(a) What is meant by the term insurable risk?
(b) Explain any four circumstances when an insured may not be indemnified.
Explanation
(a) Insurable risks; are those in which the Insurance company is able to estimate the likely future losses. The risks can be estimated and calculated, e.g. motor vehicle insurance.
(b) Circumstances when an insured may not be indemnified are:
(i) An insured may not be indemnified if he has no insurable interest in the object insured i.e. he will not be compensated for insuring a friend's car.
(ii) If an insured fails to adhere to the principle of utmost good faith. If there is deceit in disclosing all materials facts that might influence the insurer whether to accept or not to accept.
(iii) If an insured tries to make profit from insurance, he may not be indemnified. The principle of contribution prevents an insured from making profit from insurance.
(iv) An insured may not be indemnified if the cause of the event insured against was not the risk insured against. For insurer to indemnify the insured, he must make sure that the immediate or proximate cause of the event insured against was the risk insured against.