Insurance law
Insurance law is the practice of law surrounding
History
The earliest form of insurance is probably marine insurance, although forms of mutuality (group self-insurance) existed before that. Marine insurance originated with the merchants of the
The expansion of English maritime trade made London the centre of an insurance market that, by the 18th century, was the largest in the world. Underwriters sat in bars, or newly fashionable coffee-shops such as those run by Edward Lloyd on Lombard Street, considering the details of proposed mercantile "adventures" and indicating the extent to which they would share upon the risks entailed by writing their "scratch" or signature upon the documents shown to them.
At the same time, eighteenth-century judge William Murray, Lord Mansfield, was developing the substantive law of insurance to an extent where it has largely remained unchanged to the present day - at least insofar as concerns commercial, non-consumer business - in the common-law jurisdictions. Mansfield drew from "foreign authorities" and "intelligent merchants"
"Those leading principles which may be considered the common law of the sea, and the common law of merchants, which he found prevailing across the commercial world, and to which every question of insurance was easily referrable. Hence the great celebrity of his judgments, and hence the respect they command in foreign countries".[2]
By the 19th century membership of Lloyd's was regulated and in 1871, the Lloyd's Act was passed, establishing the corporation of
Principles of insurance
At common law, the defining concept of a contract of commercial insurance is of a transfer of risk freely negotiated between counterparties of similar bargaining power, equally deserving (or not) of the courts' protection. The underwriter has the advantage, by dint of drafting the policy terms, of delineating the precise boundaries of cover. The prospective insured has the equal and opposite advantage of knowing the precise risk proposed to be insured in better detail than the underwriter can ever achieve. Central to English commercial insurance decisions, therefore, are the linked principles that the underwriter is bound to the terms of his policy; and that the risk is as it has been described to him, and that nothing material to his decision to insure it has been concealed or misrepresented to him.
In civil law countries, insurance has typically been more closely linked to the protection of the vulnerable, rather than as a device to encourage entrepreneurialism through the spreading of risk. Civil law jurisdictions - in very general terms - tend to regulate the content of the insurance agreement more closely, and more in the favour of the insured, than in common law jurisdictions, where the insurer is rather better protected from the possibility that the risk for which it has accepted a premium may be greater than that for which it had bargained. As a result, most legal systems worldwide apply common-law principles to the adjudication of commercial insurance disputes, whereby it is accepted that the insurer and the insured are more-or-less equal partners in the division of the economic burden of risk.
What Are the Major Principles of Insurance?[3]
There are 7 major principles of Insurance, which are explained below:[4]
- Principle of Utmost Good Faith
- Principle of Insurable Interest
- Principle of Indemnity
- Principle of Contribution
- Principle of Subrogation
- Principle of Loss Minimization
- Principle of Causa Proxima (Proximate Cause)
Insurable interest and indemnity
Most, and until 2005 all, common law jurisdictions require the insured to have an insurable interest in the subject matter of the insurance. An insurable interest is that legal or equitable relationship between the insured and the subject matter of the insurance, separate from the existence of the insurance relationship, by which the insured would be prejudiced by the occurrence of the event insured against, or conversely would take a benefit from its non-occurrence. Insurable interest was long held to be morally necessary in insurance contracts to distinguish them, as enforceable contracts, from unenforceable gambling agreements (binding "in honour" only) and to quell the practice, in the seventeenth and eighteenth centuries, of taking out life policies upon the lives of strangers. The requirement for insurable interest was removed in non-marine English law, possibly inadvertently, by the provisions of the Gambling Act 2005. [citation needed] It remains a requirement in marine insurance law and other common law systems, however; and few systems of law will allow an insured to recover in respect of an event that has not caused the insured a genuine loss, whether the insurable interest doctrine is relied upon, or whether, as in common law systems, the courts rely upon the principle of indemnity to hold that an insured may not recover more than his true loss.
Utmost good faith
The doctrine of
Warranties
In commercial contracts generally, a warranty is a contractual term, breach of which gives right to damages alone; whereas a condition is a subjectivity of the contract, such that if the condition is not satisfied, the contract will not bind. By contrast, a warranty of a fact or state of affairs in an insurance contract, once breached, discharges the insurer from liability under the contract from the moment of breach; while breach of a mere condition gives rise to a claim in damages alone.
Regulation of insurance companies
Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.
