Insurance Companies
Insurance Companies
According to Wikipedia,
Insurance is a means of protection from financial loss in which, in
exchange for a fee, a party agrees to compensate another party in the event of a
certain loss, damage, or injury. [1]
According to Investopedia,
Insurance is a contract (policy) in which an insurer indemnifies another
against losses from specific contingencies or perils.[2]
According to GAO,
Definitions of insurance are developed for various purposes such as different
fields of study, categories of insurance, and state or federal statutes. While risk
transfer and risk spreading are key elements, these definitions often include other
elements, or parameters, commonly found in the definitions. These include
• indemnification, which is the payment for losses actually incurred;
• the ability to make reasonable estimates of future losses;
• the ability to express losses in definite monetary amounts; and
• the possibility of adverse, random events occurring outside the control of the
insured. [3]
In business,
Insurance is a contract, represented by a policy, in which a policyholder
receives financial protection or reimbursement against losses from an insurance
company.[4]
From CFPB,
Insurance is a way to manage your risk. When you buy insurance, you
purchase protection against unexpected financial losses. The insurance company
pays you or someone you choose if something bad happens to you.[5]
INTRODUCTION OF INSURANCE COMPANY
Types of Insurance:
1. Life Insurance
2. Health Insurance
3. Auto Insurance
4. Home Insurance
5. Travel Insurance
6. Property Insurance
7. Whole Life Insurance
8. Disability Insurance
1. Life Insurance:
Life insurance is a contract between an insurer and a policy owner. A life insurance policy
guarantees that the insurer pays a sum of money to named beneficiaries when the insured dies
in exchange for the premiums paid by the policyholder during their lifetime. It starts from
minimum age of 18 years to maxi. Age of 60-65 years.
2. Health Insurance:
This is purchased for covering medical expenses revolving around various health issues,
including hospitalization, treatments and so on. These insurance plans come in handy in case of
medical emergencies; you can also avail of cashless facility across network hospitals of the
insurer.
3. Auto Insurance:
These are insurance plans for vehicles, including cars and bikes. These offer protection against
natural calamities, damages to third parties (people who have incurred losses or been hurt in
an accident with the policyholder’s vehicle) and also damages to the vehicle along with mishaps
and accidents.
4. Home Insurance:
These insurance plans cover any damages to the home on account of accidents, mishaps and
natural calamities, among other such events.
5. Travel Insurance:
Travel insurance is a type of insurance that covers the costs and losses associated with
traveling. It is useful protection for those traveling domestically or abroad. According to a 2021
survey by insurance company Battleface, almost half of Americans have faced fees or had to
absorb the cost of losses when traveling without travel insurance. [12]
6. Property Insurance:
Property insurance provides protection against most risks to property, such as fire, theft and
some weather damage. This includes specialized forms of insurance such as fire insurance,
flood insurance, earthquake insurance, home insurance, or boiler insurance.
8. Disability Insurance:
Disability Insurance, often called DI or disability income insurance, or income protection, is a
form of insurance that insures the beneficiary's earned income against the risk that a disability
creates a barrier for completion of core work functions.[13]
Objectives of Insurance:
⮚ Getting Security To People
⮚ Minimization Of loss
⮚ Diversifying the risk
⮚ Reduces the anxiety and fear
⮚ Mobiliser the saving
⮚ Generation of capital [14]
Purpose:
⮚ Providing safety and security
⮚ Generates Financial resources
⮚ Life Insurance Encourages Savings
⮚ Promotes economic health
⮚ Medical Support
⮚ Spreading of risk
⮚ Sources of collecting fund
Purpose of Insurance:
Its aim is to reduce financial uncertainty and make accidental loss manageable. It does this
substituting payment of a small, known fee—an insurance premium—to a professional insurer
in exchange for the assumption of the risk a large loss, and a promise to pay in the event of
such a loss.[15]
2] Protection
Insurance does not reduce the risk of loss or damage that a company
may suffer. But it provides a protection against such loss that a company
may suffer. So at least the organisation does not suffer financial losses
that debilitate their daily functioning.
3] Pooling of Risk
In insurance, all the policyholders pool their risks together. They all pay
their premiums and if one of them suffers financial losses, then the
payout comes from this fund. So the risk is shared between all of them.
4] Legal Requirements
In a lot of cases getting some form of insurance is actually required by
the law of the land. Like for example when goods are in freight, or when
you open a public space getting fire insurance may be a mandatory
requirement. So an insurance company will help us fulfil these
requirements.
5] Capital Formation
The pooled premiums of the policyholders help create a capital for the
insurance company. This capital can then be invested in productive
purposes that generate income for the company.[17]
[18]
1. Financial Support
A family member may be eligible to receive financial support from
Insurance in the event of death. In the event of a loss to a business,
Insurance offers financial support to aid in the company's recovery and
reconstruction. If they have health insurance, they can be qualified for
financial support for medical care.
