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Who needs business insurance?

The basic concept of insurance is the contribution of many, to compensate for the loss of a few.


Business insurance is a risk transfer mechanism, which has developed and evolved over many years and is now a highly complex and sophisticated response to risk.


It is considered essential to a new business, especially if assets are financed.


The essential principles of insurance include:


• Insurable interest – The existence of insurable interest is an essential ingredient, which basically constitutes the legal right to insure arising out of a financial relationship, recognised at law, between the insured and the subject matter of insurance.


• Utmost Good Faith – This basic principle ensures that any fact that might influence the insurer, in either, accepting or declining the risk, or in establishing the premium, or terms and conditions, is material and must be disclosed.


• Proximate Cause – In an insurance contract, it is necessary to state the perils against which cover is given. Proximate cause means the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source. The proximate cause is not necessarily the first cause, nor the last, but it is the dominant cause resulting in an insurance loss.


• Indemnity – This is a mechanism by which insurers provide financial compensation in an attempt to place the insured in the same pecuniary position after the loss, as he enjoyed immediately before it. Insurers have the option to replace, repair, or some instances, pay cash in lieu.


• Subrogation – Subrogation is the right of one person to stand in the place of another and avail himself of all rights and remedies of the other, whether already enforced or not. Fundamentally, the point is that the insured is entitled to indemnity, but no more than that. Subrogation allows the insurer to recoup any profit the insured might take from the insured event and also will enable them to pursue any rights or remedies which the insured may possess, always in the name of the insured, which may reduce the loss.


• Contribution – This is the right of an insurer to call on others that might insure a common peril and common subject matter. Basically, where more than one insurance policy covers the same risk and subject matter, this contribution principle allows for the loss to be proportionately settled.



Business insurance provides the owner with peace of mind and also an essential mechanism to purchase assets, especially if financed by an institution.