Insurability can mean whether a certain type of loss (risk) can be insured in theory, or whether a certain customer is insurable by a certain company due to certain circumstances and the quality that an insurer assigns in relation to the risk he runs. loss (risk) can in theory be insured. client would have.
A person with very low insurability can be said to be uninsurable, and an insurance company will refuse to issue a policy to such an applicant. For example, a terminally ill person with a life expectancy of six months would not be insurable for term life insurance. The reason for this is that the chance that the individual will die within the insurance period is so great that this would mean too much liability for the insurance company. A similar and stereotypical example would be earthquake insurance in California.
Insurability is sometimes an issue in tort and contract case law. It also comes up in issues related to tontines and insurance fraud. In real estate law and real estate, insurability of property means that the property is salable.
Characteristics of insurable risks
The risks that private companies can insure usually have seven common characteristics.
1. Large number of comparable exhibition units. Because insurance works by pooling resources, most insurance policies are issued to individual members of large classes, allowing insurers to take advantage of the law of large numbers, where expected losses are comparable to real losses. Exceptions include Lloyd's of London, which is known for insuring the lives or health of actors, actresses and sports figures. However, all exposures will have specific differences, which may result in different types.
2. Definitive loss. The loss occurs at a known time, in a known place and for a known cause. The classic example is the death of an insured with a life insurance policy. Fires, car accidents, and worker injuries can easily meet this criterion. Other types of losses can only be final in theory. For example, occupational diseases may involve prolonged exposure to harmful conditions for which no specific time, place, or cause can be identified. Ideally, the time, place, and cause of a loss should be so obvious that a reasonable person, with sufficient information, can objectively verify all three elements.
3. Accidental loss. The event giving rise to a claim must be coincidental, or at least outside the control of the insurance beneficiary. The loss must be "pure", in the sense that it results from an event for which only costs can be incurred. Events containing speculative elements, such as ordinary commercial risks, are generally not considered insurable.
4. Huge loss. The magnitude of the loss must be significant from the perspective of the insured. Insurance premiums must cover the expected costs of losses, as well as the costs of issuing and administering the policy, adjusting losses, and providing the capital necessary to reasonably ensure that the insurer can pay claims. For small losses, these latter costs can be several times greater than the expected costs of the losses. There is little point in paying those costs unless the protection provided has real value to the buyer.
5. Affordable premium. If the probability of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, someone is unlikely to buy insurance even if it is offered. Furthermore, as the accounting profession formally recognizes in its financial reporting standards, the premium may not be so large that there is no reasonable probability of a significant loss to the insurer. If there is no such possibility of loss, the transaction may be in the form of insurance, but not in substance.
6. Calculable loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss and the resulting costs. The probability of loss is generally an empirical exercise, while cost is more concerned with the ability of a reasonable person in possession of a copy of the insurance policy and proof of loss in connection with a claim made under of that policy has been filed, in order to make a reasonably definitive assessment and objective assessment of the amount of damages recoverable as a result of the claim.
7. Limited risk of catastrophic losses. Ideally, insurable losses are independent and not catastrophic, meaning that the individual losses do not all occur at the same time and that the individual losses are not severe enough to put the insurer out of business; Insurers may prefer to limit their exposure to a loss from a single event to a small portion of their capital base, on the order of 5 percent. Capital limits insurers' ability to sell earthquake and wind insurance in hurricane areas. In the United States, flood risk is insured by the federal government. One case where the question of insurability exists is the case of nanotechnology.[5] In commercial fire insurance, it is possible to find individual properties whose total exposed value far exceeds an individual insurer's capital limitation. These properties are typically shared between several insurers or insured by a single insurer that pools the risk in the reinsurance market.
Insurable interest
Main article: Insurable interest
The insurable interest refers to the right over the property that is to be insured. It can also mean the interest of the beneficiary of a life insurance policy in demonstrating the need for the product, the so-called "insurable interest doctrine."
For life insurance purposes, close relatives are considered to have an insurable interest in the lives of those relatives, but more distant relatives, such as cousins and relatives by marriage, cannot purchase insurance on the lives of others connected by these relatives. connections. Thus, a married person has an insurable interest in the life of his or her spouse, and minor children have an insurable interest in their parents. A person is also presumed to have an insurable interest in his or her own life.
In Britain, a person is considered to have an unlimited interest in the life of his or her spouse, which in law is broadly equivalent to having an insurable interest in one's own life. Even if you are not financially dependent on the other person, it is legitimate to insure against the death of your spouse. Although many insurers accept cohabiting couples' policies, they may be voided. In recent years, steps have been taken to adopt clear legal provisions in this area, but they have not yet borne fruit. Similar treatment has recently been extended to civil partners under section 253 of the Civil Partnership Act 2004.
Insurable interest is no longer strictly part of life insurance contracts under modern law, for example in viatization agreements and charitable donations. Today, there is often no requirement that the beneficiary have a proven insurable interest in the life of the insured at the time the insurance was purchased.
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