As we know, one of the ways to prevent risk is through hedging. This method is considered to be the most important method for dealing with risk. Therefore, many people believe that risk management is the same as insurance. Although the facts are not so.
Insurance – An insurance operation involving two parties – the insured and the insurer. When the insurer guarantees to the insured that it will be indemnified for losses it may incur as a result of an event which would not necessarily have occurred or which could not be ascertained when or when it occurred. When the policyholder undertakes to pay some money to the insurer, the proportionate amount of the sum insured, commonly referred to as the “premium”.
From several points of view, insurance has many purposes and methods of division:
A. From an economic point of view:
Reduce the uncertainty of the results of operations performed by an individual or company to meet needs or achieve goals.
By transferring risk to and from one party, balancing a significant amount of risk allows you to more accurately estimate the probability of loss.
B. From a legal point of view:
Transfer of risk from an object or business to another party.
When the policyholder pays the premiums under the insurance contract (insurance policy), the risk can then be transferred to the insurer.
C. As regards trade, then:
Share the risks faced by everyone in the insurance program.
Risk transferred from individuals / companies to financial institutions engaged in risk management (insurance companies), which will share the risk with all participants in the insurance it manages.
D. From a societal perspective:
All participants of the insurance program cover the losses jointly.
All members of the insurance program (members of the group) contribute (in the form of premiums) to the sympathy of some of its members.
Predict the degree of risk and the result of the forecast is used to divide the risk among all participants (group of participants) in the insurance program.
Calculates probability based on probability theory (“Probability Theory”), conducted by an actuary and insurer.