What are the basic principles of Subrogation?

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In insurance, five basic principles must be understood and obeyed by the user (the insured) and the insurance company (the insurer) so that an insurance agreement can be declared valid. The five principles of insurance are as follows.

Utmost Good Faith

Utmost Good Faith (good faith) is the obligation of the insured to convey the facts about the object of coverage ( material facts ) that he has.

Facts that are important and needed by the insurer must be described completely and accurately, either at the request of the insurer or voluntarily and there must not be anything hidden from the risk that will arise from the object of insurance.

If there are material facts that are intentionally hidden, the insurer will consider it a fraud and furthermore, the insurance company has the right to refuse to pay compensation in the event of a claim or termination of the insurance contract.

On the other hand, the insurer must also honestly state whether it can guarantee the object of coverage or not. Some examples of how it works in insurance are as follows.

Informing chronic diseases or congenital diseases suffered in health insurance coverage.

Inform the use of motorized vehicles, whether for personal or commercial use.

Notify the items in the house that have a great potential that can cause a fire.

Insurable Interest

The second basic principle in insurance is an insurable interest.

The insured has the right to ensure an insured object because of a legally recognized (financial) interest relationship between the insured and the insured object.

The financial interest in the insured object will be the subject of the insurance agreement. Some examples of the application form are as follows.

A person who insures a motor vehicle, residence, or other valuable property.

A head of the family or the main breadwinner who insures himself in life, health, or personal accident insurance for the benefit of his family if he is at any time unable to work.

An entrepreneur who insures his commercial business.


Indemnity (indemnity) is an insurance principle that regulates the mechanism regarding the provision of compensation.

This mechanism is an attempt by the insurer to provide compensation for the insured to return the insured to his original financial position, which is right before the loss occurs.

In this case, when a loss or claim occurs, the insurer will provide compensation in accordance with the financial loss actually suffered by the insured without the addition or influence of elements seeking profit or profit. An example of its application in insurance is as follows.

Repairs for burned houses that are limited to the part of the house that was actually damaged by the fire.

Replacement for a lost car with a maximum value according to the sum insured if the car is not underinsured.

It should be noted, this principle of indemnity does not apply to types of insurance where the object of coverage is a person’s life, such as life, health, personal accident, or travel insurance.


Subrogation is an insurance principle that provides the right to claim compensation from the insured to the insurer or the right to request compensation from a third party that causes a loss.

The right of prosecution is granted if the insurer has completed the matter of compensation to the insured, with an example application as follows.

In motor vehicle insurance, the insurance company has the right to request a written claim for compensation from the insured to use a third party who has caused the insured’s loss.

The same is true for fire insurance. If the fire in the insured’s assets is caused by the spread of fire from a third-party asset fire in the vicinity, the insurer has the right to obtain subrogation rights.

In the event of a personal accident caused by another party, the insurance may request subrogation rights from the insured.

So, the right of subrogation can be requested by the insurer if the loss is caused by the negligence of a third party.

However, not all subrogation rights can be exercised because insurance companies have their own considerations about whether to exercise their subrogation rights or not.


Contribution is an insurance principle that applies if an object of insurance is insured to two or more insurers.

In this case, the loss will be jointly borne following the liability portion of each insurer. This principle only applies to insurance agreements that are indemnity and the way it works is as follows.

Luxury cars are insured by three different insurance companies.

A house is insured by several different insurance companies.

The insurance company that gets the largest share of coverage becomes the leader ( leader ) and the other companies become members ( member ). The leader is responsible for collecting premiums from members and deciding whether or not a claim is accepted and determining the amount of compensation for the claim.

In this case, all members must follow the leader according to propriety. This is known as the principle of following the fortune.

In addition to these five basic principles, there are two other principles, namely the law of the large number and the Proxima causa principle.

Right Guideline

All of these insurance principles, especially the five basic principles elaborated above, must be practiced in every insurance contract. This is because each principle is interconnected and cannot be separated.

This is also intended to guarantee the validity and legal certainty of the insurance contract so that the insured or the insurer is not harmed and ensures that there will be no dispute between the two regarding the insurance contract in the future.

You will gain knowledge and benefits if you study something that is a necessity in everyday life, such as insurance. 

By Master James

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