NATURE AND STRUCTURE OF INSURANCE DOCUMENT

The various types of documents used in insurance business are:

1. The Proposal form.
2. The cover notes.
3. The insurance certificate.
4. Policy document.

 

THE PROPOSAL FORM

This is a questionnaire designed by the insurer to the proposer to complete in compliance with the principle of utmost Good Faith. This is the means by which insurer collects information from the proposer on the proposed risk which makes it possible to assess the risk and be able to take decision on the acceptability of the risk.

The proposal form usually contains the declaration that warrants the truth of the proposer. The effect of this is that any misrepresentation would be a breach of contract and leave the insurer with the option of avoiding it.

 

FEATURES OF INSURANCE PROPOSAL FORM

The proposal form is usually designed into four main parts:

A) Generation questions: This consists of the following information:

1. The proposer’s name: This identifies the proposer. The proposer name is important for identification and communication purpose. It helps to know whether the proposer is an individual or a corporate body.
2. Proposer’s address: This is also an essential requirement for communication. It is an underwriting factor in theft insurance and all risk insurance policies.
3. The location of the proposed risk where it is different from the address of the proposer.
4. The occupation of the proposer: This is important in some classes of insurance since some occupations are normally hazardous. For instance, in personal accident insurance: sea divers, miners, and mountain climbers and in case of motor insurance: commercial divers and compulsive drinkers.
5. Information on previous and present insurance history: This is registered by the insurer to let them know if special terms or premium have been imposed. It also helps to know whether the proposer had an insurance proposal rejected or declined or having an existing policy with another company. The essence of this is to know whether other policies of the indemnity exist for the purpose of contribution in case of a loss.

 

B) Particular questions: These are questions which specifically relate to information about a particular class of insurance with regards to the proposed risk. The form is designed to reflect the hazards attached to the class of insurance and also the information on the values or limit of liability of the proposed risk.

Here are some examples:

In motor insurance

1. Type of Vehicle.
2. Make of vehicle.
3. Registration Number.
4. Cubic Capacity.
5. Type of Body.
6. Chassis and engine numbers.
7. Year of manufacture.
8. Good-carrying capacity.
9. Passenger-carrying capacity including driver.
10. Age of the proposer.
11. Year of driving experience.
12. Records of claims and accidents of the regular drivers.

 

In fire insurance

1. Construction of the building.
2. Method of construction.
3. Material used for construction.
4. Method of roofing.
5. Number of storeys/floors.
6. The age and state of the building.

 

In life and personal accident insurance

1. The age of the proposer.
2. The occupation of the proposer.
3. The height and weight of the proposer.
4. The medical history of the life to be insured.

 

C) Declaration: This is usually at the foot of the proposal form, declaring that all information given by the proposer is true and no information has been withheld. It further confirms the readiness of the proposer to accept unusual form of insurance contract like adjustment in premium if necessary. It also describes the insurance proposal form as a basis of the contract between the proposer and the insurance company. In fact, the aim of declaration is to ensure that the proposer understands that any false information he gives to the insurer shall be used against him later in the future.

 

D) Signature and date: The proposal form is to be signed by the proposer. It is boldly printed below and date that the completion of the form does not represent the acceptance of the proposed risk until the full or deposit premium is received by the insurance company.

 

FUNCTIONS OF INSURANCE PROPOSAL FORM

1. It serves as a convenient means by which the insurer obtains information on the proposed risk.
2. It serves as the basis of the contract where the proposer is expected to provide truthful information to the questions asked and if otherwise, such contract will be void based on misrepresentation.
3. The information provided in the proposal form is used to assess the proposed risk, whether it is acceptable or not.
4. It aids the offer and acceptance of risk.
5. It serves as a method of advertising through which insuring public obtains information on the particular class of insurance.

 

USES OF PROPOSAL FORM

1. A proposal form is the platform on which insurance contract is based, and all information given by the insured forms part of the contract.
2. It is the basic means by which insurer is able to access information regarding the risk proposed.
3. It also enables the insurer to determine premium charged, and any discount to be allowed.
4. Proposal forms contain three main sections: Personal data; Information relating to the subject matter; Information about insurance history.

