INSURANCE NOTES

Every risk involves a loss of one kind or another. In older times, the
community could make contributions to the unfortunate person at the
time of loss. Today, the only business that can manage various risks is
Insurance. Every business enterprise is exposed to a large number of
risks and uncertainties. It may involve risk to premises, plant and
machinery, raw materials and other things. Goods may be damaged or
may be destroyed due to fire or floods. Some risks can be avoided by
timely precautions and some are unavoidable and are beyond control of
a business. These unavoidable risks can be protected by insurance. Still,
every individual in this world is subject to unforeseen uncertainties
which may make him and his family vulnerable. At this point, only
insurance helps you not only to survive, but also to recover loss and
continue your life in a normal manner.

Terms Used in Insurance

Introduction

In real life situations we are faced with many risks many of which

beyond our control. At home and in places of work, we face many risks
like fire, theft and burglary, accidents and machine breakdown among
beyond our control. At home and in places of work, we face many risks
like fire, theft and burglary, accidents and machine breakdown among
others.

Meaning of insurance

The process of ensuring that an individual or business receives financial

protection or compensation against losses in case a risk happens is
called insurance. In order to be protected an insurance agreement is
signed where the individual seeking protection agrees to make regular
payments (premium) to the insurance company hoping to get financial
compensation should the risk occur.

Pooling of Risks:

In most cases, insurance companies receive many regular payments

from different individuals and businesses for the same risk. They
usually create a pool or fund where those different people suffering
similar risks are compensated. This is called “pooling of risks”. Money is
always withdrawn from this pool to compensate those few who may
suffer loss out of the risk occurring.

MERITS OF INSURANCE:

i) You carry on business with a lot of confidence; After securing

an insurance policy, fear about negative outcomes reduces
because you are confident that compensation will be made,
once losses occur arising from the risks insured.
ii) Insurance increases business efficiency; Without fear of
losses, you run business with a lot of commitment. Output is
always increased at a very high rate because you are not

bothered about likely losses.

iii) Insurance provides compensation for losses in the business.
 bothered about likely losses.
iii) Insurance provides compensation for losses in the business.
Once a business is insured, all losses arising from the insured
risks occurring are compensated and the business earns
stable growth.
iv) It helps in key indemnification. There are some people in
business whose capital, expertise, experience, energy, ability
to control and good will among others make them the most
valuable assets in business. The death or disability of such a
person may lead to great losses for a long period of time.
Insurance will help you cover your business against risks in
case of such losses.
v) Insurance facilitates loans acquisition. The insurance policy
agreement can be used as security while the business is
seeking loans for business expansion. Once the borrower
defaults on loans repayment, the lending institution can
present the insurance policy and get paid by the insurance
company.
vi) It improves workers’ morale which increases their
productivity. Securing healthy insurance policies for your
workers enables them do service without fear of financial
losses arising from accidents, sickness etc. This makes them
motivated to work with a lot of commitment.
vii) Insurance facilitates trade. Home and international trade are
carried on by traders smoothly without any fear of risks on
the way because there is assured compensation.
viii) Insurance is a means of savings. The life endowment policy

enables you to save for a particular period of time specified

and after maturity, you can consume and invest the money
 enables you to save for a particular period of time specified
and after maturity, you can consume and invest the money
accumulated.
ix) Other advantages of insurance include; providing
employment to people, contributing revenue to government
in form of taxes, promoting economic growth and promoting
investment among other.
Types of insurance

There are basically two major types of insurance; life insurance and
general insurance.

General insurance. When you are not certain that the risk you are
insuring against may occur, you take up general insurance. Most
companies involve in general insurance because it is profitable and in
many cases, risks may not occur for compensation to be made. Some of
the risks covered under general insurance include; accidents, fire, theft
and burglary, loss of cash in transit, employee dishonesty, loss of goods
in transit, public liability, marine losses and machine breakdown among
others.

Life insurance/assurance

Life insurance is also referred to as assurance because you are sure that
the risks insured against must by all means occur. For example if you
insure against sickness or death, you are sure whether you like it or not
you have to fall sick or die.

