Principles of insurance that insurance companies use
An Insurance company works under different principles and enables smooth running of its enterprise and also improves on efficiency of service delivery to its clients. These principles instill discipline to parties involved in the contract. This helps the insurer to accept, approve and act upon all the genuine claims made by the insured without unnecessary delays and hindrances. These principles which every insurance company follows are mentioned below.
Developing faith
It is one of the basic and primary principles of insurance that is based on absolute good faith, belief and trust in the parties involved in the insurance contract. The insured must be willing to surrender all the true, complete and relevant information regarding the subject matter and the insurer is mandated to nullify the contract or make it void if the insured had hidden, omitted or falsified any information regarding to the contract.
The principle of insurable interest
The insured must show he/ she can suffer financial loss in case of a risk so as to get insured. This also means no one can insure property which in any case is not legally his’ or hers’. It is also said that the owner of the property is under the insurable interest as long as the property is not sold since he/ she ceases to be covered by the insurable interest principle.
Principle of indemnity
According to this principle, the insurer must not gain financially from the agreement in a way which gives him/ her advantage of the insurance contract. It is aimed at returning the insured to the actual position in or to the extent of the loss incurred.
Principle of subrogation
The principle of subrogation works in hand with the principle of indemnity. This is to mean that after any compensation of the insured due to his/her damaged property then the remainder of the damaged property shifts to the insurance company (or forsikringsselskab oversigt as we say in Denmark).
Principle of the nearest cause ‘cause proxima’
The cause of a damaged property is caused by more than one cause and can only be insured against a certain cause and not all causes. Hence the principle is based on the closest cause should be taken into consideration in the compensation of the damaged property. This prevents the clients from claiming compensation just for any damage to their property and not the one insured against by the insurance company.
The principle of loss minimization
In the principle the insured must try his level best to control the risk and not just be inactive when his / her property is faced with danger or getting damaged. The insured must do all possible measures to control the damage in case of any.
Principle of contribution
This principle also works with the principle of indemnity. It is applicable where the insured property is insured in more than one insurance firm. The insured is duly compensated for the damage of the property in actual loss in cost sharing by the firms or compensated by one of the firms.
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