First party insurance

First party insurance is a system under which insurance cover is ensured and compensation is granted immediately by the insurer to the injured party. The basic principle of first party insurance is that, as a general rule, the insurance company pays compensation immediately after the occurrence of a loss, as long as it can be justified that the loss in question is an insured risk covered by an insurance policy. Unlike third party liability insurance, reimbursement by an insurance company takes place regardless of whether or not there is civil liability. The advantages of different first party liability insurance policies are properly used to solve a number of social problems. Under the first party liability insurance policy, the insurer covers the potential for personal injury to a given victim or a given location. For this reason, it is much simpler for the insured to flag specific conditions that may have an impact on the risk to the insurer.

Types of insurance

First party liability insurance can be categorised into two main classes: (1) insurance to compensate for personal injury; and (2) insurance, which takes the form of insurance against particular damage to property.

1. Systems that concentrate on personal injury compensation usually do not differ in terms of coverage depending on the cause of the injury, i.e. if the reason is catastrophe or not. It therefore comes in the shape of general accident insurance. As a consequence, the coverage is based on the specific costs the affected party would face as a result of the incident, such as loss of income, (additional) medical costs, and in a number of situations even pain and suffering.
2. The other form of first party insurance concerns (only) property damage, for instance housing insurance. Nonetheless, in several countries, first party insurance for damage to property does not cover damage due to natural catastrophes.

Copayment Features

In order to reduce the potential ineffectiveness of the risk pool, first party insurers frequently implement co-payment elements such as own contribution and co-insurance in the insurance system. These co-payment elements, by obliging insurers, ex ante, to incorporate part of the cost of accidents into their decision-making account, help to adjust incentives for insurers and the insured party and thus reduce the inefficiency of the risk pool. Deductions oblige insurers to cover up to a certain proportion of their accident costs before the insurer pays.l or part of the remaining part. On the contrary, co-insurance policies stipulate that the insurer pays only a fraction (for example, seventy-five per cent) of the policyholder's overall loss. It should be borne in mind, however, that first party insurance contracts usually contain 'non-costly limits' that limit the amount of co-payment that a policyholder may be obliged to pay during the year.

Examples of First party insurance

• Homeowners Insurance: Homeowners insurance helps protect a homeowner from financial liability that may arise from damage to the property, its contents, or from any injury or death that occurs on the property. It also covers additional living expenses if the home is uninhabitable due to a covered loss.
• Health Insurance: Health insurance is a type of insurance coverage that covers the cost of medical and surgical expenses. It also provides protection against some of the costs associated with hospital stays, doctor visits, and medications.
• Life Insurance: Life insurance is a type of insurance that pays out a lump sum to a designated beneficiary in the event of the insured’s death. This money can be used to cover expenses, such as funeral costs, debts, and medical bills.
• Automobile Insurance: Automobile insurance is a type of insurance that provides financial protection for car owners in the event of an accident, theft, or other damage to their vehicle. It also covers the cost of any medical expenses incurred as a result of an accident.

Advantages of First party insurance

First party insurance provides several advantages for policyholders. These include:

• Immediate access to compensation: First party insurance provides policyholders with immediate access to compensation for damages and losses. This is especially helpful in the case of sudden and unexpected events or accidents.
• Maximum coverage: First party insurance provides policyholders with maximum coverage for their losses and damages. This ensures that they are adequately compensated and that they do not have to worry about any financial losses.
• Flexibility: First party insurance policies are highly customizable and flexible. This allows policyholders to tailor their coverage to their specific needs and requirements.
• Low cost: First party insurance policies tend to be more affordable than third-party policies, as they do not require the insurer to pay out any claims to a third party.
• Quick process: The process of obtaining compensation from first party insurance policies is often much quicker than that of third-party insurance policies, as it does not require the insurer to go through a lengthy legal process.

Limitations of First party insurance

First party insurance has several limitations, including:

• The insurer only covers the losses incurred by the policyholder, and not any third party.
• There is a limit to the amount of coverage and compensation that can be provided.
• The policyholder is usually responsible for any deductibles and fees associated with the policy.
• If a claim is denied, the policyholder must bear the burden of proving their claim in court.
• First party insurance does not cover liability for any harm caused to others by the policyholder.
• Claims may be denied if the policyholder has not met all the terms and conditions of the policy.

Other approaches related to First party insurance

First party insurance is a system under which insurance cover is ensured and compensation is granted immediately by the insurer to the injured party. Other approaches related to first party insurance include:

• Third party insurance: This type of insurance covers losses and damages that are caused by the actions of a third party. It provides compensation to the third party and is typically required by law.
• Tort liability insurance: This type of insurance covers losses and damages that are caused by negligence or intentional acts. It provides compensation to the injured party and is not typically required by law.
• Product liability insurance: This type of insurance covers losses and damages that are caused by products that are faulty or otherwise unsafe. It provides compensation to the injured party and is typically required by law.

In summary, first party insurance is a system of providing immediate compensation to an injured party for losses and damages caused by the actions of another party. Other approaches to providing compensation for losses and damages include third party insurance, tort liability insurance, and product liability insurance.

First party insurance — recommended articles

Dual insurance — Subrogation waiver — Franchise insurance — Period of indemnity — Retroactive date — Ex Gratia Payment — Insured contract — Floater policy — Indemnity bond

References

• Cane, P., Atiyah, P.S. (2013). Atiyah's Accidents, Compensation and the Law. Cambridge University Press, 289-292.
• Faure, M., Bruggeman, V. (2008-2009). Catastrophic Risks and First-Party Insurance. Connecticut Insurance Law Journal, 15(1), 11-14.
• Hanson, J.D., Logue, K.D. (1990). The First-Party Insurance Externality: An Economic Justification for Enterprise Liability. University of Michigan, 76(1), 142.
• Murphy, L.E., Downs A.B., Levin J.M. (2007). Property Insurance Litigator's Handbook. American Bar Association, 6.
• Seale, J.H. (2017). System and Method for Processing Insurance Claims. Cash-Pay LLC, 1.

Author: Patrycja Róg