TYPES OF LIFE ASSURANCE POLICIES:

1. Whole life assurance: Under this policy, you continuously pay

premium up to the end of your life. Your specified family

members will be paid a certain amount of money after your
 premium up to the end of your life. Your specified family
members will be paid a certain amount of money after your
death plus interest on amount.
2. Endowment policy: This life insurance policy covers you only for
a specified period of time. You continuously pay premium and
you or your family will be compensated upon expiry of the
period of cover or your death, whichever comes first.
3. Term insurance policy: This covers you for a specific period of
time or vacation, for example going to distant places for honey
moon or vacation or tourism. Once you die within the period
specified, your family will be compensated, however if you
survive up to the end, no compensation is given to you or your
family.
4. Child plan policy: This allows you to pay premium continuously
but upon your death, your specified child gets a lump sum
amount and will continue getting a certain amount of money at
specific interval.
5. Money back policy: Here you pay premium continuously and a
certain percentage is paid to you periodically as survival benefit
payments made and at the expiry of the period you get the
balance amount. However, in case you die before maturity, your
family is given full compensation irrespective of the survival
benefit payments made.
6. Pension plans: This policy allows you to pay premium
continuously and you or your family are paid compensation
upon retirement or your death whichever comes first.
7. Group/company medical insurance: This policy is usually taken

by companies or organisations to cater for the medical bills of

their employees on a range of diseases specified in the contract
 by companies or organisations to cater for the medical bills of
their employees on a range of diseases specified in the contract
for a given period of time.
Group life policies: These are taken by owners of small businesses for
their employees, who may not afford the pension plans. Co-operatives
also sometimes take up such policies.

Basic terms used under insurance

Insurance involves a lot of terminologies which you must fully

understand before taking up a policy. The terms include the following:

a) Insurance Policy: This is the agreement between individuals

faced with various risks and insurance companies to be
compensated in case losses occur arising from risks happening.
b) Cover note/Binder: It is a temporary document issued to the
insured by the insurance company to provide proof of insurance
coverage before the final policy is out.
c) Insurance Agent: This is a person or organisation responsible for
selling insurance on behalf of an insurance company.
d) Risk: This is an event against which an insurance policy is taken
by the insured individuals. Examples include fire, theft, accidents
and employee dishonesty among others.
e) Insurance broker: This is an independent person who is
registered under the Insurance Act, who advises customers on
which policies to undertake and from which insurance
companies. An insurance broker is not an agent of any particular
insurance company.
f) Insurable risks: These are events whose occurrence can easily be

estimated and premium accurately determined. For example,

loss of profits, loss of cash in transit, loss of goods in transit and
 estimated and premium accurately determined. For example,
loss of profits, loss of cash in transit, loss of goods in transit and
machine break down among others.
g) Non insurable risks: These are risks whose occurrence cannot be
reasonably estimated and it is very difficult to calculate their
premium. They include; natural calamities like floods, earth
quakes, hailstones, storms and landslides among others.
h) Insurer: This is the insurance company that accepts to
compensate the insured in case losses arise from the specified
risks occurring. The insurer is also called insurance carrier or
underwriter.
i) Insured: This is the person that takes insurance against various
risks after paying premium and is paid compensation if a loss
arises from the insured risk occurring.
j) Premium: This is the amount of money you pay in lump sum or
periodically to the insurance company for protection against
specified risks.
k) Actuary: This is a professional who evaluates the like hood of
risk occurrence and advises on the premium to be charged by the
insurer.
l) Insurance proposal: This is the application form you have to fill
when applying for insurance.
m) Sum insured: This is the value of the item that you declare while
applying for insurance cover. The insurer bases on the sum
insured to determine how much you are supposed to pay as
premium.
n) Under insurance: This is a situation where you under declare the

value of your property at the time of taking up insurance. Under

insurance enables you to pay less premium because of declaring
 value of your property at the time of taking up insurance. Under
insurance enables you to pay less premium because of declaring
a lower value for your property. The problems with under
insurance is that, on occurrence of total loss after the risk has
happened, the insurance company compensates you only the
sum insured and not the actual value of the property.
o) Over insurance: This is a situation where you over declare the
value of the property at the time of taking out insurance. 0ver
insurance forces the insurance company to charge you high
premium but in case of total loss of the insured property, the
insurer will compensate you for only the actual value of the
property.

