Why might an insurer insert a continuing warranty into an insurance policy?

An insurer might insert a continuing warranty into an insurance policy primarily to ensure that specific, agreed-upon precautions or conditions are continuously met throughout the life of the policy. This type of warranty obligates the insured to maintain certain standards or practices that the insurer believes are necessary to minimize risk. By requiring these ongoing measures, the insurer can better manage risk and potentially reduce the likelihood of a claim, which supports the overall stability and profitability of the insurance pool.

For instance, if a manufacturer is insured against fire damage, a continuing warranty might require them to maintain certain fire-prevention equipment or processes. The insurer's interest lies in the reduced risk exposure that arises from the insured taking proactive steps to adhere to the terms of the warranty. If these conditions are not met, it could not only affect the observance of the policy terms but also allow the insurer to deny coverage for any resulting claims, thereby limiting their liability. However, the central focus of why continuing warranties are included is to ensure that risk management measures are actively sustained, aligning with the practice of elevating safety measures in high-risk industries.