client submits a claim we can either

accept or reject (repudiate) his claim if the
client was in breach of the contract at the time
of the loss.

• Please note, there is a difference between a

claim and a loss:

• A loss refers to either loss of or damage to

one’s property.

Arbitration

•Arbitration is a private form of resolving disputes – as opposed to taking
it to court. Also called alternative dispute resolution.

•It is done privately and by agreement between people, companies or
business.

Subrogation

•The term subrogation is the right of one party to stand in a place of
another and take up the latter's legal rights against a third party.

•When the insurer has paid the insured, the insurer will take legal action
against the third party to recover costs of the loss. The insured can no
longer take any legal action against the third party.

Lifecycle of a claim

Lifecycle of a claim

Lifecycle of a claim

Assessor and Loss Adjuster

• An Assessor is a person appointed by an insurer to investigate

and report on the circumstances of a loss, and to recommend
the manner in which a claim should be finalised or negotiated in
terms of the relevant policy.

• A Loss Adjuster is a qualified person who assesses the size or

value of a loss on behalf of an insurer, they may be employed by
the insurer to look after his interests in a loss settlement

Claims Adjuster

• A claims adjuster reviews claims and determines whether the

claims should be paid and what amount is owed to the insured.

• Pet insurance adjusters are very similar to Motor or

homeowner's insurance. When your dog or cat gets sick or
injured you submit a claim to the insurance company, and they
assess the loss and reimburse valid claims

• The Adjusted is appointed by and acts as a representative of the

insurance provider who seeks to determine the extent of the
insurer’s liability for loss when a claim is submitted.

Lifecycle of a claim

Lifecycle of a claim

Lifecycle of a claim

Quantify

Proof of Quantum

• This refers to the value of any item being

claimed. The policyholder has to prove the
‘quantum’ (value) by submitting invoices or
valuation certificates.

• To put a value to something.
• Example: quantify the own damage loss of the vehicle.
• This can be done by evaluating the cost of parts to be

replaced, repair costs and labour costs etc.

Valuations

• Valuation is a list of property with values allocated to each item

and forms the basis of insurance.

• Example: a diamond ring or an antique piece of furniture.
• These sorts of items may need valuation certificates to prove

their worth.

Lifecycle of a claim

Lifecycle of a claim

Proximate Cause

Proximate Cause

•

This Refers to the direct, dominant or specific cause that brought
about the loss / Damage which is covered by a short-term
insurance policy.

•

Proximate cause can be easily defined as the direct cause of a
loss, uninterrupted by another event.

•

In terms of any loss suffered, the insurer needs to establish the
uninterrupted chain of events that caused the loss, and that the
loss was caused by an insured peril under the policy

Excess

Excess

Excess is the first amount payable by the insured in the event of a
valid claim. It is the part of a loss for which the insured is liable. It
can be a percentage of the claim or a fixed amount

Reasons for charging an excess:

• An excess shifts some risk from the insurer back to the policy

holder. It is the uninsured portion of the policy holder’s loss.

• On a vehicle policy, the policy holder can reduce the premium

when an excess is increased. It is important to only select a
level of excess the policy holder can afford when there is a
claim. It’s easy to be carried away by the potential savings to
bank on the hope that there will never be a claim.

Lifecycle of a claim

Lifecycle of a claim

Lifecycle of a claim

Beneficiary

• This is a person or entity that receives the benefit from an

insurance policy.

• This can be the insured, the insureds estate or any other person

nominated by the policyholder.

Executor

• An Executor is the person named in a will who has agreed to

carry out the terms or instructions of the will.

• A will or testament is a legal document by which a person,

expresses their wishes as to how their property is to be
distributed at death, and names one or more persons, the
executor, to manage the estate (sum of assets and debts) until
its final distribution.

• Non-motor

• Client calls client care and logs a claim
• Claims handler gets a notification to call the client within an

hour to register claim

• Claim investigated if needed before pay-out

• Pet

• Client calls client care or uses online portal to log the claim
• Claims handler contacts client within hour to register claim

and inform them of what is needed

• Client will e-mail/submit claim form with paid invoice
• Claim investigated if needed and paid out within 48 hours

Claim Processes

Contribution

• The contribution principle governs relationships between

insurance companies.

• The contribution principle in insurance is a rule that

specifies what happens when a person buys insurance
from multiple companies to cover the same event, and
that event occurs.

•Claim x sum insured ÷ Total Sum insured =
rateable insurer portion

•Example: insurer A R80 000 sum insured

insurer B R80 000 sum insured

Claim R60 000 total claim

R60 000 x R80 000(insurer A) ÷ R160 000
= R30 000 pay-out from insurer A

Abandonment

Salvage

Salvage is whatever is recovered of an insured item or part of it,
on which a claim has been paid to the insured. Parts of the
salvaged property will be sold to make up for the loss of the
claim paid out.
Any salvage recovered would be the property of the insurer, as
the insured would already have been indemnified for the loss of
such insured item.

