Role of insurance

Role of insurance

What is the role of insurance?
For a long time, men have looked for a way to insure their possessions so that they do not lose everything in the event of a problem. And while it has undergone significant changes since its inception in 1700 BC, in Babylonian society, the role of insurance has not really changed. Insurance always aims to protect, despite the different forms of contracts that exist today.

Definition of insurance
Classification of different insurances
What are the roles of insurance
What is insurance?

To put it simply, insurance is a mechanism that allows a person (natural or legal) to protect themselves from the financial and economic consequences generated by the occurrence of a risk. Through the insurance contract, the insurer undertakes to provide a service for the benefit of the insured when a risk occurs. The insured, for his part, undertakes to pay a premium or a contribution.

In France, there are 3 types of organizations offering insurance services. They are governed by separate legislation:

Insurance companies which are governed by the Insurance Code;
Mutuals that come under the Mutual Code;
Provident institutions which come under the Social Security Code.
It should be noted, however, that the world of insurance is not limited to insurers alone, many other players are involved in it: general insurance agents, insurance experts, brokers, etc.

Insurance classification

It is possible to classify insurance taking into account several differentiating criteria. The most common classification is based on the obligations of the insurer at the time of execution of the contract. So there are:

Non-life insurance in which the insurer must compensate the victim for the effects of a disaster and offer compensation proportional to the cost of the damage. Within these insurances, a distinction should be made between property insurance (compensation for damage that may be suffered by the property of a third party and cover damage to the property of the insured) and liability insurance (compensation damage caused to others);
Personal insurance in which the insurer pays an amount, the amount of which is contractually established at the time of the occurrence of a risk affecting the life of the insured or the policyholder. These insurances can also be divided into 2 sub-categories: life insurance (death insurance, life insurance, mixed insurance) and non-life insurance (health insurance, bodily injury insurance).
The advantage of the distinction between non-life insurance and personal insurance stems from the fact that non-life insurance is based on an indemnity principle while personal insurance is based on a lump sum principle (enrichment).

The roles of insurance

In addition to protecting people, insurance plays a relatively important role in the economy because it makes trade relations more reliable, reassures investors in the national economy and encourages investment.

The role of insurance is also social, given that the sums paid to insured persons as well as to beneficiaries allow the latter to maintain their income, safeguard their assets, reduce social protection services, keep their jobs and and finally to boost the economic fabric.