The insurance development industry includes companies and individuals who underwrite and sell insurance policies, administer and regulate them. Insurance is a means of protection against financial loss. It is a form of risk management primarily used to hedge against the risk of eventual and uncertain loss. The insurance industry manages the risk to people and businesses from the dangers of their current situation. Insurance policies are protection against the vagaries of life.
What is insurance?
Insurance is the fair transfer of the risk of loss from one entity to another in exchange for payment (called an insurance premium). It is a form of risk management primarily used to hedge against the risk of eventual and uncertain loss. The insurance industry manages the risk to people and businesses from the dangers of their current situation.
Insurance is a contract between two parties, the insurer or insurance company and the insured or the person applying for insurance, whereby the insurer undertakes to cover the risk of the insured against certain events. or specified future losses, in exchange for a regular payment from the insured as a premium. The insurance policy not only helps to mitigate risk but also provides a financial cushion against adverse financial burdens incurred. Insurance policies are protection against the vagaries of life.
Development of insurance as an industry:
The concept of insurance is almost as old as human society and over the years the insurance industry has matured into the form we know today. In an ancient civilization, if someone’s house burned down or met with disaster, the other members of the community would help rebuild it together. Everyone felt a moral obligation to help in case their house was the next to burn down. Similarly, humans have been managing risk for many years and in primitive times the insurance in this trade was mutual aid agreements. This type of insurance has survived to the present day in some countries where a modern monetary economy with its financial instruments is not widespread.
The earliest methods of transferring or spreading risk were practiced by Chinese and Babylonian traders as early as the 3rd and 2nd millennia BC, respectively. Chinese merchants traveling through treacherous rapids redistributed their goods among many ships to limit losses from a single ship capsizing.
The first written account of an insurance policy is found in the Code of Hammurabi, in the 18th century BC, and was designed to cancel debts due due to a catastrophe. The Babylonians developed a system that was practiced by early Mediterranean sail traders. If a trader received a loan to finance his expedition, he would pay the lender an additional sum in return for the lender’s guarantee to cancel the loan if the expedition was stolen or lost at sea. Sailing merchants and caravans used this insurance to protect against the risk of pirates and dangerous natural terrain. And early organized guild health insurance in ancient Greek and Roman civilizations helped surviving members or helped with funeral expenses.
The Achaemenid monarchs of ancient Persia were the first to insure their people and formalized it by registering the insurance process at government notary offices. The tradition of insurance was practiced every year where different ethnic groups offered gifts to the monarch. The presents were evaluated by the confidants of the court and this evaluation was recorded in special offices. The purpose of the recording was that whenever the person presenting the court-recorded gift was in trouble, the monarch and the court would help him.
A thousand years later, the people of Rhodes invented the concept of general average. Merchants whose goods were shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were deliberately jettisoned in order to lighten the ship and save it from total loss.
Separate insurance contracts (i.e. insurance policies not tied to loans or other types of contracts) were invented in Genoa in the 14th century, as they were pools of insurance backed by pledges of real estate. These new insurance contracts made it possible to separate insurance from investment, a separation of roles that first proved useful in marine insurance. Insurance became much more sophisticated in post-Renaissance Europe and specialty varieties developed.
The first insurance company in the United States purchased fire insurance and was established in Charles Town (now Charleston), South Carolina, in 1732. Benjamin Franklin helped popularize and standardize the practice of fire insurance. insurance, in particular against fire in the form of perpetual insurance.
In India, insurance has a deep rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings speak in terms of pooling resources that could be redistributed in the event of calamities such as fires, floods, epidemics and famine. Insurance in India has evolved over time drawing heavily from other countries, particularly England.
In the last century, the insurance industry adapted to changing lifestyles and growth, introducing products such as car insurance and health insurance. And more recently, changing government regulations around the world have impacted regulations in the insurance industry, allowing other industries, including the banking industry, to offer insurance products. similar insurance.
How the insurance industry works:
An insurer, or insurance company, is a company that sells insurance; the insured, or policyholder, is the person or entity that purchases the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. The insurance company must take care of “Risk Management”, the practice of risk assessment and control.
The transaction involves the insured assuming a relatively small guaranteed and known loss in the form of payment to the insurer in return for the insurer’s promise to indemnify (compensate) the insured against financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
Insurance is a contract between two parties, the insurer or insurance company and the insured or the person applying for insurance, whereby the insurer undertakes to cover the risk of the insured against certain events. or specified future losses, in exchange for a regular payment from the insured as a premium. The insurance policy not only helps to mitigate risk but also provides a financial cushion against adverse financial burdens incurred. Insurance policies are protection against the vagaries of life.
The insurance industry is made up of a variety of stakeholders and provides products and services designed to protect businesses and individuals against risk. Players in the insurance industry provide risk coverage to their customers and must simultaneously manage their own risks to ensure the competitiveness and profitability of their business model. The insurance environment which is subject to regulatory and legal requirements, competitive forces, margin pressures and changing customer demands, and industry players must manage all of these factors and provide risks to their customers. Insurance companies are adopting strategies unique to the environment in which they operate to overcome these challenges and propel growth and market share in a global environment.
This section helps learners understand key concepts, terminology, issues and challenges associated with the insurance industry. The latest articles focus on the tools and strategies employed to address some of these challenges. We will discuss the main insurance industry types, major insurance industry sectors and business drivers, business model and competitive environment in the following articles. Take advantage of insurance tutorials.
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