,LML4805 EXAM PACK 2026
MAY JUNE EXAMINATION MEMO 2026
QUESTION 1 (20 marks)
1(a)
Mr Dlamini is a local pharmacist. He has a professional liability insurance policy
with an insurer, Pharm Cover Limited, that covers him for any liability that he
may incur towards a patient. First, identify the type of insurance involved.
Secondly, explain which of the following classifications of insurance are
applicable: indemnity or non-indemnity insurance; first party or third-party
insurance; a valued or unvalued policy; private or social insurance. You are
required to fully motivate your answers. (10)
The type of insurance involved is professional indemnity insurance (also called
professional liability insurance).
Classifications:
1. Indemnity insurance
It is indemnity insurance. The insurer undertakes to compensate Mr Dlamini for the
actual financial loss he suffers if he is held legally liable to a patient. The object is to
restore him to the position he occupied before the loss occurred (indemnity
principle). It is not non-indemnity (contingency) insurance, which pays a fixed sum
on the occurrence of an event irrespective of actual loss (e.g. pure life insurance or
personal accident insurance).
2. Third-party insurance
It is third-party insurance. The policy covers Mr Dlamini’s liability towards a third
party (the patient). First-party insurance covers the insured’s own person or property.
, 3. Unvalued policy
It is an unvalued policy. Professional liability policies do not contain a pre-agreed
value of the interest. The amount payable is determined only after the loss has
occurred and the quantum of the insured’s legal liability has been established.
4. Private insurance
It is private insurance. It is a voluntary commercial contract between a private
insurer and a private individual/professional. It is not social insurance (compulsory,
state-administered schemes aimed at social security, such as the Unemployment
Insurance Fund or COIDA).
1(b)
You are involved in a study group for this module. One of the students
mentioned that an increasing number of legislative enactments dealing with
insurance matters form an important source of insurance law due to legal
reforms since 2017. Motivate why the statement is correct with reference to at
least three examples. Provide complete references and explanations: do not
merely list your examples. (6)
The statement is correct. Since 2017 South African insurance law has undergone
fundamental statutory reform, elevating legislation to a primary source of the law.
Three important examples:
1. Insurance Act 18 of 2017
This Act repealed substantial portions of the Long-term Insurance Act 52 of 1998
and the Short-term Insurance Act 53 of 1998. It created a single, modern prudential
framework for the licensing, governance, capital requirements and supervision of all
insurers. It is now the principal statute regulating the business of insurance.
2. Financial Sector Regulation Act 9 of 2017
This Act introduced the Twin Peaks regulatory model. It established the Prudential
Authority (housed in the SARB) and the Financial Sector Conduct Authority (FSCA).
, The FSCA has extensive powers to make conduct standards and rules that directly
regulate the content and performance of insurance contracts.
3. Policyholder Protection Rules (PPRs) issued under the Insurance Act 18 of
2017
These subordinate legislative instruments impose detailed, binding duties on insurers
regarding disclosure, claims handling, cancellation, variation of policies and the
treating-customers-fairly principle. They have become a major source of substantive
rights and obligations in insurance contracts.
(Other relevant post-2017 instruments include various FSCA Conduct Standards and the
still-pending Conduct of Financial Institutions legislation.)
1(c)
The main aim of an insurance contract is the transfer of risk. Briefly summarise
what this entails. Provide a reasoned opinion as to whether this is a validity
requirement of an insurance contract or one of the essentialia of an insurance
contract. (4)
Model Answer
The transfer of risk means that, in return for the payment of a premium, the insurer
assumes the financial consequences of a defined uncertain future event (the risk) that
would otherwise fall on the insured. The economic burden of that risk is shifted from the
insured to the insurer.
This is one of the essentialia of an insurance contract (together with the premium and, in
most cases, an insurable interest). It is not merely a formal validity requirement. Without a
genuine transfer of risk, the agreement cannot be classified as an insurance contract at all;
it may be a wager, a pure donation, or some other type of contract. The presence of risk
transfer is therefore definitional of the contract.
