Insurance is a risk
Insurance is a way of safeguarding against financial loss. It’s a type of risk management that’s generally utilized to protect against the danger of a speculative or unpredictable loss.
An insurer, an insurance company, an insurance carrier, or an underwriter is a company that sells insurance. A policyholder is a person or entity who purchases insurance, while an insured is a person or entity who is covered by the policy. Although policyholder and insured are frequently used interchangeably, coverage can sometimes extend to other insureds who did not purchase the insurance. The policyholder accepts a guaranteed, predictable, and generally minor loss in exchange for a payment to the insurer (a premium) in the insurance transaction, in exchange for the insurer’s assurance that the insured will be compensated in the event of a covered loss The loss can be financial or non-financial, but it must be quantifiable. It also frequently involves something in which the insured has an insurable interest due to ownership, possession, or a prior relationship.
The insured is given a document, known as an insurance policy, that spells out the terms and conditions under which the insurer would compensate the insured, or their designated beneficiary or assignee. The premium is the amount of money charged by the insurer to the policyholder for the coverage specified in the insurance policy. When the insured suffers a loss that may be covered by the insurance policy, the policyholder files a claim to the insurer, who will process the claim with a claims adjuster. A deductible is a mandated out-of-pocket fee required by an insurance policy before an insurer will pay a claim (or if required by a health insurance policy, a copayment). The insurer can reduce its risk by purchasing reinsurance, in which another insurance company agrees to take on some of the risks, especially if the primary insurer considers the risk too great to bear.
What started it all?
Where did the practice of risk assessment begin, and why was it started?
We’ve looked at the history of safeguarding yourself and your loved ones from unforeseen events, as well as how the globe and financial markets have evolved to suit ever-changing risk perceptions.
The art of securing our lives and belongings in the event of an accident isn’t a new craze; it extends back to the dawn of human civilization. We know of two sorts of economies according to historical research: natural or non-monetary economies and those that utilised fundamental forms of finance. Trade and bartering were utilized as money in the latter, while monetary economies relied on markets and currencies.
Insurance was an agreement between communities in the case of economies that did not use cash.
If your house was robbed or destroyed, for example, your neighbors would pitch in to help. Famines were averted by storing grain and food in granaries and food depots, a practice that continues to this day in nations where contemporary financial markets do not exist.
Chinese and Babylonian businessmen used the first methods of risk analysis and distribution in 2 and 3 BC. To avoid disaster if one of their ships went down, the Chinese would divide their cargo among several ships, and the Babylonians employed a similar method of risk assessment. If a merchant received a loan to support his cargo, he would pay additional money to the lender in exchange for the lender’s commitment to cancel the loan if the ship and the contents were lost.
Monarchs of Ancient Persia were among the first to use political reassurance, receiving valuable presents from the many ethnic groups they governed. It was a shrewd maneuver on the part of the subjects, as it legally obligated the Persian ruler to defend the group
Around 600 BC, the Greeks and Romans established the foundations of health and life insurance by forming ‘benevolent societies,’ which looked after bereaved families and paid members’ burial expenses.
During the European Enlightenment, things began to become interesting, and many types of aid emerged. In the early decades of the 17th century, certain forms arose in London. Before embarking on a journey, English wanderer Robert Hayman intended to broaden his horizons, If Hayman’s ship did not arrive in Guyana safely, one document was meant to pay off. Knowing it would be a perilous journey, the other was a monetary reward if he became ill or died. “One hundred pounds promised by the said Doctor Arthur Ducke on my life,” his will states.
