What is the principle of indemnity primarily concerned with?

The principle of indemnity is fundamentally about returning the insured party to a financial position that is as close as possible to what it was before the loss occurred, without allowing them to profit from the situation. This principle ensures that compensation received for damages or losses is limited to the actual financial loss suffered, rather than extending beyond that amount.

This principle plays a critical role in insurance and claims management, as it provides a framework for assessing the value of losses and determining the appropriate compensation. It promotes fairness and prevents moral hazard, where an individual might intentionally cause losses to gain financially from insurance claims.

By focusing on restoration to an approximate previous financial condition, the principle of indemnity helps to maintain the integrity of insurance as a risk management tool, ensuring that it serves to protect against unforeseen losses rather than acting as a mechanism for profit.