Principles of insurance: The seven principles of insurance are fundamental concepts that form the foundation of insurance practices. These principles are:
Principle of Utmost Good Faith (Uberrimae Fidei):
Both the insurer and the insured must disclose all relevant information to each other honestly and in good faith.
Principle of Insurable Interest:
The insured must have a financial interest in the subject matter of the insurance policy. In other words, they should suffer a financial loss if the insured event occurs.
Principle of Indemnity:
The purpose of insurance is to provide compensation for the actual financial loss suffered, and not to create a profit for the insured. The insured should be restored to the same financial position as before the loss, but should not gain from the insurance.
Principle of Contribution:
If the insured has multiple insurance policies covering the same risk, each insurer contributes proportionally to the loss. This prevents the insured from profiting by claiming the full amount from each insurer.
Principle of Subrogation:
Once the insurer has compensated the insured for a loss, the insurer has the right to take legal action against any third party responsible for the loss. This helps prevent the insured from collecting twice for the same loss.
Principle of Causa Proxima (Nearest Cause):
When a loss occurs, the insurance policy covers the proximate (nearest) cause of the loss, even if there are multiple contributing factors. This principle helps determine the primary cause of the loss for insurance purposes.
Principle of Mitigation of Loss:
The insured has a duty to take reasonable steps to minimize or mitigate the loss once an insured event occurs. Failure to do so may affect the amount of compensation provided by the insurer.