Medieval Era
Before the usual maritime insurance, sea loans, or foenus nauticum, were widespread in medieval times, in which an investor granted his money to a traveling merchant, who was obligated to repay the investment provided the ship returned safely. Credit and maritime insurance were supplied at the same time in this fashion. To compensate for the considerable risks involved, maritime loans have a high-interest rate. Merchants who took out sea loans were required to pay high-interest rates to the lenders in exchange for bearing the sea risk rather than sharing profits as was the case when products were transported by land. Because maritime loans included taking a risk, Pope Gregory IX declared the practice to be usury.in his 1236 decretal Naviganti (Decretales, V, XIX, 19). When Pope Gregory IX prohibited sea loans, the commenda contracts were created. Capitalists contributed finances to an entrepreneur to carry out a trade as partners in the firm, sharing the reward, but capitalists bear both maritime and commercial risk. [28] Italian merchants established cambium contracts in the fourteenth century, requiring borrowers to purchase bills of exchange from lenders (merchant bankers). The bills of exchange did not cover any marine risk because they were due regardless of the circumstances. To protect themselves from the new maritime hazards, merchants devised insurance loans that were quite similar to today’s marine insurance, in that “the insured or borrower stayed on the land.”The insured commodities are transported alone, and the loan is payable not on the safe arrival of the ship but on the safe arrival of the cargo.”.
D. Dinis, King of Portugal, championed the interests of Portuguese merchants in 1293, establishing the Bolsa de Comércio, Europe’s earliest known form of marine insurance, which was established on May 10, 1293.
European traders went throughout the world in the thirteenth and early fourteenth centuries to market their products and to protect themselves against theft or fraud by the Captain or crew, also known as Risicum Gentium. However, they understood that selling in this manner not only exposes them to the danger of loss (i.e., damage, theft, or even the trader’s life) but also limits their ability to cover a larger market. As a result, a trend of engaging commissioned base agents arose in several sectors. [31] The Chamber was founded in 1310. In the Flamish commercial city of Bruges, the Chamber of Assurance was founded.
The traders sent (exported) their products to the agents, who sold them on their behalf. Sending products to agents by road or sea has varied hazards, such as maritime storms, pirate attacks, and items being destroyed owing to improper loading and unloading procedures, among others. Traders used a variety of strategies to mitigate the risk of exporting. They used to send their products over a number of ships/trucks instead of shipping them all on one ship/truck to avoid entire cargo loss if the vessel was trapped in a sea storm, fire, pirate assault, or fell under enemy attack, however, this was not a smart practice owing to the extended time and cost involved. Insurance was created to minimize trade/business risk and is the earliest technique of risk transmission. Marine insurance is critical for international trade and allows for large-scale business transactions. In medieval times, our forefathers employed risk hedging tools including sea/marine (Mutuum) loans, commenda contracts, and bills of trade to manage risk. Nelli (1972) pointed out that commenda contracts and sea loans were nearly identical to maritime insurance. Furthermore, he noted that the first maritime insurance contract was thought to have been floated in Italy on October 23, 1347, for almost a half-century; nevertheless, professor Federigo discovered that the first written insurance contracts were floated in Pisa on February 13, 1343. Furthermore, Italian traders educated Europeans about insurance and encouraged them to utilize it.
The word policy for an insurance contract became common in the fourteenth century. Insurance was widely used throughout the sixteenth century in the United Kingdom, France, and the Netherlands. Due to limited commerce or greater costs of local insurance, the notion of insuring beyond home nations originated in the seventeenth century. According to Kingston (2011), throughout the eighteenth century, Lloyd’s Coffeehouse was the most important maritime insurance marketplace in London, and European and American businessmen utilized it to cover their shipments. The insurance laws and regulations were adapted from Italian merchants known as “Law Merchants,” and these standards first regulated maritime insurance all across the world. In the event of a disagreement, the policy writer and holder each select one arbitration, and these two arbitrators select a third neutral arbitrator, with the parties bound to agree with the majority’s choice. Due to the informal court’s (arbitrator’s) incapacity to enforce their judgments, traders in the sixteenth century turned to formal courts to settle their disputes. Special courts were established to resolve conflicts involving maritime insurance, such as at Genoa, where an insurance law was issued in 1369 to impose fines on those who did not follow the Church’s rules against usury (Sea loans, Commenda). In 1435, the city of Barcelona passed an ordinance requiring traders to go to official courts in the event of an insurance dispute. In 1436, the “Consoli Dei Mercanti,” a specialist court dealing with marine insurance, was established in Venice. In 1520, Genoa’s mercantile court was superseded by the “Rota,” a more specialized court that not only followed but also It integrated not just the merchant’s conventions, but also the legal laws.
