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The Insured and the Insurance Contract: Bridging the Gap.



The growing need for insurance in our everyday life cannot be overemphasized. Insurance is an essential financial component that need to be considered when making sound financial decisions. Insurance in its real sense is a means of protection from financial loss and as such must be critically assessed when engaging in any policy (contract).

Generally, when insurers give the policy document (insurance contract) to the insured, all he does is glance through the policy and pile it up with the other bunch of financial papers forgetting he is bound by every single word in the policy. A lot of people fail to take their time to read their contracts and when issues arise, they get caught up by surprises in the contract document.

This is an issue that bothers on the relationship between the insured and the insurer. To avoid this, the insured is expected to understand the nitty-gritties of every detail in the contract.

Essentials of a Valid Insurance Contract

  • Offer and Acceptance
    When applying for insurance, the first thing you do is get the proposal form of the particular insurance company. After filling in the requested details, you send the form to the company (sometimes with a premium check). This is your offer. If the insurance company agrees to insure you, this is called an acceptance. In some cases, your insurer may agree or accept your offer after making some changes to your proposed terms.
  • Consideration
    This is the premium or the future premiums that you have to pay to your insurance company. For insurers, consideration also refers to the money paid out to you should you file an insurance claim. This means that each party to the contract must provide some value to the relationship.
  • Legal Capacity
    You need to be legally competent to enter into an agreement with your insurer. If you are a minor or mentally ill, for example, then you may not be qualified to make contracts. Similarly, insurers are considered to be competent if they are licensed under the prevailing regulations that govern them.
  • Legal Purpose If the purpose of your contract is to encourage illegal activities, it is invalid.

Contract Values

Most insurance contracts are indemnity contracts. Indemnity contracts apply to insurances where the loss suffered can be measured in terms of money.

  • Principle of Indemnity
    This states that insurers pay no more than the actual loss suffered. The purpose of an insurance contract is to leave you in the same financial position you were in immediately prior to the incident leading to an insurance claim. In other words, you will be remunerated according to the total sum you have assured.
  • Premium or Full Insurance

This requires paying the full value of an insured asset so that when it comes to its claims you get the full value as a remuneration.

  • Under-Insurance
    Often, in order to save on premiums, you may insure a percentage of the total value of the asset and when there is a partial loss, your insurer also pays that proportion while you have to dig into your savings to cover the remaining portion of the loss. This should be tried to be avoid as much as possible.

Not all insurance contracts are indemnity contracts. Life insurance contracts and most personal accident insurance contracts are non-indemnity contracts. When you purchase a life insurance policy at a certain amount that does not imply that your life’s value is equal to that amount. Because you can’t calculate your life’s net worth and fix a price on it, an indemnity contract does not apply.

Insurable Interest

The legal right to insure any type of property or any event that may cause financial loss or create a legal liability is called insurable interest. When it comes to insurance, it is not the house, car or machinery that is insured. Rather, it is the monetary interest in that house, car or machinery to which your policy applies.

It is also the principle of insurable interest that allows married couples to take out insurance policies on each other’s lives, on the principle that one may suffer financially if the spouse dies. Insurable interest also exists in some business arrangements, as seen between a creditor and debtor, between business partners or between employers and employees.

Principle of Subrogation

Subrogation allows an insurer to sue a third party that has caused a loss to the insured and pursue all methods of getting back some of the money that it has paid to the insured as a result of the loss.

For example, if you are injured in a road accident that is caused by the reckless driving of another party, you will be compensated by your insurer. However, your insurance company may also sue the reckless driver in an attempt to recover that money.

Good Faith

Doctrine of Utmost Good Faith
All insurance contracts are based on the concept of “uberrima fidei”, or the doctrine of utmost good faith. This doctrine emphasizes the presence of mutual faith between the insured and the insurer. In simple terms, while applying for insurance, it becomes your duty to disclose your relevant facts and information truthfully to the insurer. Likewise, the insurer cannot hide information about the insurance coverage that is being sold.

  • Duty of Disclosure: You are legally obliged to reveal all information that would influence the insurer’s decision to enter into the insurance contract. Factors that increase the risks – previous losses and claims under other policies, insurance coverage that has been declined to you in the past, the existence of other insurance contracts, full facts and descriptions regarding the property or the event to be insured – must be disclosed. These facts are called material facts. Depending on these material facts, your insurer will decide whether to insure you as well as what premium to charge. For instance, in life insurance, your smoking habit is an important material fact for the insurer. As a result, your insurance company may decide to charge a significantly higher premium as a result of your smoking habits.
  • Representations and Warranty: In most kinds of insurances, you have to sign a declaration at the end of the application form, which states that the given answers to the questions in the application form and other personal statements and questionnaires are true and complete. Therefore, when applying for fire insurance, for example, you should make sure that the information that you provide regarding the type of construction of your building or the nature of its use is technically correct.

Representations: These are the written statements made by you on your application form, which represent the proposed risk to the insurance company.

Warranties: They are imposed by the insurer to ensure that the risk remains the same throughout the policy and does not increase.