p) Loss: This is the effect of occurrence of the event against which

insurance was taken. For example, occurrence of theft, loss of
goods in transit, machine breakdown among others. Loss may be
partial or total that is;
a) Partial loss: This is where the effect of the loss occurring
leads to destruction of just part of the property. E.g.
insuring against loss of property worth Shs. 5million
and after the risk, only property worth three million is
destroyed.
b) Total loss: This is where the effect of the loss occurring
leads to complete destruction of the entire property. For
example, a ship capsizing and the entire cargo is
destroyed.
q) Assessors/Advisors: This refers to the person who is

responsible for calculating the extent of damage to the insured

property after the occurrence of the risk.
 responsible for calculating the extent of damage to the insured
property after the occurrence of the risk.
r) Surrender value: This is the amount of money refunded to the
insured who terminates the insurance contract before its
maturity.
s) No claims bonus: This is the discount given to the insured who
takes a lot of precaution and makes no claims against his/her
insurance policy for the specified period of time. The future
premium may be reduced by the insurer.
End of sub topic assessment:

(a) What is meant by insurance?

(b) Distinguish between Life and General insurance.
(c) What are the advantages of insurance to entrepreneurs
(d) What challenges are faced by insured businesses?

Principles of Insurance
Introduction

Insurance originated from the fact that there should be a guarantee

given to ensure steady business growth without hindrances/obstacles.
Whenever businesses, get obstacles to progress, they ought to be
restored to their previous financial position. If your financial position
becomes better after compensation, it can provoke you and many other
people to destroy property deliberately so that you can profit from
taking up an insurance policy. It is against that back ground that the five
principles that streamline the working relationship between insurance
companies and their clients were developed. In this subtopic, you are
going to cover the principles of insurance and various types and classes

of insurance policies.
of insurance policies.

The Principles of Insurance

The five principles of insurance all aim at providing you with

compensation that does not allow you as the insured to earn profits
from insurance. From your previous activity you must have discovered
that insurance has five main principles namely;

1. The Principle Utmost Good Faith (Ubberimae Fidei): This is basic

and primary rule upon which all other principles are derived. It
requires both the insurer and insured to be true and honest to
each other. The principle requires the insured to disclose all
materials facts about the property being insured without any
concealment or misrepresentation. The contract can be
terminated if the insured, omits, hides falsifies or misrepresents
any material facts related to the subject matter of the items being
insured.
Note: The principle of Utmost Good Faith applies to all types of
insurance contracts.

Insurance companies can also Act in Bad Faith

and violate the principle of Utmost Good Faith by doing the following:
- Delaying or denying compensation without justifiable reasons.
- Failing to acknowledge and reply to a claim promptly.
- Failing to perform a proper and thorough investigation into the

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claim.
- Attempting to settle a claim for a less than reasonable amount.
 claim.
- Attempting to settle a claim for a less than reasonable amount.
- Failing to inform the insured of an appeals process.
- Failing to provide a reasonable explanation for a denied or
under paid claim.
- Asking for unnecessary burdensome documents to process a
claim.

2. The Principle of Indemnity: Except life assurance, all insurance

contracts are for indemnity. The principle aims at restoring the
insured to his former financial position before the loss without
making him better or have an undue advantage. No insured
person should profit from insurance, therefore the amount of
compensation provided is restricted to the amount of loss
suffered by the insured/assured.
NOTE: The Indemnity principle applies to all other policies
except life assurance because life cannot be restored once lost.
3. The Principle of Insurable Interest: This principle requires you to
insure only that property where you have monetary interest. You
have insurable interest in property only if the existence of such
property gives you a monetary gain and its absence leads to a
financial loss to you. For example your life, your personal card
etc. You cannot take up insurance for a neighbour’s property,
because once it is destroyed you don’t lose anything financially.
NOTE: The Principle of Insurable Interest applies to all forms of
insurance.
4. The Principle of Proximate Cause (Causa Proxima): Sometimes

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we insure our property against one or a few risks but usually the
loss to the property may be due to various risks occurring in
 we insure our property against one or a few risks but usually the
loss to the property may be due to various risks occurring in
sequence. In such a case the insurance company looks at the
nearest cause (proximate cause) of the risks in order to
determine whether you are compensated or not. There should
be a very close relationship between the cause of the loss and
risk insured. Once the immediate risk that caused the loss was
not insured against, no compensation can be given even if the
subsequent causes were insured. For example; if your car is
insured against accidents and it is destroyed by thieves, no
compensation is given.
Note: The principle of causa proxima does not apply to life insurance
because whatever natural or other factors leading to sickness or death,
the insured person’s family must be compensated.

