WAEC SSCE - Insurance - 2017

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The part of the policy that describes the event that could lead to loss in an insurance contract is often referred to as the "coverage trigger" or "insured event." It is usually described in the "operative clause" of the insurance contract. The operative clause outlines the specific circumstances under which the insurer will be obligated to provide coverage and pay a claim. In simple terms, it defines the conditions that must be met for the insurance to take effect. For example, if you have insurance for your car, the operative clause might describe what types of events, such as a car accident, theft, or natural disaster, would trigger the insurance coverage and entitle you to receive payment for any damages or losses.

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A life policy holder enjoys days of grace during the renewal time of the policy. Days of grace refer to the extra period of time granted to the policyholder after the premium due date to pay the premium without incurring any penalty or interest. In the case of life insurance policies, the days of grace typically apply at the time of policy renewal. This allows the policyholder a little extra time to pay the renewal premium without the policy lapsing or becoming void. However, it's important to note that the days of grace do not apply when the policy is surrendered or paid up.

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The principle of utmost good faith allows the insured to make a full disclosure of the proposed risk when applying for insurance. This means that the insured is required to provide all relevant and material information to the insurer before the policy is issued. This includes any known facts or circumstances that may influence the insurer's decision to accept the risk or set the premium. By providing full disclosure, the insured is helping the insurer to accurately assess the risk and provide appropriate coverage. In return, the insurer is expected to act in good faith and fulfill their obligations under the policy. This principle does not give the insured the right to accept all risks proposed for insurance, the right to sue the insurer, or the right to make a claim from more than one insurer.

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The expert who uses statistics to develop the premium payable in a life contract is an actuary. Actuaries are professionals who use mathematical and statistical methods to analyze data and evaluate financial risk. They work in various fields, including insurance, finance, and healthcare, and use their expertise to help organizations manage risk and make informed decisions. In the context of life insurance, an actuary plays a critical role in determining the premium that policyholders will pay for their coverage. They use mortality tables and other statistical models to estimate the probability of death or illness among a given population and calculate the premium needed to cover the associated risks. Actuaries also use their expertise to evaluate the financial stability of insurance companies and assess the long-term sustainability of their policies. They help insurers manage their risks, optimize their investments, and ensure that they have adequate reserves to pay out claims. In summary, an actuary is an expert who uses statistical methods to develop the premium payable in a life contract. They help insurance companies manage their risks, evaluate the financial stability of their policies, and ensure that they can meet their obligations to policyholders.

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The policy that covers either death or disability resulting from an injury is Personal Accident Insurance. This type of insurance provides financial protection in case of an unexpected event, such as a serious injury or death, that occurs as a result of an accident. It can help cover medical expenses, lost income, and other costs that may arise. The coverage is designed to provide peace of mind and financial security in the event of a covered accident.

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The most appropriate insurance product for a young couple embarking on a holiday trip abroad is a term assurance policy. Term assurance policy provides coverage for a specific period, usually for the duration of the trip. It is a type of life insurance that pays out a lump sum in the event of death or total permanent disability of the insured person during the policy period. The coverage offered by a term assurance policy is relatively simple and straightforward, making it an ideal option for individuals who require coverage for a short period. Additionally, it is typically less expensive than other types of insurance policies, such as whole life or investment-linked policies, which may have more complex features and a longer-term investment horizon. In summary, a term assurance policy would be the most appropriate insurance product for a young couple embarking on a holiday trip abroad, as it provides simple coverage for a specific period at an affordable cost.

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The claims on Kayode's shop would be paid by Musa and Okon Insurance Company if Kayode's shop was insured with them. Insurance companies provide financial protection to their policyholders in case of certain events, such as damage to property, theft, or accidents. In exchange for a premium, the insurance company agrees to compensate the policyholder for covered losses. In this case, if Kayode purchased an insurance policy from Musa and Okon Insurance Company, and the damages to his shop are covered under the policy, then the insurance company will pay for the claims. If Kayode did not have an insurance policy, or if his policy did not cover the damages to his shop, then he will have to bear the financial burden of the losses himself. It is important to note that Mr. Adekunle is not mentioned as an insurance company, so it is unlikely that he would be responsible for paying the claims.

