As we know, one way of risk prevention is to insure a risk with the insurance company. This method is considered to be the most important risk management method. Therefore, many people think that risk management is the same as insurance. Although the actual circumstances are not so.
Insurance means the insurance business involving two parties, the insured and the insurer. When the insurer guarantees the insured person that they will be compensated for damage they may suffer as a result of an event that would not necessarily occur or the occurrence of which could not be determined. As the insured in the obligation to pay some money to the insurer, the amount of the share of the sum insured, commonly known as the “premium”.
Viewed from multiple perspectives, insurance pursues various goals and techniques of splitting, including:
A. So from an economic point of view:
The goal:
Reducing the uncertainty of the outcomes of operations performed by an individual or entity to meet needs or achieve goals.
Technology:
By transferring the risk to the other party and combining the other party with a significant amount of risk, the extent of the possibility of loss can be more accurately assessed.
B. In legal terms then:
The goal:
Transferring the risks of an object or business activity to another party.
Technology:
The risk is then transferred to the insurer through premium payments by the policyholder to the insurer in the damage compensation contract (insurance policy).
C. Regarding trading, then:
The goal:
Share the risks with all participants in the insurance program.
Technology:
Risk transferred from individuals/companies to financial institutions engaged in risk management (insurance companies) who spread the risk among all participants in the insurance they manage.
D. From a societal point of view:
The goal:
Damages are borne jointly by all participants in the insurance program.
Technology:
All group members (group members) of the insurance program contribute (in the form of premiums) to compensate for losses suffered by one / some of its members.
E. Regarding mathematics, then:
The goal:
Predict the size of the risk opportunity and the result of the prediction is used to allocate the risk to all participants (group of participants) of the insurance program.
Technology:
Calculates probability based on probability theory (“probability theory”) performed by both the actuary and the underwriter.