5. The Principle of Subrogation: Subrogation means to stand in

place of or substituting one creditor for another. This principle
requires that after the risk has occurred, and the insured is
compensated fully for the total loss suffered, then the right of
ownership of such property transfers to the insurance company.
For example, if a car is destroyed during an accident and the
owner is fully compensated, the right of owning the
wreckage/scrap that remains transfers to the insurance
company.
NOTE: This principle does not apply to life insurance because life
ownership cannot be substituted or transferred.
Insurance Policies Available in Uganda

We discussed earlier that, once you choose a wrong policy for a given

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risk, compensation will not be made because the principle of “Causa

Proxima” would be violated. In your previous activities you might have
risk, compensation will not be made because the principle of “Causa
Proxima” would be violated. In your previous activities you might have
discovered the different policies covered under insurance. Such
insurance policies available in Uganda from the different classes may
include the following;

Policies under general insurance

General insurance is also called property insurance because you cover

your property against the various risks specified. An individual is
allowed to insure only that property where he/she has insurable
interest in.

General property insurance: The policies under property insurance

cover the individual’s property/valuables against losses arising from
risks of theft of goods, loss of cash in transit, damage to goods, fire and
marine losses among other.

The policies include the following:

i) Fire policy:
This policy is taken by businesses to cover its property
against losses caused by fire.
ii) Consequential loss insurance policy: This type of insurance
policy covers you against the other losses you might incur
after the fire or any other destruction. For example, if fire
destroys an insured property and in the process some debris,
destroy your neighbour’s property. The loss to your
neighbour’s property is a consequence of the fire that gutted
the insured business therefore under this policy it is also

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covered.
 covered.

Which Perils/risks
Are Not Covered By Fire
Insurance Policies
The fire insurance policies do not cover perils mentioned below:

⦁ Spontaneous combustion
⦁ Burning of property by order of any Public Authority or
Government
⦁ Property undergoing any heating or drying process
⦁ Explosion of boilers (other than domestic boilers)
⦁ Total or partial cessation of work
⦁ Permanent or temporary dispossession by order of Government
⦁ Normal cracking or settlement or bedding down of new structures
⦁ War or warlike operations, Nuclear perils
⦁ Pollution or contamination
⦁ Overrunning, excessive pressure, short circuiting, etc.

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Auto insurance:
Auto insurance:

While you are purchasing a motor van, know that it is prone to

accidents on the road which might lead to destruction. Therefore you
must cover yourself, your vehicle and any other losses on other vehicles
or property that can be destroyed in case you get involved in an
accident. There are always three parties involved;

First party: This is the insured person or vehicle.

Second party: It is the insurer or insurance company that covers the

person or vehicle against risks. The driver in a passenger vehicle is also
called third party.

Third party: This refers to any other person, or property except the
insured person, the vehicle insured and the driver of the insured car.

Policies under Auto Insurance

i) Motor third party policy: This policy covers the insured

against losses, or injuries to any other person after the
accident a party from the owner, the car or its driver. Third
party compensator, the passengers in the insured vehicles
apart from the one insured and any other property destroyed
after the insured car involves in an accident. Motor third
party policy is compulsory in all countries for drivers.

Under the Uganda laws, the maximum amount

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of compensation given to each passenger is due to 1 million shillings

and for the other property destroyed in aggregate Shs. 10 million per
of compensation given to each passenger is due to 1 million shillings
and for the other property destroyed in aggregate Shs. 10 million per
accident if many people are involved. Once the claimed compensation
amount exceeds those legal limits, you do not get any compensation
except through petitioning the courts of law.

ii) Comprehensive Motor Policy: This policy covers all parties

involved in an accident with the insured car. It covers the
vehicle itself, the driver and also the other third parties
involved in the accidents like passengers, other vehicles and
property.

