Some important institutional constraints on the existence or availability of insurance contracts come from law, custom, and the organization of the insurance market. They usually differ in different countries according to the political or economical environment.
Regulatory Constraints
Regulations affect the availability of insurance with regards to the type of coverage that can be written...
Saturday, April 20, 2019
April 20, 2019
Institutional Constraints to Insurance
April 20, 2019
Legal Aspects of an Insurance Contract
Standardization and Structure of Contracts
The terms of an insurance contractare embodied in a written document called the insurance policy. Policy forms vary in complexity depending upon the type of insurance coveragebut a certain degree of standardization exists and these standards are very similar from one country to another. Also, a certain degree of uniformity exists and is essential in the...
April 20, 2019
The Characteristics of Insurance Contracts
Insurance contracts, in all countries, are subject not only to the same basic law that governs all types of contracts, but also to some legal principles that have been developed to handle the legal problems associated with insurance and summarized
In order for a contract to be legally valid there must be (1) an agreement between the two parties (usually refer to "offer and acceptance"), (2) a valuable...
April 20, 2019
The Concept of Insurable Interest
Ina broad legal sense, an insurable interest is the kind of financial interest a person must possess in order to have legally enforceable insurance coverage. Section 5(2) of the Marine Insurance Act 1906 in the United Kingdom defines the insurable interest as: "In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable...
April 20, 2019
Insurance and Loss Control
Because of the existence of indirect costs,like moral and morale hazards, generated by insurance contracts, insurers have created loss controldevices or activities to offset these costs.
Pre-loss Control
Insurance is clearly limited only to pure risks although there are some examples of risks of a speculative nature that have been proposed in the recent past . Insurance contracts also...
April 20, 2019
The Benefits of an Insurance Market
What explains the existence of organizations selling insurance contracts? Many of the reasons in the Mayers and Smith paper mentioned in a previous chapter can apply again.
Insurance organizations might outperform the individual because there are transactions costs that exist in identifying andmatching the individuals that are willing to sell/buy insurance to/from each other. There are scale...
April 20, 2019
Benefits and Costs of Insurance
The Expected Benefits of Insurance Contracts
The direct advantage of an insurance contract is the exchange, for a fixed fee, of the uncertainty concerning a potential loss, for the certainty of indemnificationin the case the insured suffer a loss. Indemnificationor compensation is the primary reason why an individual or a firm would buy an insurance contract.
The reduction of uncertaintyis...