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Chapter 4 Insurable interest 4/3

A1C Financial value

The insurable interest in the subject-matter must have a financial value. Unlike many other types of
contract that may be concerned with performance or some other obligation, insurance contracts are
always concerned with a financial interest or value. We will look at the measurement of the value later.

A1D Insurers’ insurable interest
As we saw in chapter 1, section I, insurers share risks with other insurers. They are able to do this
because they themselves have an insurable interest in the risks that they have taken on. They reinsure
part or all of a risk that they hold, the subject-matter of the contract being the insurer’s financial interest
(the possibility of financial loss) in the original insurance.
We will look at anticipated insurable interest in the next section.

B Timing of insurable interest

The question of when insurable interest needs to exist depends on the type of insurance. Although this Chapter
study text is not primarily concerned with life assurance or marine insurance, they are shown here to
demonstrate the fundamental differences between different types of insurance. 4

B1 Marine insurance

The Marine Insurance Act 1906 stated that any marine insurance contract was void in the absence of
insurable interest at the time of any loss. The Marine Insurance (Gambling Policies) Act 1909 made it a
criminal offence to take out a marine policy where either there is no insurable interest or where there is
no reasonable expectation of such an interest.

B2 Life assurance

Prior to the Life Assurance Act 1774, a practice had developed of taking out life assurance on another Reference copy for CII Face to Face Training
person’s life simply as a form of gamble. This was made illegal by the Act, which stated that there must
be an insurable interest at inception, and if not then the policy is void.
The Act also specified that the name of the person effecting the policy had to be shown and they may
only recover the value of their interest.
You should note that although insurable interest must exist at the start of a life assurance contract, it
does not need to exist at the time of a claim (Dalby v. The India and London Life Assurance Company
(1854)).

B3 General insurance

The Gaming Act 1845 extended the requirement for insurable interest beyond life assurance contracts
and made all contracts of gambling null and void. The effect of the legislation on a general insurance
policy taken out where there is no insurable interest is to treat such contracts as a gamble and,
therefore, of no effect. If a general insurance policy is taken out when there is no insurable interest it is
void ab initio (from the beginning).
In addition, general insurance policies that are contracts of indemnity (property, liability, motor etc.) are
subject to the rule that insurable interest must exist at the time of the claim. This is because of the
compensatory nature of these policies; the claimant has suffered no financial loss if they had no legal
financial interest at the time of the claim.

B4 Summary of timing

The effect of the legislation for different types of insurance is to produce distinct rules for each category:
Different rules apply
to different types of
• Life assurance contracts: insurable interest must exist at inception, but need not exist at the time of a insurance
loss.
• Marine insurance contracts: insurable interest must exist at the time of a loss but need not exist at
inception, provided that there is a reasonable expectation of interest.
• General insurance contracts: insurable interest must exist both at inception and at the time of a loss.