 

The use of proposal form can be dispensed with in the following situations:

1. If the space provided in the proposal form will not be enough to contain the information on the proposed risk.
2. Where it is mandatory for the survey of the proposed risk to be carried out.
3. Where the initial information required on the proposed risk has been summarized by the insurance broker.

 

CONTRACTS WHERE PROPOSAL FORMS ARE USED

The following are the classes of insurance where proposal form is prominently used:

1. Motor insurance.
2. Life assurance.
3. Burglary insurance.
4. Fidelity guarantee insurance.
5. Money insurance, etc.

 

The following are the classes of insurance where proposal form is not used:

1. Marine insurance: Broker’s slip are used to provide necessary information required for the underwriting of the risk.
2. Fire insurance involving large risks.
3. Lloyd’s of London where the transaction of insurance business are through the use of slip.
4. Engineering risk which requires surveying before its acceptance.
5. Aviation risk which is accepted for insurance after carrying out survey.

 

THE COVER NOTE

A cover note is a temporary document effectively constituting a temporary policy. The acceptance of an offer by an insurer is not compulsory as said earlier. The insurer may require some time to see if it is possible to accept an offer by insured or not. But at the time, the insured may need some evidence to show that insurance policy is in force. Perhaps as a compromise solution the insurer may be willing to issue a temporary policy called a cover note.

This document is accepted for a limited period. It is used by the insured to provide temporary cover while the details of the risk are being processed. If the insurer eventually did not take the risk, then the temporary cover will have to be withdrawn.

It should be noted that any temporary cover expires at the end of the indicated period. If a loss occurs during the use of the cover note, the insurer will be liable unless special term have been included in the cover.

 

FEATURES OF COVER NOTE

The information on the cover note include:

1. Name of insured.
2. Address of insured.
3. Location of the proposed risk.
4. Type of cover granted.
5. The date and time of commencement of cover.
6. The Registration number of vehicle (for motor insurance).
7. The terms and conditions of the insurance contract.
8. The use to which the proposed risk will be put.
9. The type of the peril covered.

 

The statement is accompanied by an authorized signature of the authorized officer of the insurer or of the signature of the broker where it is issued by a broker.

 

CONTRACTS WHERE COVER NOTES ARE USED

Cover notes are mainly used in general insurance business such as motor, fire, and burglary insurance. Taking motor insurance for example, it is not feasible to issue a policy document once the proposal form has been completed. Also the owner of the vehicle cannot wait without using the vehicle until all relevant documents are released. In order to ensure that the motorist does not contravene the existing road traffic laws, he is issued the cover note to show that there isa contractual relationship between the insured and the insurer. Cover notes are not to be backdated. It must reflect the actual date and the time of issue which must be clearly shown.

 

THE CERTIFICATE OF INSURANCE

MEANING OF CERTIFICATE OF INSURANCE

It has been said above that the cover note can carry the insured for a limited time. The certificate of insurance is a document that is legally required to be issued by insurers in respect of compulsory insurance to the insured.

 

CONTRACTS WHERE CERTIFICATE OF INSURANCE IS USED

They are mainly required in the following classes of insurance:

A) Motor Insurance: It is important that certificate of insurance must be issued to a motor vehicle owner by the insurer which is considered as part of the particulars required by law. It is evidence that the motor vehicle owner has complied with the road traffic Acts, which made it an offence to put a vehicle on the road without a certificate of insurance. Section 6(4) of Motor Vehicle (Third Party Insurance) Act 1945 states: A policy shall be of no effect for the purpose of this Act unless and until there is issued by the approved insurer to the person by whom the policy is effected a certificate, in the Act referring to as certificate of insurance, in the prescribed form and containing such particular of any condition subject to which the policy is issued and of such other matter as may be prescribed.

 

B) Marine insurance: There is a certificate issued in respect of each shipment made under a floating policy in which the sum insured reduces until it is finally exhausted.

