When we take a broad look at insurance, there are numerous types of policies and coverages available but generally we can categorise them into one of two forms – first party and third party insurance.
As is commonly the case with insurance, knowing exactly what the difference is between the two and how they affect you is half the battle!
We will take a look at both first party and third party insurance to identify how the two differ and what that means for you as a policy holder.
What is first party insurance?
With an insurance policy, there are two parties to the insurance ‘contract’ – the insured and the insurance company.
‘First party’ insurance provides coverage against loss or damage sustained by the insured. The insured being the person or business who has purchased the insurance policy or the policy is written to protect.
In this instance, the insured is referred to as the ‘first party’ and the insurance company is referred to as the ‘second party’. However for reasons we are unsure of, the insurance company is rarely referred to as the ‘second party’ in the insurance world.
Upon the occurrence of a first party claim, payment is directly made from the insurance company to the insured.
Examples of a first party insurances include:
- Motor vehicle insurance
- Home insurance
- Contents insurance
For example, if there is a fire at your home and your property is damaged or destroyed, you may wish to claim under your home insurance policy for property damage. This is an example of a first party claim as you as the insured have directly suffered a loss and the insurance company is required to pay you directly for the sum of the damages if covered under the policy.
What is third party insurance?
‘Third party’ insurance is designed to insure against liability of a person for loss, damage or personal injury caused to a third person (i.e. someone other than the insured).
Think of the third party as being a stranger to the policy as they are neither the insured or the insurer.
Common types of third party policies include:
Third party claims are almost always a liability claim.
For example, you are a business owner and a client has fallen as a result of a wet and slippery surface on your premises leading to injury – you have been found negligent for the incident.
Under your Public Liability insurance policy, you may have ‘third party coverage’ which protects you as the insured from exposure to liability. In this instance, your insurance company will pay the claim amount directly to the claimant (the third party) rather than to the insured to cover the losses.
Is there anything in between?
To answer this simply, yes. Some types of insurance policies contain aspects of both first party and third party provisions.
A common example of such an insurance policy is Cyber Liability Insurance.
Under a Cyber Liability policy, insurers may offer both first and third party insurance for cyber losses.
First party coverage insures for losses to the policyholder’s own data or loss of income, or for any harm that may have been caused as a result of a data breach or cyber attack to the policyholder’s business.
Third party coverage insures for the liability of the policyholder to third parties who have been impacted by the data breach or cyber attack. This may include clients and government bodies.
As you can see, there is quite a difference between first party and third party insurance and it is important to know the difference between the two fully understand how your insurance policies work for you.
Would you like to know more about first party and third party insurance? Contact us.