MAY JUNE EXAMINATION MEMO 2026
QUESTION 1 (20 marks)
1(a)
Mr Dlamini is a local pharmacist. He has a professional liability insurance policy
with an insurer, Pharm Cover Limited, that covers him for any liability that he
may incur towards a patient. First, identify the type of insurance involved.
Secondly, explain which of the following classifications of insurance are
applicable: indemnity or non-indemnity insurance; first party or third-party
insurance; a valued or unvalued policy; private or social insurance. You are
required to fully motivate your answers. (10)
The type of insurance involved is professional indemnity insurance (also called
professional liability insurance).
Classifications:
1. Indemnity insurance
It is indemnity insurance. The insurer undertakes to compensate Mr Dlamini for the
actual financial loss he suffers if he is held legally liable to a patient. The object is to
restore him to the position he occupied before the loss occurred (indemnity
principle). It is not non-indemnity (contingency) insurance, which pays a fixed sum
on the occurrence of an event irrespective of actual loss (e.g. pure life insurance or
personal accident insurance).
2. Third-party insurance
It is third-party insurance. The policy covers Mr Dlamini’s liability towards a third
party (the patient). First-party insurance covers the insured’s own person or property.
, 3. Unvalued policy
It is an unvalued policy. Professional liability policies do not contain a pre-agreed
value of the interest. The amount payable is determined only after the loss has
occurred and the quantum of the insured’s legal liability has been established.
4. Private insurance
It is private insurance. It is a voluntary commercial contract between a private
insurer and a private individual/professional. It is not social insurance (compulsory,
state-administered schemes aimed at social security, such as the Unemployment
Insurance Fund or COIDA).
1(b)
You are involved in a study group for this module. One of the students
mentioned that an increasing number of legislative enactments dealing with
insurance matters form an important source of insurance law due to legal
reforms since 2017. Motivate why the statement is correct with reference to at
least three examples. Provide complete references and explanations: do not
merely list your examples. (6)
The statement is correct. Since 2017 South African insurance law has undergone
fundamental statutory reform, elevating legislation to a primary source of the law.
Three important examples:
1. Insurance Act 18 of 2017
This Act repealed substantial portions of the Long-term Insurance Act 52 of 1998
and the Short-term Insurance Act 53 of 1998. It created a single, modern prudential
framework for the licensing, governance, capital requirements and supervision of all
insurers. It is now the principal statute regulating the business of insurance.
2. Financial Sector Regulation Act 9 of 2017
This Act introduced the Twin Peaks regulatory model. It established the Prudential
Authority (housed in the SARB) and the Financial Sector Conduct Authority (FSCA).
, The FSCA has extensive powers to make conduct standards and rules that directly
regulate the content and performance of insurance contracts.
3. Policyholder Protection Rules (PPRs) issued under the Insurance Act 18 of
2017
These subordinate legislative instruments impose detailed, binding duties on insurers
regarding disclosure, claims handling, cancellation, variation of policies and the
treating-customers-fairly principle. They have become a major source of substantive
rights and obligations in insurance contracts.
(Other relevant post-2017 instruments include various FSCA Conduct Standards and the
still-pending Conduct of Financial Institutions legislation.)
1(c)
The main aim of an insurance contract is the transfer of risk. Briefly summarise
what this entails. Provide a reasoned opinion as to whether this is a validity
requirement of an insurance contract or one of the essentialia of an insurance
contract. (4)
Model Answer
The transfer of risk means that, in return for the payment of a premium, the insurer
assumes the financial consequences of a defined uncertain future event (the risk) that
would otherwise fall on the insured. The economic burden of that risk is shifted from the
insured to the insurer.
This is one of the essentialia of an insurance contract (together with the premium and, in
most cases, an insurable interest). It is not merely a formal validity requirement. Without a
genuine transfer of risk, the agreement cannot be classified as an insurance contract at all;
it may be a wager, a pure donation, or some other type of contract. The presence of risk
transfer is therefore definitional of the contract.