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Life policies can be used as collateral for a loan when the policy has acquired surrender value. This means that the policyholder has paid the required premiums for a specific period, and the policy has accumulated a cash value. This cash value can be used as collateral to secure a loan from a lender. For example, suppose you have a life insurance policy that has acquired a surrender value of $10,000. In that case, you can use this value as collateral to obtain a loan from a bank or other financial institution. The lender will hold the policy as security for the loan and will only return it to you once you have repaid the loan with interest. It is essential to note that if you are unable to repay the loan, the lender may terminate the policy and use the cash value to cover the outstanding loan amount. Therefore, using a life insurance policy as collateral for a loan should only be considered after careful consideration of all the risks and benefits involved.

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The document used by the insurer to ask questions about a risk to be covered is the proposal form. A proposal form is a document used by the insurer to gather information about the person or property to be insured. The form typically asks questions about the nature of the risk, such as the type of property, its location, its use, and any potential hazards or risks associated with it. The information gathered from the proposal form is used by the insurer to determine the level of risk associated with the property or person and to calculate the premium that will be charged for the insurance coverage. Therefore, it is an important document that helps insurers to assess the level of risk associated with an insurance policy.

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The information required in a proposal form for employer's liability insurance includes the number of employees and the annual wage roll of the proposer. This information is important because it helps the insurance company determine the level of risk associated with insuring the proposer's business. The number of employees and the annual wage roll are used to calculate the potential cost of a claim if an employee were to get hurt or become ill as a result of their work. Having this information helps the insurance company determine the premium that the proposer should pay for the coverage.

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The insured who suffered a loss would be entitled to the amount of compensation payable for the loss under the principle of indemnity. Indemnity is a fundamental principle of insurance that states that the compensation provided by an insurance policy should restore the insured to the same financial position as before the loss occurred, but not provide a windfall or profit. In other words, the purpose of indemnity is to put the insured back in the same position they were in prior to the loss, but not to provide more than that.

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The body that regulates the activities of the insurance market in Nigeria is the National Insurance Commission (NAICOM). NAICOM is the primary regulatory authority for the insurance industry in Nigeria, responsible for supervising and regulating the activities of insurance companies and intermediaries. Its primary objectives are to protect policyholders and ensure the stability and growth of the insurance industry in Nigeria. NAICOM is responsible for issuing licenses to insurance companies, establishing and enforcing industry standards, and monitoring the financial health of insurance companies operating in the country.

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The right which an insurer has to stand in the place of the insured against a negligent party is called "subrogation". Subrogation is the legal right that allows the insurer to step into the shoes of the insured and pursue a claim against a third party who is responsible for the loss or damage suffered by the insured. Essentially, subrogation allows the insurer to recover the amount it has paid to the insured from the responsible third party. This right arises from the principle of indemnity, which is the basis of insurance contracts. It ensures that the insurer is not left to bear the entire loss when the insured has a valid claim against a third party.

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The part of an insurance policy that describes the event that led to a loss is the operative clause. The operative clause, also known as the insuring clause, is the central part of an insurance policy that outlines the coverage provided by the policy. It describes the event or peril that is covered by the policy, such as fire, theft, or natural disaster. In the case of a loss, the operative clause is the part of the policy that determines whether the policyholder is entitled to compensation. The recital clause, also known as the preamble or introductory clause, provides general information about the parties involved in the insurance contract and the purpose of the policy. The heading is the title or label given to a section of the policy, and the schedule is a separate document attached to the policy that provides details about the insured property or individual.

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The document issued to Eke within one week of the contract is the proposal form. A proposal form is a document that contains the details of the insurance policy that Eke is applying for. It typically includes information such as the type of policy, coverage limits, premiums, deductibles, and other important terms and conditions. This document is usually provided to the applicant within one week of signing the insurance contract, as it serves as a formal written offer from the insurance company. Eke should carefully review and complete the proposal form, ensuring that all the information provided is accurate and complete before submitting it to the insurance company.

