Section 1
The definition of insurable interest

Insurable interest can be defined in CII textbook as the legal right to insure arising out of a financial relationship,recognized at law,between the insured and the subject matter of insurance. ² Insurance Law of the People's Republic of China in 2015(Article 12,Section I,Chapter II)states that the term“insurable interest”means the legally recognized interest that the proposer or insured has in the subject matter of insurance.Personal insurance is insurance under which the subject matter of insurance is the life and body of a person.Property insurance is insurance under which the subject matter of insurance is property and related interests therein . ³ The subject matter of the insurance refers to either to the property of the insured and related interests associated with,or to the life and body of the insured.

We can make a conclusion that there are at least four features essential to insurable interest.Firstly,there must be some property,right,interest,life,limb or potential liability capable of being insured.Secondly,such property,right,interest,etc must be the subject matter of insurance.Thirdly,the insured must stand in a relationship with the subject matter of insurance whereby he benefits from its safety,well-being or freedom from liability and would be prejudiced by its danger or the existence of liability. ⁴ And finally,the relationship between the insured and the subject matter of insurance must be recognized at law.The significance of insurable interest lies in the following:

1.1 Avoiding gambling

In any insurance contract,the insured must have insurable interest to the subject matter of insurance.The law imposes the insurable interest on both parties(insurer and insured)to a certain subject matter of insurance in order to avoid gambling.There is an essentially difference between insurance and gambling.In insurance,the insured is immune from loss and his identity is known before the event.Insurer will indemnify him if a covered property is damaged or destroyed.Therefore he can restore his property and live in safety.In wagering,however,either party may win or loss and the loser cannot be identified until after the event.The winner is based on the cost of the loser.

1.2 Guarding against moral hazard

Moral hazard is a kind of artificial hazard.It concerns the human aspects that may influence the outcome.This usually refers to the attitude of the proposer or the insured person.If a person who has no insurable interest to the subject matter of insurance can obtain the indemnity from the insurer,he may intentionally make some artificial hazard.

1.3 Controlling the sum insured

The proposer's insurable interest to the subject matter of insurance is limited to the maximum sum insured. ⁵ In other words,the insured cannot obtain the excess payment from the insurer because of the accident loss of the subject matter of insurance. ⁶ d9qceDiUW+15w2mLBqjkA0V0GXwhbOSm9T+niHzI0Yur5meC0Knm63hUYkQMKQlJ