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 conclude that there are at least four characteristics which are important to insurance interest. Firstly, some property, right, interest, life, limb or potential liability can be insured. Secondly, such property, right, interest, etc must be the subject matter of insurance. Thirdly, the insured must have certain relationship with the subject matter of insurance. He can benefit from its safety, its good condition or freedom from liability. Otherwise he would be suffered from its danger or 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. First of all, insurance is allowed at law while gambling is prohibited at law in most countries in the world. Secondly, insurance seeks the social stability through mutual cooperation and gambling takes advantage of people's desire for extra profits and tries to make huge profits. Thirdly, insurance based on scientific calculation, collects social funds to pay the losses of a few policyholders. Gambling is based on the cost of others who lost the game. Finally, the insured puts uncertainty into certainty by transferring risk to the insurance company, in return of paying premiums. In gambling, whether someone wins or losses can not be identified until after the game. Those who loss the game suffer from pain, which is not conducive to social stability.

1.2　Guarding against moral hazard

Moral hazard refers that under the condition of information asymmetry, uncertainty makes the responsible party not to bear all the outcomes of its actions and makes harmful to another party. If an insured has no insurance interest to the subject matter of insurance and can get the indemnity from the insurance company, he may make some artificial perils intentionally.

1.3　Controlling the sum insured

The applicant'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