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Functional reinsurance is a type of insurance that protects the original insurance company (the ceding company) from financial losses due to large claims. In other words, it acts as a form of backup insurance for the original insurer. If a policyholder makes a large claim, the ceding company can transfer some of the risk associated with that claim to a reinsurance company. This helps the ceding company manage its financial exposure and reduces the likelihood that it will become insolvent due to a single large claim.

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The reason for issuing a certificate of motor insurance is that it is required by law for all motor policy holders. This certificate serves as proof that the driver has valid insurance coverage for their vehicle, which is a legal requirement in most countries. The certificate provides important information about the insurance policy, including the policyholder's name, the insured vehicle, the policy period, and the type and level of coverage provided. It is not a replacement for the policy itself, but rather a support document that accompanies the policy. This requirement is a general practice worldwide, aimed at ensuring that all drivers have a minimum level of insurance coverage to protect themselves and others on the road.

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The price paid for the purchase of an insurance policy is called a premium. A premium is a regular payment made by a policyholder to an insurance company to keep an insurance policy in force. The amount of the premium can vary depending on the type of insurance, the amount of coverage, and the individual's personal factors such as age, health, and lifestyle. The premium is not a guarantee of payment for a claim, but rather a way to pay for the cost of providing insurance coverage.

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The period of insurance in a non-life insurance contract is usually one year. This means that the insurance coverage provided by the contract lasts for a period of one year, after which the contract needs to be renewed if the policyholder wishes to continue being covered. The one-year term is a standard in the non-life insurance industry and is commonly used for various types of insurance policies, such as property insurance, liability insurance, and motor insurance. The exact duration of the insurance contract may vary depending on the specific policy and the insurer, but one year is a common and widely-used term.

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The factor which increases the possibility of loss that emanates from the insured's attitude is moral hazard. Moral hazard refers to the situation where an individual is less likely to take precautions to avoid a loss because they are insured against that loss. In other words, the presence of insurance can change the behavior of the insured, leading them to take greater risks than they would if they were uninsured. This can increase the possibility of loss, as the insured may engage in activities or behaviors that increase their exposure to risk. For example, an insured person may be more likely to drive recklessly if they have auto insurance, as they know that their insurance will cover any damages. This is why insurance companies often take steps to mitigate the effects of moral hazard, such as by requiring deductibles or imposing limits on coverage.

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The professional who is an operator in the reinsurance market is the broker. A broker in the reinsurance market is an intermediary who connects insurance companies seeking to transfer some of their risks with reinsurance companies willing to take on those risks in exchange for a premium. The broker serves as a link between the two parties, helping the insurance companies find the best reinsurance coverage and terms to suit their needs and negotiating on their behalf with the reinsurance companies. In short, the broker acts as a facilitator between the insurance and reinsurance companies, helping them to navigate the complex world of risk management and transfer.

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The first insurance company to establish its branch office in Nigeria was the Royal Exchange Assurance. Royal Exchange Assurance was established in the UK in 1720 and has since expanded its operations to other countries, including Nigeria. The company's establishment in Nigeria marked the beginning of the modern insurance industry in the country and laid the foundation for the growth and development of the insurance sector in Nigeria.

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Term insurance benefits are payable at death. If the policyholder passes away during the term of the policy, the insurer will pay out a death benefit to the beneficiaries listed on the policy. The death benefit is typically a tax-free lump sum payment that can be used to cover expenses such as funeral costs, outstanding debts, or provide financial support for dependents. It's important to note that if the policyholder outlives the term of the policy, there is no payout. Also, term insurance policies generally do not have any cash value or investment component, so there is no payout at maturity or surrender. The premium paid for the policy is solely for the cost of the insurance coverage.

