Principles and Practice of Insurance
Insurance is a mechanism for transferring the financial consequences of uncertain loss from an individual to a pool of contributors. The candidate must be able to name and apply the core principles: insurable interest, indemnity, subrogation, contribution, proximate cause and utmost good faith. Understand the difference between a contract of indemnity (property, liability) and a contingent/benefit contract (life, personal accident) where the sum insured is agreed rather than measured against loss.
Key definitions to master: risk versus peril versus hazard; pure versus speculative risk; fortuity (losses must be accidental and outside the insured's control). Moral hazard (dishonest intent) and morale hazard (carelessness) are frequently confused in questions - moral hazard involves deliberate behaviour, morale hazard involves attitude or indifference.
Traps to watch: indemnity does not mean new-for-old; subrogation cannot produce a profit for the insured; contribution applies only where two or more policies cover the same interest against the same peril; and proximate cause is the dominant, effective cause, not necessarily the last event in time.
Worked rule of thumb (average/clause): If a property is insured for 60,000 against a sum insured requirement of 100,000 and a loss of 20,000 occurs, the average clause pays 20,000 × (60,000 ÷ 100,000) = 12,000. Always check whether the policy states a condition of average before applying it - underinsurance is a classic exam trap.