In an exciting collaboration between Minet Malawi, Britam, and The Daily Times - Malawi's leading newspaper - we are thrilled to introduce a groundbreaking initiative that will redefine your Wednesdays. Welcome to the Insurance Insights Column – a weekly rendezvous with the world of insurance and contemporary issues that matter. Every article aims to illuminate the intricate landscape of insurance products and relevant topics that impact us all. The articles will be educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on March 13th, 2024
Parliament has standing orders. Church has liturgy. Customs and Excise has tariff book. Insurance has policy. The above-mentioned documents have something in common - they all set procedures of handling situations. However, insurance policy takes a step further to bind two parties together in a contract.
Let us first decipher a contract of insurance. Insurance is an arrangement whereby an insurer undertakes, in return for an agreed consideration, called premium, to pay an insured a certain benefit in cash or otherwise, after occurrence of specified events. This agreement is written in a document called policy. An insurance policy is, in essence, evidence of a contract.
When you want to insure your property, the first step that you need to take is to complete a proposal form. The insurer uses information in the proposal form to issue a policy. A policy is the final evidence of the contract between you and insurer. Take note that insurers issue different types of documents to an insured party, depending on situation, such as - cover note, motor disc, discharge voucher, et cetera. Although format of presentation differs, framework of insurance policies is similar across a panel of insurers and can be identified in six components.
Each and every policy is introduced by heading, which sets the name, logo and address of the insurer.
After the heading, comes the recital clause or the preamble which sets certain features, such as existence of proposal form as basis of contract, payment of premium and period for which the contract is written. The accuracy of the proposal form cannot be overemphasized - phrases in the proposal form are imported into the policy wording. Content of proposal form is always incorporated in a policy.
One of the main features of the insurance contract is that there must be an absolute trust between the contracting parties. We call this principle, utmost good faith. The insured and insurer must be fully convinced of each other’s complete honesty or decency. The insurer must have no doubt in the information that the insured party gives in the proposal form. In case of a claim, both parties must be able to rely on the contents of the proposal form.
After the preamble, comes the attestation clause. This part carries signature of an authorized officer of the insurer. The signature can be made by hand or seal.
Then comes the operative clause - the most important part of the policy, which gives actual cover details and specific exclusions, subject matter of insurance as entered in a schedule and risks or perils against which insurance is granted. It is the operative clause that varies scope of coverage between different classes of insurance.
The bulk of the policy is composed of conditions. Insurance is a legal contract. Both in fact and in law, it is impossible to have a condition-less contract. Imagine a contract without conditions. If an insurer forgets to include a key condition in a policy, in case of a claim, judgement is passed against the. Conditions set procedures of handling different situations during and after a policy is issued and effected. Conditions that are applicable only before you enter contract with an insurer are referred to as ‘conditions precedent.’ Example of conditions precedent is existence of the insured interest in the subject matter. Conditions that hold after a contract is executed are called ‘conditions subsequent.’ A case in mind is the demand for ‘duty of care’ of insured property by the insured. Insurers demand that you should always act as if you are not insured at all times – implying that you should not be reckless because you have secured insurance. Perhaps you have heard the phrase before – ‘Don’t worry, I am insured?’ This goes against the basic insurance condition cited above. It can backfire in case of a claim.
The schedule is where insurance is made personal. All pertinent details like name and address of the insured are shown in the schedule. The property insured is also itemized in a specification within the schedule.
In insurance, all these components of the policy, including incorporated documents, such as the proposal form, are always read together. It is a cardinal mistake to isolate clauses from the main context of a policy document, just like it is a cardinal mistake to harp one verse of the Bible, leaving out the context of the chapter. Oh lest we forget – any ambiguity in an insurance policy is construed against the drafter which in most cases is the insurer.
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