Separate insurance contracts (i.e., insurance policies that are not bundled with loans or other types of contracts) and insurance pools backed by landed estate pledges were created in Genoa in the 14th century. The oldest documented insurance contract originates from Genoa in 1347, and marine insurance grew in popularity over the next century, with rates naturally varying with danger.
These new insurance contracts permitted insurance and investment to be separated, separation of responsibilities that had previously only been seen in maritime insurance. The legal treatise On Insurance and Merchants’ Bets by Pedro de Santarém (Santerna), written in 1488 and published in 1552, was the first printed work on insurance.
Modern Era
Now in the 20th-century insurance has evolved greatly and has covered a wide range, almost everything now can be insured due to fear of the unknown .we can boldly say today that anyone with the capacity and capability can involve themselves in varieties of the policy he wishes, which also depends on his financial capabilities. insurance now ranges from car insurance, house insurance, health insurance, life insurance, property insurance, business insurance, animal insurance, travel insurance, e.t.c
Types of insurance and how they began
- life insurance
- health insurance
- vehicle insurance
- property insurance
- business insurance
- travel insurance
- animal insurance
The importance of Insurance
The world we live in is full of hazards and uncertainty. Individuals, families, businesses, buildings, and investments are all vulnerable to various dangers. These include the danger of losing one’s life, health, possessions, and property, among other things. While it is not always feasible to avoid unfavorable occurrences from occurring, the financial sector has devised solutions that safeguard individuals and organizations from such losses by providing financial resources to compensate them. Insurance is a financial instrument that lowers or eliminates the cost of a loss or the effect of a loss caused by various risks.
Apart from shielding individuals and companies against a variety of possible hazards, the insurance industry contributes considerably to the nation’s overall economic growth by ensuring the smooth operation of the financial system of companies and the generation of long-term financial resources for industrial projects The insurance industry, among other things, promotes the virtue of saving among individuals and creates jobs for millions, particularly in countries like India, where both savings and employment are crucial.
Let’s take a closer look at how and why the insurance industry is so important to the growth of any economy.
Provides Financial Assistance and Lessens Uncertainties for Individuals and Companies: Insurance provides financial support and reduces the uncertainties that individuals and businesses confront throughout their lives. It’s an excellent risk-mitigation tool against situations that might cause financial hardship for individuals and organizations.) For example, with medical inflation averaging around 15% per year, even routine medical treatments can cause a family’s carefully set budget to be disrupted.
Health Insurance, on the other hand, would provide financial stability for the family. In the case of business insurance, financial compensation is offered in the event of financial loss due to fire, theft, maritime catastrophes, other calamities, and so on.
The insurance industry develops long-term financial resources by collecting premiums from millions of customers. Because these funds are long-term, they are invested in long-term infrastructure assets (such as roads, ports, power plants, dams, and so on) that are critical to nation-building. Large investments that result in capital formation in the economy create employment prospects.
Promotes Economic Growth: By mobilizing domestic funds, the insurance industry has a considerable influence on the wider economy. Insurance converts collected funds into profitable ventures. Insurance also allows for risk reduction.
Financial stability is important because it encourages trade and commerce, which leads to long-term economic growth and development. As a result, insurance is critical to an economy’s long-term viability.
Provides assistance to families in the event of a medical emergency: Family well-being is vital to everyone, and the health of family members is the primary concern for the majority. Medication and hospitalization play a vital part in safeguarding the well-being of families, from elderly parents to newborn children. If you are not adequately prepared, rising medical treatment expenses and escalating drug prices might quickly deplete your funds. Critical diseases (such as heart attack, stroke, cancer, and others) can strike anyone at any time. In addition, growing medical costs are a major source of anxiety. Medical insurance is a policy that protects people financially from a variety of medical expenses. Health Insurance coverage provides financial assistance in the event of a medical emergency.
Spreads Risk: Insurance allows the insured to transfer the risk of loss to the insurer. The underlying premise of insurance is to disperse risk over a wide group of people. A vast number of people purchase insurance policies and pay premiums to the insurance company. Whenever a loss occurs, the monies collected from millions of policyholders are used to reimburse the damage.
