What insurance and insurance activity mean
Insurance is a relationship formed to protect the personal and property interests of natural and legal persons. The protection operates when a defined circumstance — an insured event — occurs, and it is financed from the monetary funds formed through insurance contributions (insurance premiums) paid by these persons, together with other sources permitted by the legislation. Insurance activity, in turn, is the insurer's activity connected with the conclusion and performance of insurance and reinsurance contracts. Understanding these two notions is the starting point for identifying every party to an insurance relationship.
Insurance is carried out in voluntary and compulsory forms. Voluntary insurance rests on a contract concluded between the insurer and the policyholder, and its types, conditions and procedure for implementation are established by that same contract; any licensed insurance organization of Georgia may conduct voluntary insurance. In compulsory insurance, by contrast, the object of insurance, its types and the procedure for implementation are determined by the relevant legislation on compulsory insurance. Where compulsory insurance applies, the insurer is obliged to conclude a contract with the policyholder on the conditions defined by law, although it has the right to offer the policyholder conditions even more favourable than those established by law.
What may be the object of insurance
The object of insurance may be any property-related or personal non-property interest that does not contradict the legislation of Georgia. The law distinguishes the principal branches as follows:
- personal insurance — insurance connected with the insured's life (including annuities), health, working capacity, pension provision and other personal interests;
- property insurance — insurance connected with the possession, disposal and use of property;
- liability insurance — insurance connected with the damage that the insured causes to a third person (natural or legal) or to that person's property.
Within this framework, the object of insurance may be a specific item of property, an interest connected with a person's life or health, or the risk of liability before a third person. The decisive requirement is one and the same in every case: the interest must not contradict the legislation of Georgia.
The policyholder — who concludes the insurance contract
The policyholder is the person who has concluded an insurance contract with the insurer. The policyholder may be either a legal or a natural person; the law imposes no prohibition based on the person's status. There is, however, an important restriction concerning the counterparty with whom the contract may be concluded.
A legal person registered in Georgia may conclude an insurance contract connected with activity carried out on the territory of Georgia and with property located on that territory — other than a reinsurance contract — only with an insurance organization licensed by the state supervision service. The same rule extends to a citizen of Georgia: on the territory of Georgia, that citizen may conclude an insurance contract only with an insurance organization licensed by the service. Accordingly, checking the insurer's licence in advance is a practical precondition for a validly structured relationship.
The insured — the person with respect to whom insurance is carried out
The insured is the person with respect to whom insurance is carried out. The policyholder may at the same time be the insured, unless the insurance contract provides otherwise. In practice this overlap is very common — for example, where a person insures his or her own life, health or property.
Legislation on compulsory insurance may oblige the policyholder to carry out the insurance of a third person. In voluntary insurance, the policyholder may specify a third person as the insured in the insurance contract; in that case the object of insurance is the insured's personality and the interests connected with it (personal insurance), or the insured's property and the interests connected with it (property insurance). Where property is insured, an insured who is not the policyholder must have an interest in the preservation of that property.
The regime of the third person's consent also differs. In compulsory insurance, the consent of a third person is not required for the conclusion of a contract in which that person will be designated as the insured. In voluntary insurance, that person's refusal to conclude the contract renders its conclusion impossible — or, if the contract has already been concluded, leads to its modification or termination. Furthermore, when insuring property, the policyholder must notify the third person of the intention to insure that person's property or the interests connected with it, with an exact definition of the objects of insurance.
The beneficiary — who receives the insurance compensation
The beneficiary is a natural or legal person who receives insurance compensation under the insurance contract or in accordance with the legislation on insurance. A beneficiary may be determined both in personal insurance and in property insurance. In compulsory insurance the beneficiary is determined by the legislation regulating the given type of insurance, while in voluntary insurance the beneficiary is determined by the policyholder.
The law also supplies default presumptions where the contract is silent. The insured is the beneficiary unless the legislation on compulsory insurance or the insurance contract provides otherwise; and the beneficiary is deemed to be the insured if no beneficiary is specified in the contract. A contract of insurance of ownership for the benefit of a beneficiary may even be concluded without indicating the beneficiary's name or designation: in such a case the policyholder receives an insurance certificate (policy, certificate and so on) made out to bearer, and the beneficiary is the person who presents that document to the insurer.
Consequences of violating the rules of compulsory insurance
Violations of the rules of compulsory insurance carry clearly defined consequences. If a person who must be covered by compulsory insurance by force of law is not insured, that person is entitled, through the courts, to demand the implementation of insurance from the policyholder on whom the obligation to insure that person has been imposed.
If the policyholder failed to conclude the insurance contract, or concluded it on conditions that worsen the insured's position compared with the conditions provided for by the legislation, then upon the occurrence of the insured event the policyholder is obliged to compensate the insured for the loss in the amount that the insured would have received had the insurance existed. The negative consequences of non-implementation of insurance therefore shift to the policyholder. The policyholder, in turn, also has a judicial remedy: the right to demand, through the courts, that the insurer implement the insurance in accordance with the conditions established by the legislation.
Why the distinction between the parties matters in practice
Clearly separating the roles of the policyholder, the insured and the beneficiary before signing helps to avoid future disputes: it is this distinction that determines who concludes the contract, with respect to whom the insurance is carried out, and who receives the insurance compensation upon the occurrence of the insured event. If you intend to designate a third person as the insured or as the beneficiary, pay close attention to the consent requirement and the notification duty. In compulsory insurance, remember that damage caused by the non-implementation of the contract is compensated by the policyholder in the amount the insured would have received had the insurance existed. For additional guidance, you may approach a licensed insurance organization or the courts.