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insurable interest consultation

2 December 2016

The Law Commission published an Issues Paper in March 2015, following two previous consultation in 2008 and 2011, consulting on the doctrine of insurable interest which is a fundamental requirement in contracts of (re)insurance. A Summary of Responses was published on April 2016 which shows and demonstrates that there is significant support for clarification of the doctrine of insurable interest in a statute by repealing of the Marine Insurance (Gambling Policies) Act 1909 and the Marine Insurance Act 1788. The consultation on the draft Insurable Interest Bill closed in May 2016 and we now await the resulting Bill which is suitable for the special parliamentary procedure for uncontroversial Law Commission bills.

If enacted the draft Bill will repeal the Life Assurance Act 1774, the Marine Insurance Act 1788 and the Marine Insurance (Gambling Policies) Act 1909 but will not affect a contract of marine insurance, as defined by section 1 of the Marine Insurance Act 1906.

The draft Bill addresses insurance contracts in two distinct categories of life-related insurance and “insurance other than life-related”. For life-related contracts of insurance (where “the insured event is the death, injury, ill-health or incapacity of an individual, or the life of an individual continuing”) the main change is to widen the scope for an insured to have an insurable interest in an individual by virtue of the non-exhaustive list set out at clause 2(2).

For insurance other than life-related the change is not so obvious. Under the draft Bill, a non-life policy will be void unless at the time the insured enters into it, the insured has “(a) an insurable interest in the subject matter of the contract, or (b) a reasonable prospect of acquiring such an interest during the term of the contract”. In addition the insured must also have an actual insurable interest at the time of the loss or insured event. Clause 3(3) of the draft Bill sets out the circumstances in which an insured has an insurable interest as follows:

“…where the insured —

  • has a right in it,
  • has a right arising out of a contract in respect of it,
  • has possession or custody of it, or
  • will suffer economic loss if the insured event relating to it occurs.”

The fourth limb serves to widen the scope of acquiring an insurable interest which would be beneficial to many policyholders. However many are concerned it will serve to converge other types of risks such as pure parametric products into an insurance risk.

It remains to be seen whether the Law Commission will address the concern identified above before enactment. The fact that the Law Commission has also published a paper on a paper on parametric insurances means that all efforts will be made to keep the distinction before these types of risks.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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