5. Jobs Opportunities
The business model for Insurance is successful, just like any other firm.
It is directed at numerous business owners and entrepreneurs. The
business has a lot of cash flow as a result. As they need employees to
manage and maintain cash flow and run the business, they publish job
openings based on qualifications and provide employment opportunities.
The idea that "the harder you work, the more money you make" may be
used to determine how much an employee is paid. Insurance firms and
agencies make significant profits from selling and providing insurance
services.
6. International/foreign Trades
Because of the potential for mishaps when carrying commodities by
ships, roads, or other means of transportation in the past, individuals
were reluctant to engage in international trade. However, insurance
companies take on all those risks and pay for losses in today's global
market. Additionally, they shield an exporter of products and services
from a foreign buyer who refuses to pay.
7. Loan Facilities
Banks are more like to extend credit to an organization if it has acquired
Insurance. No, it's challenging for big businesses to obtain a loan from a
bank, but if you have a small business or startup and have secured
business insurance, your chances of doing so increase.
For newly established firms that depend on them, banks almost often
require Insurance against the demise of one or more of the principal
founders to decrease risk. The fine print also specifies that the bank must
be paid first to repay the debt when the payment on death is made.
The likelihood that you will be approved for a loan from a financial
institution is also increased by obtaining your own life and health
insurance.
8. Stability of Business
Insurance can aid in loss management even if your business has
unforeseen losses. Your employees will be more inclined to come to
work if you provide them with Insurance. Insurance, therefore, helps the
office run more efficiently. Also, the economy will improve in stability.
9. Specialization
The use of Insurance is limited, just like that of other financial
instruments. Consequently, you can spend the money towards your
original goal.
For instance, life insurance reduces the possibility that, even if you have
enough money saved to pay off your remaining debt, your family won't
be able to cover the normal expenditures in the event of your sudden
death. If you pass away while covered by lifetime insurance, the payoff
to your beneficiary is tax-free.
3. Fraud Agency
The market is filled with a variety of fraud agencies. People who choose
to purchase Insurance before purchasing it must be capable of handling
themselves and the issue or seek professional assistance when choosing
insurance firms.
7. Additional Fees
One could have to pay additional fees in addition to the premium. This
additional cost covers the broker fee.
8. Professionalism Gap
Insurance brokers occasionally display a professionalism gap. They can
think they're pretending to be experts while looking to defraud people
and gain financial gain. They might even carry out their duties while
utilizing a phony insurance broker license or without a current license.
As a result, one should request proof of an insurance broker license
before employing an intermediate service.
10. Limited Offers
It's important to remember that not all insurance brokers interact with all
insurance companies. Therefore there can be certain offers that are
restricted.
9. Lack of Experience
A rookie broker just getting started in this industry might need to be
more familiar with all the discounts. It can make the buyer confused and
bewildered.
After assessing the advantages and downsides and learning how and
when to acquire Insurance, you can make a wise decision now that you
have all the facts.[21]
REFERENCES
[1] https://en.wikipedia.org/wiki/Insurance
[2] [4] https://www.investopedia.com/terms/i/insurance.asp#toc-what-is-insurance
[3] https://www.gao.gov/assets/gao-06-424r.pdf
[5]https://files.consumerfinance.gov/f/documents/
cfpb_building_block_activities_what-is-insurance_handout.pdf
[6] https://www.abi.org.uk/data-and-resources/tools-and-resources/glossary/
insurance-company/#:~:text=A%20company%20that%20creates
%20insurance,known%20as%20insurer%20or%20provider).
[7] https://en.wikipedia.org/wiki/Insurance
[8][10] https://www.sbp.org.pk/
[9] https://www.secp.gov.pk/wp-content/uploads/2016/05/nl_nov_08.pdf
[11] https://smallbusiness.chron.com/insurance-companies-work-60269.html
[12] https://www.creditmantri.com/article-what-is-the-purpose-of-insurance/
[13] https://www.investopedia.com/terms/i/insurance.asp
[14] http://www.nou.ac.in/Online%20Resourses/27-7/bba4.pdf
[15] https://www.iii.org/article/insurance-101#:~:text=Purpose%20of%20insurance,-Technically%2C
%20the%20basic&text=Its%20aim%20is%20to%20reduce,event%20of%20such%20a%20loss .
[16] https://www.yourarticlelibrary.com/insurance/the-role-and-
importance-of-insurance-explained/7540
[17] https://www.toppr.com/guides/business-studies/business-
services/insurance/
[18] file:///C:/Users/Al%20hafiz%20computers/Downloads/199507.pdf
[19]
https://www.pacificcrosshealth.com/en/company-information/organizati
on-structure/
[20] file:///C:/Users/Al%20hafiz%20computers/Downloads/BADRI-
Pakistan-Listed-General-Insurance-Companies-Performance-Analysis-
for-Period-Ended-2022-H1.pdf
[21] https://www.javatpoint.com/advantages-and-disadvantages-
of-