Introduction to Insurance Law - Week1

Introduction to Insurance Law

• Insurance law covers the principles and rules governing insurance contracts.
• It aims to protect the economic value of assets and the life of individuals.

Concept of Insurance

• The world faces uncertainties and risks affecting individuals, families, businesses, and assets.
• Potential losses relate to life, health, property, and more.
• Insurance products mitigate these unavoidable losses through financial compensation.
• Insurance is a financial product designed to minimize or eliminate the financial impact of various risks.
• It acts as a social tool aimed at reducing the risk of loss to life and property.
• Insurance safeguards the economic value of assets.

Evolution of Insurance

• The concept of insurance dates back thousands of years, stemming from "pooling risks."

• Early forms involved establishing common funds where individuals contributed to compensate those experiencing losses.

• The contributions were based on past experience to estimate the average number of people facing potential losses.

• An example of early insurance can be seen in a village with 500 houses, an average of 4 houses damaged by fire annually.

• Each homeowner contributes to a common fund.

• The first written insurance policy was found on a Babylonian obelisk, part of the King Hammurabi code.

• The code included written laws protecting traders from cargo loss.

The Great Fire of London

• In 1666, a fire began in London at a bakery on Pudding Lane.
• Timber-framed buildings made the city vulnerable to fire.
• The fire left many without homes.
• This emphasized the need for a modern fire service and insurance.
• Post-fire, fire insurance companies were established to cover potential property losses.

Principles of Insurance

• Insurance operates on core principles that underpin all insurance contracts.
• These core principles ensure fairness and transparency in the insurance process.

Principle of Utmost Good Faith

• Both parties (insured and insurer) are expected to act with honesty and transparency regarding the contract's subject matter.
• Complete, accurate, and clear disclosure is vital. Failure to do so can invalidate insurance policies

Principle of Insurable Interest

• The person seeking insurance must have a financial stake or gain or loss from the subject matter.
• This stake could be from life insurance or marine insurance
• The interest must exist at the time of loss.

Principle of Indemnity

• Insurance compensates the insured for losses up to the amount assured or the loss, whichever is lower.
• An insurance contract aims at restoring the insured to the position they were in before the loss, not to profit from the loss

Principle of Subrogation

• After an insured is compensated for a loss, the ownership rights of the damaged property transfer to the insurance company.
• The insurer can seek compensation elsewhere.
• The transfer occurs only when some value remains in the damaged item

Principle of Contribution

• The insured is limited to recovering compensation from losses to the amount of loss.
• Compensation can be recovered from one insurer or a group of insurers.

Principle of Proximate Cause

• Liability for a loss is determined by the closest or most significant cause of the loss.
• This principle considers the immediate and direct causes of loss, not all possible factors

Principle of Loss Minimization

• The insured has a duty to take reasonable steps to minimize losses associated with unforeseen events.
• The insured must take measures to either avoid or mitigate losses.