ADAPTATIONS OF THE PRINCIPLES OF INSURANCE TO THE EVER CHANGING MARKET DYNAMICS

"A principle is a fundamental part of any discipline that guides its general operations"?It can thus be argued that any alteration to something so integral might lead to the said discipline being so distorted as to deviate it from its initial envisioned purpose.

However due to the normal market dynamics of the insurance industry as with any other market, players have had to come up with innovative ways to adapt and succeed in the aforementioned "market place" and still uphold the 7 principles of insurance as was initially intended.

Traditional Principles of Insurance

1. Indemnity - "defined as the act of restoring an insured to the exact financial position that they were in immediately before the loss occurred".
2. Proximate cause - refers to a "primary cause or an incident that set everything in motion".
3. Subrogation can be defined as "the?substitution?of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties".
4. Insurable interest - refers to the legal right to Insure arising out of a financial relationship recognized at law i.e. Mr. Mwangi can insure his legally bought motor vehicle as he would stand a chance of a financial loss in the event that it is lost through theft or damaged through an accident.
5. Utmost Good Faith - This is a fundamental principle that requires both parties to the insurance contract to disclose "material facts" that may lead the other party to either accept or decline the risk proposed or to impose or request for specific terms and conditions.
6. Contribution?- Is basically defined as "that portion of a loss paid by each insurer, when the same loss is covered by two or more insurers." Its main function is to ensure that indemnity is maintained and that Insured's do not end up benefitting from Insurance.
7. Principle of loss minimization?- A more recent principle it reads as follows "the insured must always try their level best to minimize the loss of his insured property, in case of sudden events like fire etc. The insured must take all necessary steps to control and reduce the losses and to save what is left" i.e. Even with Motor Comprehensive Insurance motorists should still adhere to the traffic rules and not drive vehicles in a reckless manner in order to avoid accidents.

Emerging/Non-traditional Principles of Insurance (and/or modifications to the principles) These are the market practice's that have emerged in the Insurance field as a necessity for Insurance service providers to remain competitive and relevant.

1. Flexibility is best illustrated by the emergence of payment plans for insurance premiums contrary to the cash & carry and/or premium payment warranty which states that premium should be settled before cover commences, this business model has the advantage of allowing the client to spread out premium settlements in installments thus easing the pressure of having to cough up a large sum in the name of premium, on the other hand underwriters can also use the same as a marketing gimmick while at the same time spreading their risk as cover will only be issued for a certain duration. (when motor certificates are issued in installments, insurers will only be liable based on the specific dates as shown on the certificates).
2. Adaptability?/ Innovation comes into effect through the use of technology to improve service delivery and also as a marketing tool, however innovation is also noted in the emergence of new non-traditional covers i.e. micro insurance products where premiums have been reduced significantly so as to allow a larger portion of society to access insurance cover however this comes with a limited scope of cover.
3. After the Event, although not ideal, it has been noted that in some instances insurers have settled claims where liability may not have otherwise attached automatically, for example the wrong scope of cover might have been unknowingly given or cover may have been completely omitted due to an error of omission or commission but due to a longstanding relationship between an insured and and an Insurance company or in the interest of protecting members of the society the same would be honored, to distinguish the same from ex-gratia it would be mandatory that an element of fraud would have to be there to enable insurers to settle the claims. but in order to avoid scenarios where the above is abused a legal recourse for the insurer against their agent should also be made available.
4. Customer Centric "customer is King" As such producers and in our case insurance service providers should always endeavor to provide the best possible solution to the consumers, unlike sellers of tangible goods where the contract is normally fulfilled once the buyer is in possession of the goods, Insurers should give top notch service so as to ensure that their clients always have a feeling that they are getting value for money even when they have not claimed from their insurance policies this will in turn ensure return business (subsequent renewals) as Insurance is a necessity during the lifespan of a particular asset for example when one buys a Motor Vehicle they will have a financial interest in the vehicle until they sell it off or it ceases to work. This can also be tied in with return on investment (point no. 8 on how to retain business).
5. Technology Driven, Being well into the 21st Century we all have had to embrace technology, since most aspects of our daily lives are controlled by technology, likewise for insurance products to be more appealing to the current tech savvy generations, insurers will have to invest heavily in technology infrastructure and come up with innovative product's to leverage on the aforementioned infrastructure, certain firms have already come up with one month motor insurance covers that can be generated using mobile telephone USSD codes and digital motor certificates sent directly to their clients email addresses.
6. Price Sensitivity,?Due to the harsh economic environment, consumers have become more conscious of the price of the various products that are on offer by the various players in the insurance market this has resulted in an unfortunate situation where insurance providers compete on the area of pricing instead of service delivery and product innovation. This has in turn had a negative compounded effect in further stagnating the industry as the pool remains the same or even reduces with undercutting, to mitigate this Insurance providers have had to come up with more products that not only offer adequate coverage but are also price sensitive, hence growth in the Micro Insurance sector. However more needs to be done to ensure that this issue of undercutting is adequately addressed.
7. Profitability For any commercial venture to remain viable, profit is very crucial this also applies to Insurance companies where the shareholders/owners of an insurance company hope to receive a return on their investment. In order to achieve a profit there has to be a proper balance in the risks that a company is willing to take on, rates applied should be adequate to cover an Insurance company's risk exposure and to ensure that a portion is left to be utilized for investment purposes in order to raise additional revenue.
8. Return on Investment; similar to profitability, this would however be of benefit to the Insured instead of having their annual premiums being "lost" If the Insured does not claim within the policy period their premium is usually deemed to have been utilized to indemnify the other members of the pool (premiums for the fortunate many will be used to cushion the unfortunate few). Similar to some life assurance policies, general Insurers can come up with policies whereby if an insured has not claimed during the insurance period then a portion of the premium can be refunded in the form of small bonuses (provided that the overall portfolio has made a profit). Or coming up with enhanced general insurance policies that have an element of investment, this would go a long way in tapping the market segment of Insured's who only effect Insurances that have been made mandatory by the laws of the land motor Third Party Insurance. For example an insurance company can come up with a motor comprehensive product where if the insured has been claim free for a minimum of three years they can then have all their car Tyres replaced for free.

In conclusion we can safely say that change is a fact of life and for one to survive one has to adapt to change, by coming up with mechanisms to not only survive but to also thrive in the new environment, more so in the business setting one has to from time to time come up with new and innovative ways to meet the consumers ever evolving needs while at the same time meeting the financial goals of profitability, failure to which a more aggressive, innovative and free thinking service provider will step up to disrupt the status quo.

Prepared by:

Charles Tanu Githinji.

07th January 2024.

Associate of the Insurance Institute of Kenya

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