Once all accurate and undisputed documents

are submitted, the insurer has to settle the claim within 60 days of
reporting the incident.

Factors considered while assessing premium in motor policy

i) Age of the driver. Young drivers are usually adventurous and

curious. Therefore insurance companies charge them higher
premium than the mature people who are very stable in
mind.
ii) Area of operation. Vehicles who operate in congested areas
and those with poor infrastructure are prone to mechanical

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breakdown and accidents. They therefore charged higher

premium compared to vehicles operating in non-congested
 breakdown and accidents. They therefore charged higher
premium compared to vehicles operating in non-congested
areas and on well-maintained roads.
iii) Value of the vehicles. Expensive vehicles require a lot of
monetary compensation in case of accidents. They are
therefore charged higher premium compared to cheap
vehicles.
iv) Qualification and experience of the driver. Highly qualified
and experienced drivers have a lot of expertise in minimising
accidents. Therefore their vehicles are changed less premium
than those vehicles driven by the less experienced.
v) Occupation of drivers. Professionals like doctors, managers,
teachers and lawyers among others usually drive with a lot of
caution and seldom involve in reckless driving. They are
therefore charged less premium that other drivers for
example students.
Personal accident policy. This policy is taken to cover people against
any accident may get involved in especially those caused by vehicles. It
is advisable that while taking up a third party policy for a commercial
vehicle, the owner should also take a personal accident policy for his
driver.

What to do;
i. Explain the advantages of comprehensive motor insurance.
ii. Why is motor third party insurance popular in Uganda?
iii. Describe the different parties involved in motor insurance.
iv. Share your answers with the rest of the class.

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Other business insurance policies:

Other business insurance policies:

i) Loss of goods in transit policy: This covers the business

against losses arising from goods getting damaged or
completely destroyed while in transit to and from the
business.
ii) Cash in transit policy: This covers the business against losses
that may arise due to loss or theft of business cash to and
from financial institutions or while it is being transport to the
different branches.
iii) Fidelity Guarantee Insurance: This policy protects your
business from losses arising from fraud and dishonest of your
employee that is if some or all money is embezzled by your
employees.
iv) Bad debts policy: This policy covers your business against
losses arising some debtors who fail to clear debts. It is
important that all the credit sales you make in business are
insured to avoid losses from bad debtors.
v) Employers liability policy: This policy is taken by the
entrepreneur to cover his/her workers against injuries that
may occur while on duty and during business hours. It does
not cover injuries to workers while in their places of
residence.
vi) Public liability policy: This policy covers the business against
injuries to the general public as a result of business activity.
For example, if a business is constructing a building and some
of the falling debtors injure the passers-by, the policy
compensates them adequately. This policy is usually taken by

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construction companies and manufacturing factories where

risks of injury to general public is high.
 construction companies and manufacturing factories where
risks of injury to general public is high.
vii) Plate glass insurance policy: This policy covers your business
against loss or injury caused to the general public by the
plate glasses you use in your window and doors which may
be broken.
viii) Aviation insurance: Covers personal accident to aircraft
crashes.
ix) Aviation hull insurance: This policy covers you against loss or
damage to your cargo due to aeroplane accidents.
Marine insurance

This covers against injury to people and loss or damage to cargo while
at sea. They include the following:

Marine Hull insurance: This policy protects your water vessel

and its fixtures against damage for a particular journey or
several journeys in a given period. It also covers losses
resulting from damages to other water vessels or loss of
property. Marine hull is further divided into other sub
policies which include:
a) Voyage policy: It covers the insured water vessels for only
a particular specified journey. E.g. from Mombasa to India.
b) Time policy: This covers the insured water vessel for a
particular period of time. For example from January to
April.
c) Floating policy: This covers the insured water vessels on
a particular route for a specified period of time. For
example you can insure your ship for the route of

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Mombasa to India and from January to April 2022.

