Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. Insurer is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Contents[hide]
1 Principles of insurance
2 Indemnification
3 Insurer’s business model
4 History of insurance
5 Types of insurance
5.1 Life & Annuity Coverages
5.2 Health Coverages
5.3 Disability Coverages
5.4 Property & Casualty Coverages
5.5 Liability Coverages
5.6 Credit Coverages
5.7 Other Types of Coverage
5.8 Types of Insurance Financing Vehicles
6 Types of insurance companies
7 Life insurance and saving
8 Size of global insurance industry
9 Financial viability of insurance companies
10 Accounting definition (United States)
10.1 Risk transfer requirement
10.2 No brightline test
10.3 "Safe harbor" exemptions
10.4 Risk limiting features
11 Controversies
11.1 Insurance insulates too much
11.2 Closed community self-insurance
11.3 Complexity of insurance policy contracts
11.4 Redlining
11.5 Health insurance
11.6 Insurance patents
11.7 The insurance industry and rent seeking
11.8 Criticism of insurance companies
12 Glossary
13 References
14 See also
14.1 Lists
15 External links
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[edit] Principles of insurance
Commercially insurable risks typically share seven common characteristics.[1]
A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.