Principles of general insurance – An agreement, where the insurance company associated with insured to receive the premium paid by the insured for reimbursement because of damage or loss of expected benefits that may be suffered as a result of uncertain events called insurance.
Another definition of insurance is risk transfer from the first party to the other party. The delegation is controlled by the rule of law and the enactment of universal principles adopted by the first party and the other party.
From an economic perspective, the insurance means a collection of funds that can be used to cover or provide compensation to those who suffered losses.
1. Insurable interest
Insurable interest is a right held by individuals to ensure their life / property arising from the financial interests of the insured individual subject, and the interests that should be recognized by law.
- Can be seen from the general law, such as the owner of the goods has a financial interest in the safety of its goods
- Arise from the marriage relationship, in this case, the wife nor the husband has insurable interest of their partner
- Insurable interest arising from the contract, such as the agreement with the bank which caused the bank has the insurable interest for goods as collateral.
The insurance company is not required to provide compensation if the insured have no insurable interest. If concluded, the above provision requires the interest in the agreement between the insured to the insurer, because if the interest is not there, it can lead to cancellation of the agreement. In the absence of interest, the insurance company has no obligation to provide compensation.
Similarly, at the close of the insurance agreement, it should have an interest. Problems will arise if interest element cannot be substantiated at the time of closing of the insurance agreement.
Interest compensation or indemnity principle is to restore the financial position of the insured to its original position prior to the loss. Insured is only entitled to receive compensation that actually happened, not for profit.
But keep in mind that the implementation of the principle of compensation is valid only in insurance, and insurance does not apply in the case for a certain amount of money.
This is due to a certain amount of money insurance, compensation is not related to the actual loss suffered, but the insurance of money is predetermined at the time of closing of the insurance agreement.
Basically, because the insurance aimed for an amount of money, then its interests cannot be measured by money.
3. Uberrimae Fidei
Uberrimae Fidei or utmost good faith means that insurance companies rely on the insured to disclose relevant information about themselves or on any insured.In the insurance agreement, the element of mutual trust between the insurer and the insured is essential. Insured in good faith and honestly obliged to give any statement correctly about the object of insurance to be insured.
On the other insureds also believe that if an event occurred, the insurer will pay compensation. Mutual trust is essentially a good faith. The principle of good faith should be carried out in any agreement, including the insurance agreement.
Insurance will be canceled if the insured provides false information or untrue or did not provide information.
If you want to get health insurance, good faith means that you have to reveal the actual health conditions including pre-existing conditions.
Subrogation is the insurance company’s right to take action against the parties that may have caused a claim against your insurance. For example, if someone is involved in a car accident that was not caused by the person, the insurance company has the right to seek compensation from the person who caused the accident or his insurance company.
This allows the insurance company to pay damages resulting from claims that are not the responsibility of the insured.
If the occurrence of unexpected events mentioned in the insurance agreement, the insured can sue the insurer for compensation.
However, if the cause of the loss was caused by the parties, then it means that the insured may demand the indemnity from the two sources.
The first source of the insurer and the second source of a third party who has caused the loss. Indemnity from the two sources was clearly contrary to the principle of the insurance agreement itself, namely the principle of indemnity and legal principle of prohibition of enriching themselves unlawfully (without rights).
Conversely, if the third party is not responsible regarding loss to the insured, it is simply not fair.
For each insured losses caused by a third party, the insurance company can take the place of the insured to use its right against third parties.
So, subrogation based on this rule can only be applied when two factors exist, namely:
- If the insured in addition have the right to the insurer, also has rights against third parties
- The rights caused by the loss.
Insurance subrogation applies only in loss insurance only and does not apply to insurance for a certain amount of money. Because the insurance of a certain amount of money, the amount of compensation has been set beforehand, ie at the time of closing of the insurance agreement.
5. Principle of Cause and Effect (Principle of Proximate Cause)
Insurance company’s obligation to indemnify the insured occur if the cause of the loss is guaranteed by the policy. However, it is not easy to determine an incident which caused the loss. Which is the compensation is guaranteed in the policy.
Especially when a lot of events, so it is difficult to specify which events are the cause of the loss.
In this case, there are three opinions to determine the reasons for the losses in the insurance agreement, namely:
- The opinion of the court in the UK stating that the cause of the loss in chronological order are located closest to the loss. This is called Causa Proxima.
- The second opinion contained in the law for insurance. In other words, each event is considered as sinequanon conditions and caused losses.
- Causa Remote: a continuation of a doctrine called “adequate cause”, which gives the opinion that the cause of the loss is based on the most appropriate events, and based on experience.
6. Contribution of Principles of General Insurance
7. Own Risk
In insurance, there are losses which are known as own risk or a deductible. Which is the risks that must be faced by the insured in any event.
For some specific high risk, own risk already set and determined by the initial agreement. But not of all danger conditions are kind of own risk.