The role of insurance Essay Example | Topics and Well Written Essays - 1000 words

The role of insurance - Essay Example Broadly defining the term, it is the transfer of risk from one owner to another. This exchange from one entity to another is done by paying a premium to one party who is undertaking the contingent risk. In return, the person who is giving up on the loss and paying the premium gets the benefit of knowing either the extent of risk that is present and or preventing the loss at all.Insurance is one of the basic forms of risk management. In terms of position, an insurer is the person who undertakes the risk of loss; the policy holder is the person who buys the insurance and let's go of the risk that is associated. There is another term that is present, called the insurance rate; this factor is used to determine the charge that is charged for a certain kind of insurance. This extra charge is called the premium that the policy holder has to pay to let go of the risk that is present. All in all, the field of insurance and related risk management has evolved as a science. Insurance, along wit h risk management goes hand in hand. In other words, insurance is a product that is used to manage the risk that is associated with an expected event such a death, or an accident in which the prospective risks associated with the death and the accident would be the risk of the family losing a family member and the income that he or she brings. Also, the damage of the car in the accident will have to be paid. In such a case, where one knows the prospective hazards of something, it is better to insure the event so that the weight of paying for that risk at a later stage decreases. The risk premium that the policy holder has to pay depends upon the kinds of risk that the insurance company is covering. In short, the higher the risk, the higher the premium is to be paid to the insurance company and the events with a lower risk have to be adjusted with a lower premium. In evaluating the risk of an event, the insurance company makes sure that they take into account every quantifiable and qualitative factor that is present in the environment to come at a compensation that can be good enough today in order to cover the expenses in the future, if the event happens. Therefore, they insurance company greatly increases its value when the event that is being insured doesn't happen at all. For all this to take effect, the insurance providers undertake massive research regarding the insurance holder and the event that might take place. They insurance company also makes sure that they use statistical tools to evaluate the occurring of the events that may be insured, for exam ple the loss of an earning family member or an illness. Risk profiling is another major aspect of insurance. Companies who provide insurance makes sure that they do adequate risk profiling and consider it an important part. According to research and the Pareto principle, more than 80% of insurance claims arise from less than 20% of the profiles that are present. Thereofre, risk profiling helps the insurance companies understand which areas provide them greater risks of claims and which don't. Insurance providers' major aim is to develop an understanding regarding the subject that is being insured and gathering maximium possible and relevant knowledge so that they are able to better evaluate the potential risks that are present and also the likelihood of the occurrence of such events. Co-relations between different events, different factors, and summaries are presented to help the insurance providers with sound conclusions. Today, even artificial intelligence is being used in order to understand the correlation that is present between even ts that would help the insurance providers gauge the risk of an event happening. For example, the correlation between people having high amounts of alcohol everyday and