Compulsory Insurance (Pflichtversicherung)

Concept

Compulsory insurance is insurance mandated by statute, the taking out of which is a mandatory precondition for engaging in a particular activity, operating a particular facility, or permitting a particular risk. The insurance requirement serves to protect third parties who could be harmed by the insured activity, ensuring that a solvent debtor is available to satisfy their claims for compensation.

Typical Applications

Among the best-known forms of compulsory insurance are motor third-party liability insurance for vehicle owners, professional liability insurance for certain professions such as doctors, lawyers, tax advisors, and insurance intermediaries, and operator liability insurance for certain hazardous facilities such as nuclear power plants; many countries also maintain a general or subsidized health insurance mandate for all residents.

Distinctive Features Compared to Voluntary Insurance

Compulsory insurance is frequently subject to special statutory provisions that deviate from the general principles of insurance contract law, such as a restricted right of cancellation for the insurer, a duty to contract (an obligation on the insurer to enter into the contract), or a direct right of action by the injured party against the insurer that goes beyond the general principles of liability insurance.