Non-Life (General) Insurance Fundamentals and Practice
Domain overview
This domain tests the legal and practical foundations of non-life (general) insurance in Pakistan: how risk is transferred, how policy wording creates or limits cover, and how claims are adjusted. It assumes working knowledge of the Insurance Ordinance, 2000, SECP supervision, and the market’s conventional and takaful structures.
Core rules
- Insurable interest: the insured must benefit from the subject’s safety or suffer loss from its damage. In non-life, the interest normally exists at the time of loss.
- Utmost good faith: the proposer must disclose material facts, including prior declines, claims and hazards. Non-disclosure can allow the insurer to avoid the policy.
- Indemnity: a non-life claim restores the insured to the pre-loss financial position, not better. New-for-old, agreed-value and reinstatement covers are exceptions and must be explicit.
- Proximate cause: the nearest efficient cause decides cover; an excluded peril does not become covered merely because a covered peril followed it.
- Subrogation and contribution: after paying, the insurer may step into the insured’s recovery rights; concurrent policies share the loss rateably.
- Average: where the sum insured is below the value at risk, claims are reduced proportionately.
Worked example
A factory has a sum insured of PKR 8 million; at the time of loss the property is worth PKR 10 million. Fire damage is PKR 2 million and the policy excess is PKR 50,000. Applying 8/10 average: PKR 2m × 0.8 = PKR 1.6m. Deduct the excess: PKR 1.55m payable. The insured bears PKR 450,000: PKR 400,000 from underinsurance plus the PKR 50,000 excess.
Traps
Do not treat the sum insured as market value. Do not ignore excess, average or exclusions. Do not advise admitting liability at the scene. A cover note is temporary evidence, not the full policy. Late notification and unauthorised repairs can prejudice a claim.