European Union
Member States of the European Union each have their own insurance regulators. However, the E.U. regulation sets a harmonised prudential regime throughout the whole Union. As they are submitted to harmonised prudential regulation and in consistency with the European Treaty (according to which any legal or natural person who is a citizen of a Union member state is free to establish him-, her- or itself, or to provide services, anywhere within the European Union), an insurer licensed in and regulated by e.g. the United Kingdom's financial services regulators, the Prudential Regulation Authority and the Financial Conduct Authority, may establish a branch in, and/ or provide cross-border insurance coverage (through a process known as "free provision of services") into, any other of the member states without being regulated by those states' regulators. Provision of cross-border services in this manner is known as "passporting".
India
The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts. The first statute in India to regulate the life insurance business was the Indian Life Assurance Companies Act, 1912. The Insurance Act of 1938
The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.
Until 1999, there were no private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies. In 2015 the limit of FDI in insurance sector has been raised to 49% subject to certain conditions.
In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries. A minimum capital of US$80 million(₹ 400 Crore) is required by legislation to set up an insurance business.
United Kingdom
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United States
As a preliminary matter, insurance companies are generally required to follow all of the same laws and regulations as any other type of business. This would include zoning and land use, wage and hour laws, tax laws, and securities regulations. There are also other regulations that insurers must also follow. Regulation of insurance companies is generally applied at State level and the degree of regulation varies markedly between States.
Regulation of the insurance industry began in the
In the
In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners operates such a service in the United States [13]).
In the United States and other relatively highly regulated jurisdictions, the scope of regulation extends beyond the prudential oversight of insurance companies and their capital adequacy, and include such matters as ensuring that the policy holder is protected against
Rest of World
Every developed sovereign state regulates the provision of insurance in different ways. Some regulate all insurance activity taking place within the particular jurisdiction, but allow their citizens to purchase insurance "offshore". Others restrict the extent to which their citizens may contract with non-locally regulated insurers. In consequence, a complicated muddle has developed in which many international insurers provide insurance coverage on an unlicensed or "non-admitted" basis with little or no knowledge of whether the particular jurisdiction in or into which cover is provided is one that prohibits the provision of insurance cover or the doing of insurance business without a licence.[citation needed]
See also
- International Association of Insurance Supervisors
- Insurance agent
- Agent of Record
- Australian insurance law
- Financial Conduct Authority - United Kingdom regulator of financial services (including insurance)
- National Association of Insurance Commissioners - United States organisation that coordinates insurance regulation
Notes
- ^ Act of Parliament, 1601: 43, Elizabeth, C 12
- ^ Samuel Marshall, Treatise on the Law of Insurance (3rd edition, 1823), Vol 1, p. 23
- ^ https://www.prolawctor.com/an-introduction-to-insurance-law/
- ^ Admin1. "Insurance Law - 7 major principles of Insurance: Free Notes". Prolawctor. Retrieved 2020-12-15.
{{cite web}}
: CS1 maint: numeric names: authors list (link) - ^ Carter v Boehm (1766) 3 Burr 190
- ^ Marcos Antonio Mendoza, "Reinsurance as Governance: Governmental Pools as a Case Study in the Governance Role Played by Reinsurance Institutions", 21 Conn. Ins. L.J. 53, 65-67, 102-107 (2014) https://ssrn.com/abstract=2573253
- ^ Admin1. "Insurance Law - 7 major principles of Insurance: Free Notes". Prolawctor. Retrieved 2020-12-15.
{{cite web}}
: CS1 maint: numeric names: authors list (link) - ^ http://www.irdaindia.org/regulations/TheInsuranceAct1938er126042004.doc Archived 2016-07-01 at the Wayback Machine here
- ^ "FindLaw's United States Supreme Court case and opinions". Findlaw. Retrieved 15 April 2018.
- ISBN 0-88706-731-X.
- ^ "United States v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944)". vlex.us. Archived from the original on July 29, 2012. Retrieved 15 April 2018.
- ^ "State Insurance Agencies and Commissioners in US - Burial Insurance". Burial & Funeral Insurance. Retrieved 2015-08-13.
- ^ "NCIGF - National Conference of Insurance Guaranty Funds". www.ncigf.org. Retrieved 15 April 2018.
- ^ "Zurich, 9 States Settle Bid-Rigging Case for $171 Million". insurancejournal.com. 19 March 2006. Retrieved 15 April 2018.