The information on marine insurance certificate are:

1. Name of the insured.
2. Type of cover granted.
3. Type of vessel.
4. Port of departure.
5. Port of arrival.
6. Conditions.

 

C) Employer liability insurance: This is a compulsory insurance which must be effected by the employer of labour. Employers of labour are mandated by the Factory Act 1968 and workman’s compensation 1987 to display the certificate of insurance at the entrance of the company.

The information on this certificate are:

1. The name of the policy holder.
2. The policy number.
3. The commencement date.
4. Wordings of compliance with the Workmen Compensation Act 1987.
5. The signature of an authorized staff of the insurance company.

 

THE POLICY DOCUMENT

The policy document is a document prepared by the insurer recording the full insurance transaction between the insured and the insurer.

The acceptance of insurance proposal made by proposer through the completion of insurance proposal form will lead to the preparation of insurance policy document in which the proposer becomes the insured, recording the full insurance transaction between the two parties i.e. the insurer and the insured. It is the evidence of contract between the two parties. The policy is not the contract but an evidence of the contract between the insurer and the insured. The policy form spells out the terms and conditions of the contract. It also becomes evidence at the court of law following any disagreement over some issues between the two parties.

 

COMPONENT PARTS OF POLICY DOCUMENT

There are two basic styles of policy form. They are the Narrative style policies and the Schedule policies.

Narrative policies: These forms of policy document are those that describe the policy wordings in a story pattern, where provisions are not made for subdivision or for different sections of the policy. In drafting of this policy, simple English grammar is made use of which the reader can easily understand. It is old and outdated. It is widely used in marine insurance contract.

 

Scheduled policies: The scheduled policy is the most common form of policy used by insurance companies. It is divided into sections. These sections are the heading, the recital clause, the operative clause, the exception, the condition and attestation clause.

A) The headings: This is found at the first page of the policy. It comprises the name and the registered address of the insurance company.

 

B) The recital clause: This is an introduction to the contract. This is where all information regarding the cover granted is clearly stated along with the mode of operation. It specifies that the policy holder has submitted the proposal form to the insurer. Under this clause, the payment of premium is also described paid or to be paid at a particular period of time.

 

C) The operative clause: This is where the event insured against is stipulated. It stipulates the scope and extent of cover granted by the policy and describes the situation that could lead to financial loss which are covered by the insurance companies.

 

D) The exception: This explains the instances in which the policy will not be in operation. It brings to the knowledge of the insured that not all events are covered by the policy i.e. not all perils or cause of loss can be covered. This is where the perils that are not covered by the policy are stated.

 

E) The condition: These are the conditions that must exist before the benefit could be enjoyed. They are dos and don’ts of the insurance contract. Both parties, especially the insured are expected to observe them before the benefit of the policy becomes enjoyable. There are two forms of conditions; namely express conditions and implied conditions.

1) Implied Conditions: This form of condition is not found in the policy but the insured are expected to be aware of such conditions.

For example:

• The existence of the observation of the principle of utmost good faith in the creation of insurance contract.
• The need for insurable interest in the subject matter of insurance.
• The existence of subject matter of insurance.

 

2) Express conditions: These are the conditions that are written in the policy.

There are two types of express condition, namely:

a) General Conditions: This has to do with the following issues:

• Misrepresentation and fraud.
• Extent of the cover.
• Process by which the insured can claim from the insurer.
• The privileges available to all parties to the contract. For example, the right to take the possession of damaged property under fire insurance or the salvage under motor insurance.
• The doctrine of subrogation.
• The doctrine of contribution.
• The right of the insurer to cancel the contract.
• The need for the insured to take good care of the property insured.

b) Particular conditions: This involves those conditions that allow the insured to seek for extension of cover granted in the insurer which are outside those stated in the policy. It also deals with the method by which the insured will direct the uses of the property insured.

 

F) The attestation clause: A representative of the insurance company signs the policy on behalf of the company. It is usually the chief executive officer of an insurance company. This is to be countersigned by the head of underwriting department for the class of insurance, which must be duly stamped to validate the insurance policy as the evidence of contract between the insurer and the insured.