What is insurance?

As we know, one way of risk prevention is to insure a risk to the insurance company. This method is considered to be the main method of dealing with risks. That is why many people think that risk management is the same as insurance. Although the actual circumstances are not.

Insurance means the insurance transaction, involving two parties, the insured and the insurer. When the insurer guarantees the insured that it will compensate the damage that it could suffer as a result of an event that would not necessarily take place or of which it could not be determined when or when it occurred. If the insured is in the obligation to pay some money to the insurer, the amount of the portion of the insured amount, commonly referred to as “premium”.

Viewed from different angles, insurance has different goals and splitting techniques, including:

A. From an economic perspective then:

The target:

Reducing the uncertainty of the results of operations undertaken by an individual or company to meet needs or achieve goals.

Technic:

By transferring the risk to the other party and combining significant risk for the other party, the magnitude of the probability of loss can be more accurately estimated.

B. In terms of law, then:

The target:

Transferring the risks of an object or a business activity to another party.

Technic:

Via premium payments by the insured to the insurer in the non-life insurance contract (insurance policy), the risk is transferred to the insurer.

C. In terms of trade, then:

The target:

Share the risks with all participants in the insurance program.

Technic:

Transferred risk from individuals/companies to financial institutions engaged in risk management (insurance companies), which share the risk with all participants of the insurance it handles.

D. From a social point of view then:

The target:

Carry the losses jointly among all participants in the insurance program.

Technic:

All group members (group members) of the insurance program contribute (in the form of premiums) to sympathize with the losses of one/some of its members.

E. In terms of math, then:

The target:

Predict the magnitude of the probability of risk and the outcome of the forecast is used to distribute the risk among all participants (group of participants) insurance program.

Technic:

Calculates the probability based on probability (“Probability Theory”) performed by both the actuary and the insurer.