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Insurance is defined as pooling of risk because many people with common risk insure with the same company. The basic idea of insurance is to share the financial risk of uncertain events among a large group of people. Insurance companies collect premiums from a large number of policyholders, who face similar risks, and pool the money to create a fund that can be used to pay out claims to those who suffer a loss. In this way, the financial burden of any individual's loss is spread across the entire group, reducing the impact of the loss on any one person. The concept of pooling risk is particularly important because it helps to reduce the financial impact of unexpected events. For example, if an individual has to pay for a large, unexpected medical expense out of pocket, it can be very difficult for them to absorb the cost. However, if the individual is insured, the cost of the medical expense can be shared among a large group of policyholders, making it more manageable for everyone. In summary, insurance is defined as pooling of risk because many people with common risk insure with the same company, sharing the financial burden of uncertain events among a large group of people.

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The person that buys a life insurance policy is called the assured. An assured is the person who is insured under the life insurance policy, and who pays a premium to the insurance company in exchange for financial protection for their loved ones in the event of their death. Life insurance is designed to provide financial support to the assured's beneficiaries in case of their unexpected death. The beneficiaries can use the proceeds from the policy to pay off debts, cover living expenses, or pay for the education of their children. The assured is the person who decides the type and amount of coverage they need, and they can choose from various options provided by the insurance company. They may also designate one or more beneficiaries to receive the proceeds of the policy upon their death. Overall, the assured plays a crucial role in the life insurance policy by initiating the process, determining the coverage, and paying the premiums to ensure their loved ones are protected financially in case of their unexpected death.

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The insurance cover that a businessman who buys goods from Lagos and wants to transport it to Kano would require is "goods in transit insurance". Goods in transit insurance is a type of insurance policy that protects the goods while they are being transported from one location to another. It covers the goods against damage or loss due to accidents, theft, or any other unforeseen circumstances that may occur during transportation. Therefore, in this case, the businessman needs to purchase a goods in transit insurance policy to cover his goods while they are being transported from Lagos to Kano. This policy will provide financial protection to the businessman in case of any damages or losses during transportation.

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Life insurance is a contract of benefit. This means that when you purchase a life insurance policy, you are entering into an agreement with an insurance company where they promise to pay a certain amount of money to your designated beneficiaries upon your death. The purpose of this benefit is to provide financial protection to your loved ones in case something unexpected happens to you. The other options listed are concepts commonly associated with insurance, but they do not fully capture the essence of what a life insurance contract is. Indemnity refers to the principle of restoring someone to the same financial position they were in before they experienced a loss. While life insurance may provide some level of indemnity, it is not the primary purpose of the policy. Subrogation is the right of an insurer to recover money it has paid out to a policyholder from a third party who may be responsible for the loss. This is not typically a concept that applies to life insurance. Contribution refers to the sharing of a loss among multiple parties. While life insurance may involve multiple policyholders, the primary purpose of the contract is still to provide a benefit to the beneficiaries of the insured person.

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A method of providing indemnity under a glass insurance policy is replacement. This means that, in the event of a covered loss, the insurance company will provide the policyholder with a new item to replace the damaged one. For example, if a policyholder has glass insurance for a window and the window is broken, the insurance company will pay for a new window to be installed. This method of indemnity is designed to restore the policyholder to the same position they were in prior to the loss, with a new item of equivalent value.

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The demand for payment made by the insured to the insurer following the occurrence of the event insured against is called a claim. In simpler terms, it is a request made by the insured to the insurer to provide compensation for the loss or damage that occurred and is covered under the insurance policy. For example, if a person's car is insured and gets stolen, the insured can make a claim to the insurance company to get compensated for the loss of the car. The insurance company will then investigate the claim and if it is valid, they will provide the insured with the compensation amount as per the policy terms.

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The policy of insurance is signed by the representative of the insured, which is the person or entity that is buying the insurance policy to protect themselves or their property from potential risks. The representative of the insured can be the policyholder themselves or someone authorized to act on their behalf, such as an agent or attorney. The representative of the insurer, on the other hand, is a person who works for the insurance company and is responsible for handling claims and providing customer service. An insurance broker is an independent intermediary who helps clients find and purchase insurance policies from different insurers, while an insurance consultant provides expert advice and guidance on insurance-related matters.