Breach of Utmost Good Faith

As already mentioned, insurance works on the principle of mutual trust. It is your responsibility to disclose all the relevant facts to your insurer. Normally, a breach of the principle of utmost good faith arises when you, whether deliberately or accidentally, fail to divulge these important facts. There are two kinds of non-disclosure:

  • Innocent non-disclosure relates to failing to supply the information you didn’t know about.
  • Deliberate non-disclosure means providing incorrect material information intentionally.

When you supply inaccurate information with the intention to deceive, your insurance contract becomes void.

  • Fraudulent non-disclosure means knowing about a material fact and purposely holding it back from the insurer.

If this deliberate breach was discovered at the time of the claim, your insurance company will not pay the claim.

If the insurer considers the breach as innocent but significant to the risk, it may choose to punish you by collecting additional premiums.

In case of an innocent breach that is irrelevant to the risk, the insurer may decide to ignore the breach as if it had never occurred.

Other Policy Aspects

Doctrine of Adhesion

The doctrine of adhesion states that you must accept the entire insurance contract and all of its terms and conditions without bargaining. Because the insured has no opportunity to change the terms, any ambiguities in the contract will be interpreted in his or her favor. 

Principle of Waiver and Estoppel

A waiver is voluntary surrender of a known right. Estoppel prevents a person from asserting those rights because he or she has acted in such a way as to deny interest in preserving those rights.

Presume that you fail to disclose some information in the insurance proposal form. Your insurer doesn’t request that information and issues the insurance policy. This is waiver. In the future, when a claim arises, your insurer cannot question the contract on the basis of non-disclosure. This is estoppel. For this reason, your insurer will have to pay the claim.


Endorsements are normally used when the terms of insurance contracts are to be altered. They could also be issued to add specific conditions to the policy. 


Co-insurance refers to the sharing of insurance by two or more insurance companies in agreed proportion. For the insurance of a large shopping mall, for example, the risk is very high. Therefore, the insurance company may choose to involve two or more insurers to share the risk.

Coinsurance can also exist between you and your insurance company. This provision is quite popular in medical insurance, in which you and the insurance company decide to share the covered costs in the ratio of 20:80. Therefore, during the claim, your insurer will pay 80% of the covered loss while you shell out the remaining 20%.


Reinsurance occurs when your insurer “sells” some of your coverage to another insurance company. Suppose you are a famous rock star and you want your voice to be insured for $50 million. Your offer is accepted by the Insurance Company A. However, Insurance Company A is unable to retain the entire risk, so it passes part of this risk – let’s say $40 million – to Insurance Company B. Should you lose your singing voice, you will receive $50 million from insurer A ($10 million + $40 million from insurer B). This practice is known as reinsurance.

Generally, reinsurance is practiced to a much greater extent by general insurers than life insurers.

So, when applying for insurance, ensure to understand the terminologies so you will not be found wanting.



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Differentiating in a Radically Changing Marketplace– Customer-Centricity in Insurance, Digital Innovations



Sweeping technological advances have created major growth opportunities in the Global insurance space, both for industry leaders and for innovative third-party providers. Insurers are reinventing their consumer engagement experience models, digitizing their distribution and operations, and embracing big data and analytics as they seek to lead the industry wherever they find themselves.

Against this background, many insurers all over the world are leveraging new Technologies to gain the upper hand from their data and transform their new and old business models to align with the new digital age.

Today’s consumers have more complex needs and are more knowledgeable about their choices and needs and therefore require personalized offerings as well as customized communications. They expect insurers to deliver services that meet the high benchmarks set by global digital giants with offerings that gives shorter response times; personalized service, top of the range quality services, seamless interaction among others. To survive in this new digital natives’ market-space, insurers must become truly customer-centric, embrace innovation to remain relevant, satisfy and retain their customer in today’s radically changing marketplace.

Why has is it Become Necessary to Innovate:

Moving towards customer-centric Insurance through digital innovations, there are some critical questions that as insurers we must ask ourselves:

  1. How effective would digital and mobile channels help insurers achieve growth and profitability in the market by retaining existing customers and most importantly gaining new customers.
  2. What are the best steps to take to close the communication gap and strengthen relationships with customers – this emanates from the fact that the modern consumers want frequent, meaningful and personalized communications.
  3. And thirdly, how can insurers build on first-generation agency portals with new capabilities through digital innovations to support distribution channels – this is because, insurance sales executives, agents and brokers always want better data and tools to better serve their customers and most important compete for new businesses.

The scale, reach and pace of tech-driven disruption in the insurance industry continue with such unprecedented speed pushing insurers to a new phase – adaptation of underlying business models.

Digital innovation through new technologies is the key driver of change in the insurance sector hence leading to customer-centric gains.

Innovation and new technologies have the potential to affect the fortunes of insurance companies. Examples the world over shows that the rewards are significant for companies that create strategies that successfully use digital channels.

These channels allow insurers to engage directly with customers, a critical requirement in the new digital age when customers expect continuous interactions with their service providers. Again, through these innovative channels, insurers can gain insight into unmet needs that provides ideas for new offerings. Third, insurers can gather information that helps them improve how they underwrite and market their products. 

