What is insurance?

As we know, one way to prevent risk is to guarantee the risk to the insurer. This method is considered to be the most important way to address risk. Therefore, many consider risk management to be the same as insurance. The actual situation is not so.

Insurance means an insurance transaction involving two parties, the insured and the insurance company. If the insurer guarantees the insured, it guarantees that the insured will be reimbursed for any losses that may not necessarily occur or that may occur as a result of an event for which it was not possible to determine when and when it occurred. To do. The amount of the total percentage of the insured, commonly referred to as the “premium”, as the insured who is obliged to pay some money to the insurer.

From several angles, insurance, among other things, has different goals and methods of splitting.

A. From an economic point of view:

the goal:

Reduce the uncertainty of the outcome of the work performed by an individual or company to meet their needs or achieve their goals.

Technology:

By transferring risk to and from the other party and combining significant risks, you can more accurately estimate the likelihood of loss.

B. From a legal point of view:

the goal:

Transfer the risks faced by an object or business activity to another party.

Technology:

Risk of transfer to the insurance company through payment of insurance premiums from the insured to the insurance company in the compensation contract (insurance contract).

C. The terms of trade are as follows.

the goal:

Share the risks faced by all participants in the insurance program.

Technology:

Transfer risk from an individual / company to a financial institution (insurance company) engaged in risk management and share the risk with all participants in the insurance it handles.

D. From a social point of view:

the goal:

Share the loss jointly among all participants in the insurance program.

Technology:

All group members (group members) of the insurance program contribute (in the form of premiums) to sympathize with the losses incurred by some of their members.

E. Regarding mathematics, it looks like this:

the goal:

Predict the likelihood of risk and use the results of the prediction to divide the risk into insurance programs for all participants (groups of participants).

Technology:

Calculates probabilities based on probability theory (“probability theory”) performed by actuaries and underwriters.