Compulsory insurance is any type of insurance that an individual or company is required to purchase by law. Compulsory insurance is obligatory for individuals and companies who wish to engage in some financial risky activities, such as driving cars. Compulsory insurance policyholders may purchase higher coverage limits if they believe that the compulsory minimum coverage is insufficient.
Governments around the world, whether in developed or developing countries, resort to imposing types of compulsory insurance, and their primary purpose in this measure is to achieve one of their national goals, which is to protect both the individual and society from damage resulting from certain dangers.
The types of compulsory insurance vary from one country to another according to the needs and requirements of society in each country and the extent of its exposure to the brunt of the risks that the legislator sees as compulsory insurance.
In enacting compulsory insurance laws against civil liability towards others, legislators aim to protect the injured person, as they have established a direct right for him before the insurance company and granted him the right to file a direct lawsuit to use this right.
It is natural that in order for insurance to be compulsory, it must be accompanied by a set of economic and social justifications, which makes this element of compulsion inevitable:
Economic justifications
- Preserving national wealth, both human and material, as many recurring incidents in society result in the destruction of national capital.
Society’s need for a quality of insurance has become urgent as a result of the increase in loss rates and frequency, and the severity of the resulting damages has exceeded reasonable limits.
- The inability of countries, with their enormous responsibilities towards society, to face their great responsibilities towards the obligations resulting from these losses.
Social justifications
- Protecting the insured in the event that his insurance awareness fails to realize the risks surrounding him, or what may be imposed on him in terms of compensation to others that he may not be able to fulfill, which may lead to the loss of the rights of others.
- Protecting the families of victims and those affected from loss of income as a result of the death or disability of the breadwinner and loss of the means of earning income as a result of the accident that caused this.
Compulsory liability insurance represents an important part of the insurance system in any society because its function extends beyond the insured to the third party harmed by the action or error of the contractor.
Compulsory insurance worldwide
Many types of compulsory insurance are widespread in developed countries and developing countries in general, and most compulsory insurance is mainly focused on civil or professional liabilities.
It is worth noting that compulsory insurance is widespread in developed countries compared to developing countries. There is no doubt that the interest of governments, whether in developed or developing countries, in compulsory insurance is to achieve the previously mentioned national goals, in addition to creating a decent premium portfolio that is invested in various development projects in the country.
The most important civil liability insurances applied globally
- Compulsory civil liability insurance for cars.
- Liability arising in gathering places such as commercial, cultural, entertainment, sports and other centres.
- Fire liability insurance for the industrial sector, hotels, industrial facilities, hospitals and educational facilities.
- Civil liability towards passengers and goods on all types of public transportation, including railways and subways.
- Civil liability for professional errors, especially all medical professions, engineers, lawyers, and accountants.
- Professional liability insurance for brokerage companies operating in securities markets.
- Insurance on gas stations in relation to the liability of their owner or tenant towards others who use these stations or are present in them.
- Insurance against risks resulting from construction and installation work until the project is received.
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