Insurance is, by definition, a system that makes it possible to protect an individual, an association, or a company against the financial and economic consequences linked to the occurrence of a particular risk.
The means implemented by insurance organizations to protect them against this risk is to associate them with a community of people (the insured), who contribute to be able to compensate those among its members who would suffer material damage or bodily injury in the event of a risk.
Thus, insofar as it is the entire community of insured persons who materially covers the damage suffered by its members hit by the realization of the risk, insurance is a risk management system based on the concept of solidarity.
The different types of insurance.
There are two types of insurance:
Non-life insurance (property insurance, liability insurance, and health insurance)
Life insurance (life, death, savings, retirement, etc.)
This distinction between these two types of insurance is based on the difference in the way premiums are managed.
In general, non-life insurances manage pay-as-you-go premiums. Collective management method where the premiums from the community of policyholders are used to pay claims by the community of policyholders for the same year; while insurance policies manage them by capitalization, individual management method where the premiums of the insured are used to deliver a benefit to him when the risk arises).
Besides this distinction between non-life insurance and life insurance, there is another distinction between:
P&C insurance (Fire, Accidents, and Miscellaneous Risks): these include property and liability insurance.
Personal insurance: this includes health and life insurance.
Generally speaking, insurance companies are viewed as institutional investors; indeed, they have at their disposal an enormous mass of money made up of the premiums of the insured.
They must, therefore, manage these sums on behalf of the insured and sometimes for quite a long time.
Insurance companies, therefore, have a huge capacity to finance the national economy through the investments they have to make, especially in the context of the budget deficit.
Insurance aims to protect assets and people, but also plays an important role in the economy:
By making commercial relations more reliable
By playing an important role as an investor in the national economy
By promoting investment
Insurance also plays a social role. The benefits paid to policyholders and beneficiaries of contracts allow them:
To maintain their income
To restore their heritage
Not to be charged to the public community for accident victims
To safeguard jobs, skills
To preserve the economic fabric.
On an individual level, life insurance has a security function in the sense that it guarantees people against the risk of death. In the event of death, for example, the insurer will pay the capital mentioned in the contract to the designated beneficiary. On the other hand, it can also allow the insured to build up capital or an annuity in life insurance; it then plays a savings function. Another characteristic of life insurance is that it can constitute the policyholder a credit instrument by the possibility of obtaining from the insurer.
Little known to the general public, reinsurance is a sector of the economy essential to the insurance business. Also, it constitutes a leading tool for any organization concerned with the proper management of its risks. Although used in all insurance activity sectors, it remains strongly oriented towards non-life insurance.
Creative function of insurance.
By providing security for men, insurance fosters the emergence of a large number of activities that he would not dare to undertake without it.
It, therefore, encourages innovation and is a factor of social progress and economic development.