In answering the above question on why has it become necessary to innovate, I dare say that innovation has become an imperative for insurers because without a strong digital strategy to differentiate oneself in the digital natives’ market-space,  insurance companies could lose the slice of the margins they earn from distribution and eventually impact their bottom line negatively.

How insurers responds to these economical and society-wide technological innovations, and provide insurance processes and policies that integrate such changes to bring about differentiation in the industry is a discourse worth considering.

Permit me to share with you a good example of one such disruptive innovation that has led one company to differentiate from the competition in the insurance space.

The Case of BIMA

BIMA is a leading insurance tech player that uses mobile technology to disrupt the global insurance industry. Even though it is a Swedish Microfinance Company, BIMA provides insurance services in developing and emerging markets in Africa in particular.

In Ghana, BIMA mostly provides mobile-delivered insurance and health services to the underserved market mostly within the informal sector thus pushing the agenda of micro insurance and insurance penetration forward. BIMA is less than ten years in Ghana but through its disruptive digital strategy, it currently serves and adds about 575,000 customers to its base monthly bringing about 75% first timers to insurance on board.

The BIMA business model allows their customers to register for an insurance policy via their mobile handset and pay for cover through deduction of prepaid airtime credit, or through their postpaid bills.  BIMA has developed an industry leading pay-as-you-go (‘PAYG’) insurance product that is the first of its kind in most markets.

The concept of real-time visibility has become a reality. This is the observation of processes or events in the precise time of occurrence. Real-time visibility helps in improving customer experience by proactively solving needs and concerns, cuts down on operating costs and improves business agility. Internet technologies and the use of digital hand held devices are making it possible for insurers across many markets bring about differentiation. Smart contracts have become enabled by the use of blockchain technology which has dramatically decreased paper-based transactions and turnaround times.

Cloud technology strategy is another digital innovation which provides an agile, scalable and flexible technology to improve the overall modeling capabilities for insurers.  These cloud technologies are been used in delivering value to business customers as well as building and managing bespoke IT systems to give cost competitive advantage and differentiation to many insurers. As pointed out by an article in The Record in the winter 2017 issue, “by leveraging high-performance computing (HPC) in the cloud, insurers are achieving levels of risk modeling that were not possible before”.

Despite the intense competition within the insurance industry, new non insurance-industry entrants into the insurance space is also raising the levels of competition and consequently increasing choice and consumer expectations.

To remain relevant in this radically changing marketplace, tomorrow’s insurance leaders and winners must prepare for the adoption of these new digital innovations. Great strides have been made in this direction and insurers leading the pack on the innovative front are taking action and making investments now that will help them become more customer-centric, improve their pricing to stay ahead of the competition and create operational efficiencies.  With these ever-changing digital environment, the question is, “where are the right areas to focus to achieve the expected goals”?

  • Research done by Celent found out that 37% of insurance customers prefer using smart technology rather than having someone physically to talk to. This gives customers immediate answers to their questions, their inquiries whenever they want. This empowers consumers and facilitates quick decision making. For example, Progressive Insurance’s Flo Chatbot that combines Artificial Intelligence (AI) and quoting technology to answer questions and start the auto insurance quoting process on Facebook Messenger  has created a niche that reaches the younger generation that are hooked to new technologies. This innovative approach has separated Progressive Insurance from its competitors in its market.
  • As indicated by Accenture, a global management consulting and professional services firm that provides strategy, consulting, digital, technology and operations services “The biggest innovations in insurance over the next three years will not be in the technology tools themselves, but how insurers design them with customers, agents, employees and other human partners in mind”.

In conclusion, a research conducted by Goldman’s Sachs Investment Research Department in 2016, found out that there is a strong recognition that the millennial cohort, which is one of the largest age group worldwide and are entering their highest consumption period and have a preference for digital solutions available for transactions.

As insurers, differentiating in a radically changing marketplace and becoming customer-centric in our insurance delivery through digital innovation is a must!

For our customer-centric based systems, we need to be strategic and take advantage of the various modern technologies such as AI, Blockchain and the cloud to help us deliver to customers’ expectation, profitability and remain highly competitive.

Whilst deploying these technological and innovative digital systems to ensure that our companies are the most efficient and customer-centric in our industry, we equally have a responsibility to develop clear strategies for fostering and managing these digital innovations.

These strategies must aim at enhancing the capabilities of our workforce and the efficiency of our operations.

Again our strategies must address the issue of integration where insurers extend the benefits of our technology enabled value chain to other industries to create dependable ecosystems with other service providers.

And finally, our insurtech strategies should grow and position our companies to share and possibly sell developed, tested and deployed innovative technology solutions to other industries.

The insurance industry has recognized this new phenomenon and through introspection, the industry is reviewing how to approach product and service distribution, claim management among other processes. The millennials are clearly dissatisfied with the conventional insurance solutions hence it has become imperative for our industry to adapt to solutions that digitally innovative so we can remain differentiated and relevant in the face of radical changes in our marketplace.

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