Insurance Principles and History

Insurance as Financial Risk Protection

Insurance is a financial risk protection mechanism in which an insurer agrees to compensate an insured party for specified losses in exchange for a premium. The policyholder transfers the possibility of a large, uncertain loss to the insurer and instead accepts a smaller, predictable payment. Insurance policies define the covered risks, coverage limits, exclusions, conditions, beneficiaries, and procedures for filing claims. Common forms include property, life, health, liability, accident, and business insurance. Insurance protects individuals and organizations through risk pooling: premiums from many policyholders help pay the losses experienced by a smaller number of claimants. For a risk to be generally insurable, it should involve a large number of similar exposure units, a definite and accidental loss, a meaningful but affordable potential loss, a calculable probability and cost, and limited catastrophic exposure. Key principles include indemnity, insurable interest, utmost good faith, contribution, subrogation, proximate cause, and mitigation. Insurers may also use deductibles, exclusions, and reinsurance to manage their own risk.

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Insurance Parties and Core Terminology

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