• The notion of insurable interest dates back to the Middle Ages and it was English common law until the Life Assurance Act of 1774.
• In that Act the Parliament of Great Britain sought to prevent the abuse of life insurance and differentiate  it from gambling or purely speculative behaviour.
• It specifically “prohibited the making of any policy on the life of a person by anyone with no interest in the insured life or for gaming or wagering purposes.”¹⁴ 
• Today, the speculative behaviour that the Act of 1774 sought to prevent is often associated with financial derivatives that are wrongly equated with insurance.

¹⁴ See the 2006 proceedings of the Society of Actuaries under the title “You Bet Your Life.” In that session new forms of life insurance – such as Investor Owned Life Insurance (IOLI), an investment vehicle involving an insured life, a life insurance company, a lender, and investors – were discussed in which insurable interest is either de minimis or entirely absent.

2011 11 - IAIS - Insurance and Financial Stability - 47p