Risk management at the heart of the insurance business

Risk management at the heart of the insurance business

Risk management

4The heart of the insurance business is risk. The insurer is a risk expert. In this regard, we can consider that in addition to protection against the vagaries of life, the insurer also offers means to reduce the risks themselves, by helping to understand the risk and disseminate methods and tools. effective: construction standards (e.g. in seismic areas), helmet wearing, manufacturing standards, production line control, etc.

5In order to manage risks, insurance uses its main tool, statistics. The basic principle is that of the law of large numbers. For auto insurance, for example, it is impossible to know when an insured will be involved in an accident, or for what severity. On the other hand, we know the frequency of accidents in a given area. The law of large numbers says that if the "automobile" portfolio includes a sufficient number of policyholders, then the portfolio will tend to behave like the general average of motorists. If the probability of an accident in a country is x% per year, then we know that x% of the portfolio will be affected by this damage - not necessarily every year, but on average. We can thus have an approximation of the amount of damage over specific periods.

6Sometimes these statistics lack precision. Earthquakes, for example, occur too infrequently to give rise to reliable probabilities. Just because an event has happened three times in three hundred years does not mean that it happens once every hundred years. Access to numerous, reliable and long data (over many years) is therefore a strategic issue for the insurance sector. The advent of "big data", that is to say access through new digital technologies to a growing amount of data but also to new tools for analyzing it, is thus a revolution for the sector.