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In life insurance, the days of grace refer to the additional period of time after the premium due date, during which the policyholder can make the payment without any penalty or interest. The purpose of days of grace is to provide some flexibility to the policyholder to make the payment, especially in case of unforeseen circumstances. The number of days of grace allowed in life insurance can vary based on the insurance company and the specific policy. However, the standard number of days of grace allowed in life insurance is usually 30 days. This means that if the policyholder misses the premium due date, they have an additional 30 days to make the payment without any penalty or interest. It is important to note that if the policyholder fails to make the payment even within the days of grace period, the policy may lapse, which means that the insurance coverage will end. In such a case, the policyholder may have to apply for a new policy, which could involve additional underwriting and higher premiums.

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A life policy that pays the sum assured if the policyholder dies anytime within the policy period is called term assurance. In simpler terms, term assurance is a type of life insurance policy that provides coverage for a specified period, usually between one to thirty years. If the policyholder passes away during the term of the policy, the death benefit (also known as the sum assured) is paid out to the beneficiary. However, if the policyholder survives the term of the policy, the policy will expire, and no benefits will be paid out. Term assurance is a popular choice for people who want to ensure that their loved ones are financially protected in case of their untimely death. It is also generally more affordable than other types of life insurance policies, such as whole life insurance or universal life insurance, as it only provides coverage for a specified period.

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(a) Policy under which the injured employees will be compensated

The four staff were injured in an accident with the company's car while returning from rendering a home service to a customer, that is, in the course of their employment. The appropriate policy is the Employer's Liability Insurance (backed in Nigeria by the Workmen's/Employees' Compensation arrangement).

This policy covers the employer's legal liability to pay compensation for bodily injury, disease or death suffered by employees arising out of and in the course of their employment. Since Madam Scholastica has renewed this cover for the past five years, the two seriously injured staff and the other two can validly claim under it.

(b) Two policies the director should have taken to cover liabilities to customers and third parties

• Product (Products) Liability Insurance: This covers the insured's legal liability for injury, illness or damage caused to customers or the public by goods or substances supplied or used by the business. The harmful chemical bought for washing hair, which damaged many customers' hair, is exactly the kind of loss this policy indemnifies. It would have met the compensation paid to the affected customers.
• Public Liability Insurance: This covers the insured's legal liability to members of the public (third parties) for bodily injury or property damage arising from the conduct of the business or the condition of its premises, for example a customer slipping in the salon or being injured by a generator. It protects the salon against claims from persons who are neither employees nor parties to a contract of sale.

(A Professional Indemnity Insurance, covering negligence in the professional styling service, would also be acceptable as one of the two.)

(c) Insurance policy to cover the cashiers that handle cash

The company should take a Fidelity Guarantee Insurance. This policy indemnifies the employer against loss of money or property caused by the dishonesty, fraud or embezzlement of named employees who handle cash, such as cashiers. The cashier who disappeared with N2,100,000 withdrawn from the company's account is precisely the risk covered. A Money (Cash-in-Transit and Cash-on-Premises) Insurance, covering loss of cash by theft while in transit or on the premises, should also be added.

(d) Two other useful insurance products for the company

• Fire Insurance: The salon operates from a large premises containing fifty hair driers and two motorised generators. Fire insurance would indemnify the company against loss of or damage to the building, equipment and contents caused by fire, lightning and explosion, allowing the business to rebuild and re-equip after such a loss.
• Burglary/Theft Insurance: This covers loss of or damage to the salon's stock, equipment and fittings resulting from forcible and violent entry into the premises by thieves. Given the valuable equipment and cash handled, it protects the assets of the business against burglary.

(Group Personal Accident/Group Life cover for the staff and Business Interruption (Consequential Loss) insurance would also be valid answers.)

