What is insurance?

As we know, one way of risk prevention is to insure a risk to the insurance company. This method is considered the most important method to address risk. This is why many people think that risk management is the same as insurance. Although the actual circumstances are not like that.

Insurance means the insurance transaction, which involves two parties, the insured and the insurer. When the insurer guarantees the insured that he will be reimbursed for the damage he may suffer as a result of an event that would not necessarily occur or that could not be determined when or when it occurred. As the insured in the obligation to pay an amount of money to the insurer, the amount of the proportion of the insured sum, commonly called “premium”.

Viewed from various angles, insurance has a variety of objectives and fractionation techniques, including:

A. From an economic perspective, then:

The goal:

Reduce the uncertainty of the results of the operations carried out by a person or company in order to satisfy the needs or achieve objectives.

Technical:

By transferring the risk to the other party and the other party combines a considerable amount of risk, so that the magnitude of the possibility of loss can be estimated more accurately.

B. In terms of Law, then:

The goal:

Transferring the risks faced by an object or a commercial activity to another party.

Technical:

Through premium payments by the insured to the insurer in the indemnity contract (insurance policy), then the risk is transferred to the insurer.

C. In terms of Trade, then:

The goal:

Share the risks you face with all participants in the insurance program.

Technical:

Transferred the risk of natural persons/companies to financial institutions dedicated to risk management (insurance companies), which will share the risk with all the participants of the insurance it manages.

D. From a social point of view, then:

The goal:

Support losses jointly among all participants in the insurance program.

Technical:

All members of the group (groupmembers) of the insurance program contribute (in the form of premiums) to alleviate the losses suffered by one/some of its members.

E. In terms of Mathematics, then:

The goal:

Predict the magnitude of the risk possibility and the result of the forecast is used to divide the risk to all participants (participant group) of the insurance program.

Technical:

Calculates the probability based on the theory of probability (“Probability Theory”), carried out by both the actuary and the underwriter.