Compulsory insurance
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Compulsory insurance is an insurance policy that is required by law. Therefore, any business or individual is has to buy that type of insurance. Compulsory insurance is used in areas where multiple people or businesses take risky activities. The most common example is driving a car or running a business with employees. That type of insurance is regulated at the government level, but it is sold by multiple insurance companies. Thus prices of compulsory insurance can differ (unless defined by the legislation). In some cases it is possible to buy policies with increased limits, higher than compulsory (R. Schwarze & G. G. Wagner,2007; s. 403-415). Compulsory insurance can differ in different countries. For example, in some countries farmers are required to insure against low yields caused by weather conditions. In some countries this insurance is mandatory for every fram owner, having an minimum 1ha area of agricultural land.
Vehicle insurance
One of the most popular compulsory insurance is the veahicle insurance. Known also as a car or motor insurance. It is a legal requirement to have an insurance policy if you are the owner of any vehicle. If someone got an uninsured motor or car he is breaking the law no matter if he drive it or not. The owners of vehicles are required to purchase mandatory third party insurance in order to be able to register a motor vehicle. Generally the average driver of a car underestimates the benefits of this insurance. If you are injured party of accident a Compulsory Third Party Insurance covers the repairing cost of the car and medical treatment expenses which can be the result of an accident. Newrtheless, If you you are involved in accident that was your fault, your insurance will cover damages caused other party of this accident. Unfortunatelly, in this case losses inurred by you will not be covered. It is woth noting that not in every country motorcyclists are required to insure, or the compulsory insurance is limited to only more powerful bikes.
Employers’ liability insurance
Another example of compulsory insurance is the empoyers' liability insurance. The Great majority of employers is required by the law to insure against liability for illness or injury, sustained as a result of work. Employers are responsible for health and safety of their empoyees at work, so it is a legal requirement to obtain employer's liability insurance with an authorised insurer. This insurance protects empoyers from the cost of compensation claims arising from employee injuries or illness. The compensation amount may take into account things like medical and, legal costs and even a loss of income.
Criticism of compulsory insurances
The arguments regarding to compulsory insurance vary greatly. In case of mandatory insurances social security systems are considered as organizations which provide a minimum amount of financial security to accident victims. Without such protection victims would be exposed to enormous costs of hospitalization. Nevertheless, for entrepreneur such insure could be a significant problem. Business owners usually looking for ways to reduce expenses. In certein industries, insurances can be vary hihg, esecially in professions which requirers risky activities. Ofen mentioned disadventage is the fact that the amount of insurace fees is not proprtional to offered extend of protection. This kind of policy cover the cost of the other person's car and medical expenses, but not yours. It also useless in case of car theft or fire damage (M. G. Faure, 2006; s.1-10).
References
- Buzzacchi L. & Valletti T. M. (2005). Strategic Price Discrimination in Compulsory Insurance Markets, The Geneva Risk and Insurance Review, 30: 71–97,2005 The Geneva Association
- DeNavas-Walt C. (2005). Income, Poverty, and Health Insurance Coverage in the United States, Current population Reports, Consumer Income; U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau
- Faure M. G.(2006).Economic Criteria for Compulsory Insurance',The Geneva Papers, 2006, 31, (149–168); The International Association for the Study of Insurance Economics 1018-5895/06 $30.00
- Leblois A. & Quirion P. (2013). Review Agricultural insurances based on meteorological indices:realizations, methods and research challenges, Meteorological applications Meteorol. Appl.20: 1 – 9; Wiley Online Library
- Rogan P.(2017). The Insurance and Reinsurance Law Review, Fifth Edition; Gideon Roberton
- Schwarze R. & Wagner G. G.(2007). The political economy of natural disaster insurance: lessons from the failure of a proposed compulsory insurance scheme in Germany, European Environment, 17(6), 403-415.
Author: Aneta Walczyk