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(a) Explanation of terms used in insurance

• (i) Peril: A peril is the actual cause of a loss, that is, the event or contingency that gives rise to damage, injury or destruction. Examples are fire, flood, accident, theft, storm and death. It is the immediate reason why a loss occurs and is what an insurance policy is taken out to protect against.
• (ii) Hazard: A hazard is a condition or circumstance that increases the chance (frequency) or severity of a loss arising from a peril. It does not cause the loss directly but makes it more likely or more serious. A physical hazard relates to the physical characteristics of the risk (for example, storing petrol near a fire), while a moral hazard relates to the attitude, honesty or carelessness of the insured (for example, deliberate carelessness or fraud).
• (iii) Disclosure: Disclosure is the duty of the proposer, under the principle of utmost good faith (uberrimae fidei), to reveal voluntarily and truthfully all material facts that could influence the insurer's decision to accept the risk or fix the premium. Failure to disclose such facts (non-disclosure or concealment) can make the contract voidable at the option of the insurer.

(b) Differences between the classes of risk

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(a) Three types of policy in motor insurance

1. Private motor policy: This policy is designed for vehicles used for social, domestic, pleasure and private business purposes. It does not cover use for hire, reward or commercial carriage of goods.
2. Commercial vehicle policy: This covers vehicles used for business purposes, such as carrying goods, passengers or materials in connection with trade. Examples include lorries, vans, taxis and buses.
3. Motor cycle policy: This is designed for motorcycles, scooters and similar two-wheeled vehicles. It provides cover for the rider’s legal liability and may include fire, theft and accidental damage, depending on the scope selected.

(b) Three scopes of cover in motor insurance

1. Act only cover: This is the minimum cover required by law. It provides compensation for third-party bodily injury or death caused by the use of the insured vehicle. It does not normally cover third-party property damage or loss of the insured’s vehicle.
2. Third party only cover: This provides indemnity to third parties for death, bodily injury and damage to their property caused by the insured vehicle. It does not cover loss of or damage to the insured’s own vehicle.
3. Comprehensive cover: This is the widest scope of cover. It covers the insured’s legal liability to third parties and also covers loss of or damage to the insured vehicle arising from accident, collision, overturning, fire or theft, subject to the policy terms.

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(a) Five duties of insurance brokers

1. To advise the client on the most suitable type and amount of cover for his needs.
2. To place the risk with a sound and reputable insurer offering competitive terms.
3. To assist the insured in completing the proposal form and in disclosing all material facts.
4. To assist the client in the presentation and negotiation of claims against the insurer.
5. To collect premiums from the insured and remit them to the insurer, and to keep proper records of business transacted.

(b) Five duties of insurance agents

1. To canvass for and introduce new business to the insurer he represents.
2. To explain the terms and conditions of the policy to prospective policyholders.
3. To assist proposers to complete proposal forms accurately.
4. To collect premiums on behalf of the insurer and remit them promptly.
5. To help policyholders report claims and provide after-sales service such as reminding clients of renewals.

(c) Five duties of the Nigerian Insurers Association (NIA)

1. To protect, promote and advance the common interests of member insurance companies.
2. To set and enforce a code of ethics and good market conduct among members.
3. To liaise with the government and the regulator (NAICOM) on matters affecting the industry.
4. To operate industry schemes such as the ECOWAS Brown Card and to maintain records like the industry database on claims.
5. To promote public awareness and confidence in insurance and to settle disputes among member companies.

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(a) What reinsurance is

Reinsurance is the arrangement by which an insurer (the ceding company or direct insurer), having accepted a risk from its policyholder, transfers or passes on part of that risk to another insurer (the reinsurer) in return for a share of the premium. In effect it is the "insurance of the insurer": it enables the original insurer to spread very large or heavy risks, avoid a single catastrophic loss, increase its capacity to accept business, and protect its solvency and stability. The policyholder still deals only with the original insurer, who remains fully liable to him.

