What is Insurance?

As we know one way of preventing risk is to insure a risk to the insurance company. This method is considered the most important method in risk management. Therefore many people think that risk management is the same as insurance. Although the real circumstances are not like that.

Insurance means the insurance transaction, which involves two parties, the insured and the insurer. When the insurer guarantees the insured person, that he will be reimbursed for a loss that he may suffer, as a result of an event that would not necessarily happen or that cannot be determined when or when it happened. As the insured in the obligation to pay some money to the insurer, the sum of the proportion of the sum insured, usually called “premium”.

Viewed from several perspectives, insurance has a number of purposes and separation techniques, including:

A. From an economic perspective, then:


Reducing the uncertainty of the results of operations undertaken by a person or company to meet needs or achieve goals.


By transferring the risk to the other party and the other party combining a significant amount of risk, so the size of the possibility of loss can be more accurately estimated.

B. As far as the law is concerned, then:


Transferring the risks faced by an object or a business activity to another party.


Through premium payments from the insured to the insurer in the indemnity contract (insurance policy), then the risk is transferred to the insurer.

C. In terms of Trade, then:


Share the risks faced by all insurance program participants.


Risk transferred from individuals/companies to financial institutions engaged in risk management (insurance companies), which will share the risk with all insurance participants it handles.

D. From a social point of view, then:


To bear losses jointly among all participants of the insurance program.


All group members (members of the group) of the insurance program contribute (in the form of premiums) to sympathize the losses suffered by one/some of its members.

E. In terms of mathematics, then:


The prediction of the magnitude of the risk possibility and the result of the prediction is used to allocate the risk to all participants (group of participants) in the insurance program.


Calculates probability based on probability theory (“Probability Theory”), performed by the actuary as well as the underwriter.

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