What is the primary purpose of disclosure in an insurance contract?

The primary purpose of disclosure in an insurance contract is to allow the insurer to assess risk accurately. This is crucial because insurance is fundamentally about risk management. Both parties—the insurer and the insured—must provide truthful and complete information regarding the risks involved.

When the insured discloses relevant facts, it enables the insurer to evaluate the likelihood of a claim and to set appropriate premium levels based on that assessment. Accurate risk assessment is essential for insurers to price their products correctly and to ensure that they can meet potential claims when they arise. It helps establish a fair balance in the insurance contract, permitting the insurer to provide coverage that reflects the actual risk involved.

This process is underpinned by the principle of utmost good faith (uberrimae fidei), which requires both parties to act honestly and disclose all material facts that could affect the insurance contract. Hence, the accurate assessment of risk through proper disclosure is vital for the sustainability and fairness of the insurance market.