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There are three main functions of the insurance that define how work insurance companies and the public with these companies as interacts.

The first is as a mechanism for the file transfer can transfer risks, where some of the uncertainty of life on the shoulders of the other person or company. In exchange for a well-known award, generally very little to the potential loss, the loss of an insurance undertaking is added to the cost. Without insurance, it would be a high degree of uncertainty in both the individual and society, not only how and if a loss would occur, but the degree and extent of the potential loss.

The second main feature is the creation of the common pool. The premium of insurance by the insurer, which is received in a fund or pool for this type of risk and the requirements of the people suffering losses this pool will be paid. Application of Bernoulli “Law of big numbers”, with a specific fund or pool over a period of time, insurance companies are predictions with great accuracy the amount of claims or losses, may be incurred due to the large number of clients. There are some variations in losses on several years and insurance companies a part of the premium for the creation of a reserve for additional losses in bad or catastrophic years contain numbers. Therefore the additional premiums should adjust in principle granted subject to the restrictions of the type of coverage, not acceptance of the client in the Fund after a loss or claim number.

The third main function of insurance to ensure that fair and equitable rewards. Provided that a file on the risk transfer mechanism is created by a common fund or the swimming pool, contributions to the Fund will be paid equitable to all parties. Each party to ensure and numbers in the Fund brings different degrees of risk. To prevent adverse selection and fair risk premia, divided in several parts and factors of rating that determined separately priced on a scale of statistical probabilities by actuaries can be each. If those who pay the greatest risk of statistics more in the common fund for the same coverage, if their individual premiums are calculated.

Service of the insurers of insurance companies, to reduce the problem of adverse selection and protection of the Fund. The risk parameters and the value of the risk, that which is acceptable for funds and the risks that these parameters are outside the established underwriters. Establishing a fair level premium, which must also take into account the contributions of others in the common fund and price accordingly.

Insurers and insurance are many techniques for discouraging or negative selection is the price of the service of risk pool. These typically exclusions in the form of the policy of risk under certain conditions, to cover the exemption include formulations and additional conditional clauses. They are all sorts of mechanisms and devices for installation in the population, you increase the size of the pool of risk and the sector of the market, they use the target of fear or niche. For example, to focus on some important marketing campaigns “safe”, for example, the directors, that statistically less likely to claim. On the Internet, automated insurance service and covering everything which does not exclude the risk pool parameters desired.

Filed under: Insurance by Businessman