Understanding The Various Parties To The Insurance And The Relationships Between Them

It is an often dished out piece of advice, to people considering getting into various

contractual relationships, that they should make an effort to understand where they stand in the contract arrangement. They are advised not only to try and understand their positions, but also the positions of the other parties in the contractual relationship. Anything short of this, they are warned, would amount to get into a contract 'blindly' which has been known to cause people great regrets all their lives.

It is from such a background, then, that you, as a person considering buying an insurance policy (which is essentially a contract) would find yourself interested in knowing who the various parties to the insurance contract are, and what the relationships between them are. That is exactly what we are now going to explored together.

Now the first party to the contractual relationship would have to be the policyholder - the person who buys the insurance policy. The whole edifice is built around this person, as it is towards the protection of the interests of this person that the insurance policies are sold. If you are purchasing the insurance policy, then you become this party in the relationship. Your contractual obligation here is mainly that you keep on paying your insurance premiums. In return, your contractual rights would include something like fair compensation, in the event of what you are taking insurance against coming to pass.

The second party to the assurance contractual relationship would be assurance company. This is the party that takes the money that makes up the assurance premiums from the policyholders and pools that money together. It is also the party that invests the money, to ensure that in the event of the various things the policyholders are taking assurance against coming to pass, there would be money to compensate them, in accordance to the contractual agreements. The company, like a bank, will usually be also insured, to ensure that in the event of its going down, the people who took up insurance with it wouldn't be left exposed. This 'insurance' brings in another party to the assurance contractual relationship (who is never seen by the policyholder), and who is known as the re-insurer.

The third party to the insurance contractual relationship would be the insurance broker. This is a person who is briefed by the prospective assurance policyholder, to search for suitable insurance policies on his behalf. The insurance broker could also be briefed by an assurance company, to search on its behalf for prospective insurance buyers, in exchange for a commission or a salary. It is important to note that this is just a broker. When you buy insurance through a brokerage, you are buying from the respective assurance company - the broker is only there to bring the two of you together. So strictly speaking, the contract is just between you, as the policyholder, and the insurance company. The broker's role is transient. But it is important to say something about that role, which we have done.

The fourth party to the insurance contractual relationship would be the assurance agent. Like the insurance broker, this would not be, strictly speaking, a party to the assurance contract relationship. The agents work under instructions from both companies and assurance brokers, and their role is mainly a marketing one: to identify prospective buyers of insurance and try to sell insurance to them. It is important to keep in mind that if you buy insurance through an agent, you are actually buying the policy from the insurance company. The agent is only a relationship facilitator. His role is transient. The actual contractual relationship will remain to be between you and the insurance company.

by: Gen Wright

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