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CLASSIFICATION OF INSURANCE CONTRACTS


Insurance contracts may be placed or classified into broad categories.
1.    By nature of event by which the sum becomes payable – this classification places the insurance contracts into categories such as Marine, Fire, Life etc. it places emphasis on the homogeneity of the group.
2.    Nature of the interest affected – this classification places insurance contracts into three broad categories namely;
·         Personal insurance e.g. life, accident, fidelity etc.
·         Property insurance e.g. fire, marine, motor, solvency. Crop, hypothecation etc.
·         Liability insurance where policies are taken out in compliance with statutory provisions e.g. the compulsory third party motor insurance, workman’s Compensation, NSSF, NHIF
3.    Nature of contract of insurance – a contract of insurance may be an indemnity or non-indemnity. An indemnity contract is a contract of insurance where the insured pays a premium on the understanding that in the event of loss, he will be indemnified for the actual loss sustained. He must be restored to the position he was before the loss.
Dalby Vs India and London Assurance Co.
[1854] 15 CB 361.
It was observed that policies of insurance under fire and Marine risks are properly speaking indemnity contracts i.e. the insurer engages to make good within limited amounts, the losses sustained by the insured and nothing else.

A non-indemnity insurance contract is one in which the insured secures the payment of a fixed sum of money, previously determined as the value of the subject matter of insurance. There is an assurance that the amount is payable should risk attach e.g. of life policies.
4.    By nature of the program of insurance – insurance programs are either private or social. Private insurance is generally optional and voluntary and is effected on the premise that the insured stands to loose should risk attach.
Social insurance is compulsorily imposed upon the assured by statute to protect the society from a hazard which no single individual can cushion it. The individual must guard against such risks as well as the activities giving rise to the risk as it is beneficial to the society. Hence those involved must contribute to cushion those likely to be affected e.g. compulsory third party Insurance.
Social insurance is said to be a device of pooling of risks by their transfer to an organization under an obligation to provide pecuniary benefits or service to or on behalf of the insured on the occurrence of the event e.g.
·         Compulsory third party motor insurance
·         N.H.I.F.
·         N.S.S.F
·         Workman’s compensation.
5.    Whether insurance is direct or re-insurance – Re-insurance takes place when an insurer who has already undertaken to indemnify the insured or pay the sum assured insures himself against the same risk with a re-insurer. Reinsurance is a 2oth century practice which evolved to cushion the insurers against the insolvency. Re-insurance may be optional or voluntary.

Kenya Re- insurers are bound to insure up to 10 % with PTA Reinsurance and up to 5% with the African Re-insurance Corporation. However, an insurance co. is free to re- insure up to 100%.
Role of Re-insurance
·         Re-insurance assists in the distribution and transfer of economic processes from one company to another which benefits the economy.
·         It also generates the making good of losses in the event of insolvency.
·         It also ensures that insurance companies invest part of their accumulated funds locally.

 
 
 

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