Which insurance principle requires insurers to disclose risks to policyholders?

The principle that requires insurers to disclose risks to policyholders is utmost good faith, also known as "uberrima fides." This principle establishes that both parties in an insurance contract, the insurer and the insured, have a duty to act honestly and transparently. Specifically, the insurer must disclose all relevant information about the policy, including any risks that the policyholder may face which could impact the coverage being offered.

Under utmost good faith, insurers are expected to provide clear information regarding the terms of the policy and any potential exclusions. This ensures that policyholders can make well-informed decisions about their coverage options and understand the extent of their protection.

In contrast, the principle of indemnity focuses on compensating the insured for their actual loss, ensuring they are restored to the financial position they were in prior to the loss, but it does not directly address disclosure obligations. Subrogation allows an insurer to seek recovery from a third party responsible for a loss after they have compensated the insured, which is also unrelated to the duty of disclosure. Insurable interest requires that the policyholder has a legitimate interest in the insured item or life, but this does not encompass the obligation of the insurer to disclose information regarding risks.