(b) Four essential features of insurable interest

Insurable interest is the legal right to insure arising from a financial relationship, recognised at law, between the insured and the subject matter of insurance. Its essential features are:

• There must be a subject matter of insurance: There must exist some property, life, right, interest or potential liability that is capable of being insured, for example a house, a life, a motor vehicle or a legal liability.
• The insured must have a legal relationship with the subject matter: The interest must be recognised and enforceable at law, arising through ownership, possession, a contract, a mortgage or another legal right, and not merely from sentiment or mere expectation.
• The insured must stand to benefit from its safety and to suffer from its loss: The insured must be so situated that the continued existence or safety of the subject matter brings him financial benefit, while its loss, damage or destruction causes him a financial loss.
• The interest must be capable of being valued in money (financial value): The loss that would follow from damage to the subject matter must be measurable in monetary terms, so that a definite pecuniary interest can be established and compensated.

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(a)(i) What a proposal form is

A proposal form is the printed document supplied by the insurer which the intending insured (the proposer) completes and signs to apply for insurance cover. It contains a set of questions through which the proposer supplies all the material facts about himself and the subject matter of the insurance. The information given forms the basis of the contract, enabling the insurer to assess the risk, decide whether to accept it and fix the appropriate premium.

(a)(ii) Four general questions contained in a proposal form

1. The full name and address of the proposer.
2. The age, sex and occupation of the proposer.
3. A description of the subject matter to be insured and the sum to be insured (its value).
4. Details of previous insurance and claims history, including whether any insurer has ever declined, cancelled or refused to renew a policy.

(Other acceptable general questions: the period of insurance required and a declaration that the answers are true.)

(b) Three documents used in effecting insurance contracts

• Proposal form: As explained above, it is the document by which the proposer formally applies for cover and discloses the material facts on which the insurer bases its decision. It represents the offer stage of the contract.
• Cover note: A temporary document issued by the insurer to confirm that cover is in force pending the preparation of the full policy. It gives the insured immediate protection and states the main terms, remaining valid for a short period (often 30 or 60 days) until the policy document is ready.
• Insurance policy (policy document): The formal, legal contract between the insurer and the insured. It sets out in detail the names of the parties, the subject matter, the risks covered, the sum insured, the premium, the period of cover, the exclusions and the conditions. It is the conclusive evidence of the terms of the agreement.

(The certificate of insurance and the premium receipt are also acceptable documents.)

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(a) Two factors that could reduce the amount of indemnity under an insurance contract

• Under-insurance and the application of the "average" clause: Where the sum insured is less than the true value of the property at the time of loss, the insured is treated as his own insurer for the shortfall. Under the average clause the claim is scaled down in the proportion that the sum insured bears to the actual value, so the insured recovers less than the full loss. \( \text{Claim} = \dfrac{\text{Sum Insured}}{\text{Value at Risk}} \times \text{Loss} \).
• Excess (deductible) or franchise: Many policies require the insured to bear the first part of every loss (the excess). This agreed amount is deducted from the claim, so the indemnity actually paid is reduced by the excess. (Other valid factors: deduction for depreciation, wear and tear since indemnity restores the insured only to the value immediately before the loss; deduction of salvage value; and contribution where more than one policy covers the same loss.)

(b) Calculation of each insurer's liability (contribution)

Where the same property is covered by more than one insurer, each insurer contributes rateably in the proportion that the sum it insured bears to the total sum insured. This follows the principle of contribution.

Total sum insured: \[ N150{,}000 + N120{,}000 + N90{,}000 = N360{,}000 \]

Loss to be shared = \( N60{,}000 \).

Insurer A: \[ \frac{150{,}000}{360{,}000} \times 60{,}000 = N25{,}000 \]

Insurer B: \[ \frac{120{,}000}{360{,}000} \times 60{,}000 = N20{,}000 \]

Insurer C: \[ \frac{90{,}000}{360{,}000} \times 60{,}000 = N15{,}000 \]

Check: \( N25{,}000 + N20{,}000 + N15{,}000 = N60{,}000 \), which equals the total loss. Each insurer's liability is therefore A = N25,000, B = N20,000 and C = N15,000.