Given the worse aspects of human nature, murder will always be committed for insurance proceeds, but there was a time when insurance and murder were too closely linked. Insurance has had a dark side.
Marine insurers used to routinely cover slaves as ‘cargo’, with the most notorious case being the slave ship Zong. In 1781 it became becalmed on route to Jamaica and with sickness affecting both the crew and the slaves, 132 sick or dying slaves were thrown overboard to save the rest. The owners (knowing sickness was excluded) claimed for the loss of the slaves due to lack of water. The insurer refused to pay and won in court, but such was the public outcry to the case, it did at least help form the abolitionist movement.
At the time, insurance was a form of gambling to some with few rules. In Life Assurance anyone could take out a policy on another and not only was it common to ‘bet’ on the life of public figures, it was not unknown for those who were the subject of policies to meet an unnatural end.
Marine insurance also attracted policyholders with no tangible interest in a vessel or its cargo and there were many suspicious losses of ships. The need for insurable interest was first introduced with the Marine Insurance Act 1745 and when ‘celebrities’ of their time had their survival odds published in newspapers, it was decided enough was enough and the Life Insurance Act 1774 imposed rules as to whom could insure whom.
Gambling was a major social problem in the nineteenth century, so the Gambling Act 1845 was enacted to make wagers (contracts in which neither party has an interest except the contract itself) unenforceable at law. This had the indirect effect of making insurance contracts unenforceable if there was no insurable interest.
So whilst a bit of a mess, insurable interest was legally defined for marine insurance (by a subsequent 1906 Act), there were rules for life and contingency insurances, albeit dating back to 1774 and the Gambling Act of 1845 indirectly dealt with other insurances. And so it has remained other than a few court decisions giving broader interpretation of the rules to reflect modern life.
However, when in 2005 the Gambling Act was updated to make some types of gambling enforceable at law, the Government repealed parts of the 1845 Act, but didn’t consider the indirect effect of the Act to the insurance industry.
With life insurance, the main requirements of the 1774 Act was an insurable interest via ‘natural affection’ or a ‘potential financial loss’. Natural affection was restricted to your own life or spouse (now extended to Civil Partners) and could be insured without limit, but for others cover was restricted to a financial loss recognised by law. For living partners that was normally just the mortgage and for companies covering employees, arguably just wages for their notice period. Whether a parent can insure a child (beyond a modest amount) or vice versa is also open to question.
In practice, the courts and insurers have moved with the times and largely ignored the strict interpretation of the law, however given the general uncertainty, some insurers have been reluctant to introduce products that could be unenforceable and even illegal. This demand is mainly from Life and Health insurers, but given the effect of the 2005 change in the Gambling Act, the Law Commission has been asked to look at insurable interest across the board.
They are presently in a consultation period, but seem set to introduce a new law to largely keep current principles without many of the restrictions and limits, allowing insurers to offer products compatible with modern business and family structures. Within very broad rules, it likely they will leave the market and regulators to deem what is acceptable and to exercise restraint.
Whether it is wise to give control to a ‘free market’ where some participants were involved in the recent problems with mortgages and the PPI mis-selling scandal remains to be seen.