Insurance

Insurance

Insurance is vital to a free enterprise economy. It protects society from the consequences of financial loss from death, accidents, sicknesses, damage to property, and injury caused to others. The person seeking to transfer risk, the insured (policyholder), pays a relatively small amount, the premium, to an insurance company, the insurer, which issues an insurance policy in which the insurer agrees to reimburse the insured for any losses covered by the policy. Insurance is the process of spreading the risk of economic loss among as many as possible subject to the same kind of risk and is based on the laws of probability (chance of a given outcome happening) and large numbers (enables the laws of probability to work).There are many perils (causes of loss) that society faces, some natural (e.g., earthquakes, hurricanes, tornados, flood, drought), some human (e.g., arson, theft, fraud, vandalism, contamination, pollution, terrorism), and some economic(e.g.,expropriation, inflation, obsolescence, depressions/recessions). Insurers are able to provide coverage for virtually any predictable loss.

Early History

Concepts of insurance evolved thousands of years ago. The Chinese, for example, divided their cargoes among many boats to reduce the severity of loss from the perils of the seas, while the biblical story of Joseph and the famine in Egypt illustrates the storing of grain during the seven good years to relieve shortages during the seven years of famine.

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