Abandonment is the giving up by the insured to the
insurer of damaged property when a total loss is claimed
and the client is indemnified (payed out).

Franchise

• The amount of a loss at or below which no claim is payable by

the insurer.

• The claim amount therefore falls within excess (it is too small

to pay out). Above that amount, the loss will be met in full.

• An example of franchise would be:

• If the claim value is below R5 000, the client has

no cover.

• If the claim value is R5 000 or more, we will pay

the claim in full (less any applicable excesses).

Ombudsman

• A highly qualified and experienced person who mediates

where an insured does not agree with the insurer's decision.

• The insured would lodge a formal complaint with the Insurance

company and then approach the Ombudsman office for the
Ombudsman to mediate.

• The cost would be for the insurer’s account

Cancellation

Cancellation Clause

Cancellation clause is a clause in a policy

which allows one party to cancel the

contract following due notice to the other.

A cancellation is when either the client (at any time)

or the insurer (with 30 days written notice)

terminates the cover permanently signalling the end

of the insured period.

Compliance

• What role does compliance play? How do I know I am being

compliant with legislation?

Financial Sector Conduct Authority (FSCA)

Government-

appointed

regulatory body.

Responsible for the
implementation and

monitoring of the

FAIS Act.

The FAIS Act
will: Regulate
the activities of

the FSP.

The FAIS Act

will: Ensure that
the consumer is

treated fairly.

Ensures that
the Financial

Services
Provider is
licenced.

FAIS ACT

FAIS (Financial Advisory & Intermediary Services) Act

• The FAIS act regulates the activities of all Financial Services

Provider’s who give advice or provide intermediary services to
consumers of certain financial products.

• The purpose of the FAIS Act is to protectconsumers and to

ensure that consumers are provided with adequate information
about the financial product they use and about the people and
institutions who sell these financial products.

FAIS ACT – Code of conduct

• A code of conduct is similar to a code of ethics.

• The specific code of conduct that governs us is a part of the

Financial Advisory and Intermediary Services Act (FAIS) and sets
out the guidelines of how Financial Services Provider’s and
Representatives should conduct themselves and how they
should treat consumers.

• The code of conduct regulates operations like disclosing of

commissions to clients, avoiding conflicts of interest, record
keeping and acting in the best interest of the client at all times.

Financial Services

• A Representative is a person rendering

financial services (advice and/or intermediary
services) of a financial nature to a client and will
need to be appointed and registered as a
representative with the FSCA (Financial Sector
Conduct Authority).

• Advice is anyrecommendation, guidance or proposal of a financial nature

furnished by any means to any client or group of clients that leads to the
client purchasing a financial product.

• Intermediary services is any act, except giving advice, by a person (broker

or intermediary) on behalf of a client or product supplier (underwriter)
resulting in the client entering into or offer to enter into a transaction in
respect of a Financial product with a product supplier.

Financial Services Provider (FSP)

A Financial Services Provider gives advice or renders a service to

consumers in respect of any financial products. FSP’s could consist of

banks, long term and short term insurance companies, travel agencies and

micro lenders, etc

Key Individual (KI)

Responsible

for the

managing and
overseeing of
the activities
of the FSP and

the

representative

s

Is one or more
person(s) within
an FSP that are
responsible for

the FSP’s

compliance to
the FAIS act.

Compliance Officer

Appointed
by an FSP to

monitor

compliance

with the
FAIS Act.

Reports to

the

Registrar on
compliance

issues

Financial Intelligence Centre

• The Financial Intelligence Centre was established by the

Financial Intelligence Centre Act (FICA) and has the
mandate (purpose) to identify the proceeds of crime,
combat money laundering activities and the financing of
terrorist and related activities.

• It is aimed at identifying suspicious transactions and must

be reported under the Financial Intelligence Centre Act
(FICA).

Multiple Choice

In what year was FICA founded?

• 1st of July 2003

• 1st of July 2001

• 1st of June 2003

• 1st of July 2003

Policyholder Protection Rules (PPR)

Retail Distribution Review (RDR)

The Retail Distribution Review proposes new regulatory

reform. The main aim is to further protect clients in terms of

TCF against bad advice complex products and unfair

commission structures.

The Objective of the PPRs is to ensure that any long or short term insurance
policy sold to you is “entered into, executed and enforced in accordance with

sound insurance principles and practice in the interests of the parties (you

and your insurance company) and in the public interest”.

In simple terms, this means that when you make a legitimate and valid claim
for a benefit, you will receive it and the insurance company will be there to

pay it.

Protection of Personal Information Act

(POPI)

• To share personal information you would need the full consent

of the other individual to do so.

• Operationally, whenever a client calls in, the consultant would

need to conduct a security check with the client.
• The following types of details must be confirmed:

 The client’s Identity Number;
 Telephone / cell phone number;
 Postal Address.
 Pet Name

CLOSING & THANKS