General insurance principles, products and policy conditions
Principles that decide claims
- Insurable interest: a financial relationship recognised by law. In property insurance it must exist at the time of loss.
- Indemnity: restore the insured to the pre-loss financial position, not better. Agreed-value and reinstatement policies are exceptions.
- Utmost good faith: the insured must disclose material facts; proposal-form answers and non-disclosure affect liability.
- Proximate cause: the dominant, efficient cause of loss, not simply the last event.
- Contribution and subrogation: contribution shares a loss rateably among policies covering the same interest; subrogation lets the insurer step into the insured's recovery rights after payment.
Reading a policy
- The schedule identifies the insured, risk address, sum insured and deductible. The operative clause grants cover; exclusions remove it; conditions precedent (notice, proof, cooperation) must be met; warranties must be complied with.
- Distinguish sum insured from sum assured, average from excess, and excess from franchise. Depreciation and salvage affect the net figure.
- Product families include fire and consequential loss, marine cargo and hull, motor own-damage and third-party liability, engineering, liability, personal accident and health.
Worked example
A fire policy has sum insured Rs 10 lakh, property value at risk Rs 20 lakh, loss Rs 5 lakh and policy excess Rs 10,000. The average clause applies: 5,00,000 x (10/20) = 2,50,000; less excess 10,000 = 2,40,000. If the policy were agreed value or a valid reinstatement basis, averaging might not apply. The reasoning is that indemnity is first capped by the rateable proportion, then reduced by the deductible.
Traps
- Applying average where the policy is agreed value.
- Confusing excess with franchise: a franchise is not deducted once the loss exceeds it; an excess is always deducted.
- Taking the last event as the proximate cause.
- Ignoring salvage and subrogation.
- Reading exclusions without the operative clause and conditions.