majority of the risk. The fronting company may issue policies, handle claims administration, and fulfill regulatory requirements on behalf of the captive. 10. Risk Pooling: Risk pooling involves multiple companies with similar risks and insurance needs coming together to form a group captive. By pooling their risks and resources, these companies collectively establish a captive insurance company to provide coverage for all participants. This allows smaller organizations to benefit from the advantages of captive insurance that may have been otherwise unavailable to them individually, such as cost savings and increased control over insurance programs. Understanding these terms provides a solid foundation for comprehending the complexities of captive insurance. Captives equip companies to proactively manage their risks, design their insurance coverage, and gain greater control over their insurance programs, ultimately leading to improved risk management and potential cost savings. 2.3 Tenets of Insurance Insurance is a crucial aspect of modern life that provides individuals and businesses with protection against financial risks and uncertainties. The principles that underpin the insurance industry are known as the tenets of insurance, which outline the fundamental concepts and obligations that govern insurance contracts. In this chapter, we will explore the ten main tenets of insurance: 1. Fortuity
2. Utmost good faith 3. Insurable interest 4. Proximate cause 5. Subrogation 6. Indemnity 7. Contribution 8. Loss minimalization 9. Defined economic loss 10. Insurance regulated by the states
The first tenet of insurance is fortuity. Fortuity refers to the requirement that an insured event must occur by chance and be unforeseen. Insurance is designed to protect against unexpected events rather than deliberate actions or predictable occurrences. For example, if a car accident happens due to reckless driving, it may not be considered fortuitous and may not be covered by insurance. The second tenet is utmost good faith. Utmost good faith implies that both the insurer and the insured must provide complete and accurate information to each other during the insurance contract negotiation. This principle ensures transparency and honesty between the parties involved, allowing insurers to assess risks accurately and determine appropriate premiums. Insurable interest is the third tenet. Insurable interest refers to the requirement that the insured must have a legitimate financial interest in the subject matter of the insurance policy. In other
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