7 Principles of Insurance
There are seven key principles that govern insurance business globally. Namely:
PRINCIPLE OF INSURABLE INTEREST
The principle of insurable interest means that insurance can only be taken where the insured would suffer a financial loss or a specified risk from the occurrence of a particular risk.
PRINCIPLE OF UTMOST GOOD FAITH
This principle emphasis that parties entering into an insurance contract should provide all material facts and needed information. Both the insured and the insurer should act in utmost good faith at all times. This is commonly referred to as Uberrimae Fidei.
PRINCIPLE OF INDEMNITY
The insurance cover should return the insured to the previous financial position before incurring a claim. This means that the insured should not be paid more than his/her incurred claim.
PRINCIPLE OF SUBROGATION
The insurance company has a right of ownership of damaged parts or items after fully compensating the insured for losses incurred.
PRINCIPLE OF CONTRIBUTION
The principle of contribution means that where the insured has insurance from more than one insurance company, he or she should not claim full compensation from each insurer. The insurance companies should instead split the compensation proportionately.
PRINCIPLE OF LOSS MINIMIZATION
The principle of loss minimization states the the insured should make all reasonable efforts to avoid incurring losses from insured risks.
PRINCIPLE OF PROXIMATE CAUSE
Principle of proximate cause stipulates that when a series of events lead to a loss; the insurance company will only settle the claim on proof that the insured risk was the nearest cause of the loss.