Insurance is a financial industry

 Insurance is a financial industry

 

 

Insurance is a financial industry dedicated to managing the risk of economic agents (individuals and businesses). As such, it fulfills two essential functions: actual risk coverage; and recycling the resulting savings back into the economy.

2The basis of insurance is risk aversion. Economic agents are reluctant to take risks, which hinders innovation and slows down activity. Insurance companies offer to cover these risks (to be more precise, to cover the financial value of these risks) by mutualising them. The principle is well known: an insured pays a regular premium, fixed by contract, and will receive compensation in the event of a claim under conditions and for an amount also specified in the contract. Policyholders choose the certainty of a small loss over the uncertainty of a large loss. An individual will thus be able to manage the vagaries of his life, and a company will be able to integrate the cost of risk into its balance sheet while minimizing uncertainty.
3 In this process, a decisive phenomenon appears: the monetization, or financialization, of risk. The insurer assesses the potential cost of damage, as well as the likelihood of its occurrence. From these two data, he deduces not only the amount of the premium that will be paid to him by the insured, but also the total amount that he himself must provision in order to be able to reimburse the loss if it occurs. The expertise of an insurance company therefore extends to two areas: risk management and financial management.