Insurance the Distribution of Risk
Insurance is distribution of risk. Ancient people when some disaster happened they all got together and did the repair work. A good example is suppose a house in the village caught fire. The house owner cannot build another house in a day or two on his own though the material such as stones sand and wood are available in the village. What the villagers do is all of them will get together and construct a new house within a day or two. This is a kind of insurance though money is not involved. Even today some rural areas of some countries people practice this principle and work against risk.
A similar thing is done by insurance companies at present. A home owner’s property insurance company will collect a premium from all the house owners and when one house owner gets his house destroyed the insurance company pays him to buy a new house. Since the insurance company gets premium from all house owners they are able to pay the house owner whose house got destroyed and retain a profit also. When you compare the two examples of the village and the urban household the story is the same.
Businesses too go for insurance to safeguard against risks. They insure their business properties with business property insurance companies and pay a premium. In case some disaster happens and some loss is incurred the insurance company looks after the business concern by way of compensation. Preset day business insurance normally covers damage by natural hazards such as floods and earthquakes, terrorist attacks, theft, fire and many other hazards. When the insurance covers more areas the premium becomes larger but it is safe to cover as many areas as possible. When it comes to business property even the vehicles machinery and other movable items too are covered with business property insurance.
Property insurance is big business today. With the risk of terrorist attacks it has become essential for owners of properties to go for property insurance with a property insurance company. Property insurance companies too are no insulated against terrorist attacks as a result for their safe guard the property insurance companies go for reinsurance with bigger insurance companies. This means it the entire insurance system is in one web.
Integrity of those who are insured against is of prime importance for insurance companies. To fight against inappropriate claims they have a se t of regulations which the insured has to follow. When fire or a theft takes place the insurance company has to be informed immediately. The police have to be alerted. Once the police investigations are over a police report has to be obtained. All these regulations are only for the low premium groups. There are some insurance companies both home owner’s property insurance companies and business property insurance companies which charge a higher premium and give exemption to these rules in some countries.
What ever the insurance scheme is finally it is distribution of risk or pooling of risk.
About the Author
Home owner’s property insurance is to safeguard the interests of ordinary house owners while the business property insurance is for the businessmen and traders. Both these could be product one property insurance company.
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