d) Open policy: This covers the insured water vessel against
 Mombasa to India and from January to April 2022.
d) Open policy: This covers the insured water vessel against
any risk that may occur anytime and on any journey. It is
highly recommended but it requires payment of high
premium
Losses on sea:
The marine losses are categorised in four as mentioned
below;
a) Actual total loss: This is suffered where the whole water vessel
or all the cargo is damaged or lost at sea. There is no hope of
recovering the ship or cargo. For example a ship capsizing and all
cement cargo turns into concrete due to contact with water.
b) Constructive loss: This is suffered when the damage to the ship
can be recovered. However the costs of saving or reconditioning
cargo maybe higher than its value.
c) General average loss: This loss results from a deliberate sacrifice
or expenditure incurred to save the ship or the cargo on it from
destructive. For example, some goods may be thrown into water
to reduce the weight.
d) Particular average loss: This loss occurs when some of the goods
are damaged or lost at sea and others are rescued.

Some risks cannot be covered under marine

insurance that is;

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i) Losses due to leakages for goods packed in bags.

ii) Losses due to delayed arrival.
 i) Losses due to leakages for goods packed in bags.
ii) Losses due to delayed arrival.
iii) Losses arising from violence, wars, strikes and hijacks.
iv) Shipment of dangerous and illegal drugs e.g. opium,
marijuana among others.

Insurance Documents and Process

Introduction

For all transactions in business to have proof of existence and for

proper accountability they must be documented. Like in businesses,
insurance has documents provided at different levels to provide proof of
transaction whenever required. In this subtopic you are going to cover
the various documents used in insurance and understand how can
effectively be applied.

INSURANCE DOCUMENTS

There are various insurance documents used for different types of

insurance, which are essential for all classes of insurance business. The
object of insurance documents is given to the insurer full particulars of
the risk against which insurance protection is desired. It also provides
evidence of contract into which the parties have entered.

1. Proposal Forms

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The Company’s printed proposal form is normally used for making an

application for the required insurance cover. The proposal form
The Company’s printed proposal form is normally used for making an
application for the required insurance cover. The proposal form
contains questions designed to elicit all material information about the
particular risk proposed for insurance. The number and nature of
questions vary according to the particular class of insurance covered.
In Marine Cargo Insurance, Insurance document is not the practice to
use a proposal form, although sometimes it is usual to obtain a
questionnaire or a declaration form duly completed. Proposal forms are
used for hull insurance.
In Fire Insurance, the practice varies among the companies, proposal
forms are not generally used for large industrial risks where inspection
of the risk is arranged before acceptance of the risk. Forms are used for
simple risks. Proposal forms are used in respect of risks which are
normally declined but have to be accommodated to retain the goodwill
of the client.
In Miscellaneous Insurance, proposal forms are invariably required and
they incorporate a declaration which extends the common law duty of
good faith. Fire proposal forms may or may not have the declarations.
The following items may be considered as common to all proposal
forms.
1. Proposer's name in full
2. Proposer's address
3. Proposer's profession, occupation or business
4. Previous and present insurance
5. Loss experience
6. Sum insured
7. Other Section's - Signature, date, place etc.

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2. insurance Policy .
The policy is a document which provides evidence of the contract of
2. insurance Policy .
The policy is a document which provides evidence of the contract of
insurance.
3. Cover Note/binder
A cover note is a document issued in advance of the policy when the
policy cannot for some reason or the other, be issued straight away.
Cover notes are issued when the negotiations for insurance are in
progress and it is necessary to provide cover on a provisional basis or
when the premises are being inspected for determining the actual rate
applicable. 4. Certificate of Insurance
In motor insurance, in addition to the policy, a certificate of insurance is
required. This certificate provides evidence of insurance to the Police
and Registration authorities. It contains the essential features of the
cover including the terms and conditions. In Marine Insurance,
certificate of insurance is issued to provide evidence of cover on
shipments insured under cargo open cover or floating policies.
5. Endorsements
It is the practice of insurers to issue policies is a standard form, covering
certain perils/risks and excluding certain others. If it is intended, at the
time of issuing the policy to modify the terms and conditions of the
policy, it is done by setting out the alteration ia a memorandum which is
attached to the policy and forms part of it. The memorandum is called
an endorsement
STEPS INVOLVED I N ACQUIRING AN INSURANCE CONTRACT

⦁ Get quotations from at least three insurance

companies before deciding on the insurance
company to do business with.

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⦁ Make decision on the insurance company and type of insurance to

undertake.
 ⦁ Make decision on the insurance company and type of insurance to
undertake.
⦁ Check your budget and decide how much money your company can
pay for the insurance.
⦁ Fill in an insurance application form called a proposal form giving
details of insurance required. In this case the Principle of Utmost
Good Faith has to be respected.
⦁ Sign the proposal form after making your first payment. This means
that you are now insured.
⦁ Make regular payments (premiums) to your insurance company.
⦁ Receive a cover note. This for temporary use as you wait for the
final policy.
⦁ Receive an insurance policy from the insurer. This is the contract
between the insured and the insurer and it is the final proof that you
are insured against a specific risk.

Factors that may limit you from acquiring insurance

⦁ Insurance is not made available where risks cannot be calculated.
⦁ Losses must be accidental in nature for compensation to be made.
⦁ High premium prevents people who would wish to be members of
insurance.
⦁ Insurance companies have business in city centers ignoring rural
settings.
⦁ The elites who understand the importance of insurance are few in
developing counties
⦁ Risks of big magnitude are usually excluded e.g. destruction of
property due to wars and floods.

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Challenges Facing the Insurance Industry

Introduction

Many people believe that insurance owners earn a lot of free money and
can operate with years without a loss. There are however many
challenges facing the insurance which you are going to cover in this
subtopic.

1. High levels of poverty. Majority of Ugandans are poor and

therefore don’t even have enough income to injure their lives
and that of their family members.
2. Lack of trust. Many Ugandans do not have trust in insurance
companies because many of them fail to compensate those who
suffer losses. Other insurance companies shut down making
many people to lose money in terms of accumulated premium.
Most people therefore see insurance as an unnecessary expense.
3. Stiff competition. There are many insurance firms being
established in Uganda. In an effort to win clients, majority of
them have resorted to persuasive advertisements which raise
their costs of operation and reduce their profit levels.
4. Political instability. There are political institution and unrests in
some parts of the country. This reduces the expansion of
insurance firms to those areas because investors fear to lose life
and property.
5. Poor economic environment. There is high inflation in Uganda
which forces insurance firms to raise premium. This high
premium scare away potential clients leading to greater losses. A

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poor economic environment also scares potential investors in

insurance due to uncertainty about profitability.
 poor economic environment also scares potential investors in
insurance due to uncertainty about profitability.
6. Poor management. Many insurance company are managed by
non-professionals who have less knowledge and lack specialised
training about insurance. This has led to commitment of many
fundamental mistakes that have made insurance firms lose
credibility.
7. Political interference. Many politicians have penetrated the
insurance industry forcing many firms to reverse some useful
policies. Politicians usually interfere in the determination of
premium and compensation claims which negative effect
profitability of insurance companies.
The other challenges faced by the insurance companies in Uganda
include; high taxes imposed, lack of nationwide appeal and existence of
many low profit small firms among others.

Solutions to the challenges of insurance

For the insurance business to prosper, the above challenges must be

overcome. This can be through the following ways,

i) Maintain security in all areas. The government should ensure

that all areas have security which may increase confidence
among investors and expand the business to all areas.
ii) Hiring professional management insurance companies
should be run by highly skilled professionals who can easily
assess risks and calculate premium accurately. This will build
trust.
iii) Legislation. The government should put in place strict laws

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against insurance companies that default on genuine

compensation whatever losses occur from risks. The
 against insurance companies that default on genuine
compensation whatever losses occur from risks. The
insurance regulatory authority should guide and monitor
activities of all insurance companies to protect the clients.
iv) Providing affordable policies to low income earners
government should subsidise insurance companies to make
insurance very affordable even to the low income earners.
v) Creating a favourable economic environment. The
government should control inflation and other economic
instabilities to increase confidence among investors in
insurance.
vi) Expanding the insurance products. The insurance companies
should provide a variety of insurance products to enable
people of various social-economic backgrounds have access
insurance.
vii) Making some policies compulsory. The government should
ensure that the policies that cover mainly the health and life
of people are made compulsory to all employers through
creating compulsory health and life schemes. Like it is with
motor third party insurance.

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