The basic philosophy of insurance is that the contributions, known as premiums, of the many go to meet the losses, known as claims, of the few. The original merchants knew that out of twenty voyages, maybe two ships would sink, but whilst they knew that two would sink, they did not know which two! So rather than run the risk of losing their entire cargo, they all made a contribution, a premium, into a fund. From this fund the two unfortunate merchants that lost their cargoes, received compensation, thus allowing them to continue with their business. From this simple and small beginning, the Insurance industry was born.
The modern insurance industry is vast, covering assets and liabilities in every corner of the world, and even beyond into space. Unfortunately, insurance is all too often viewed in a negative light, probably due to a combination of factors such as a lack of understanding of how insurance actually works, the fact that it is an intangible product, and finally it is only needed after something unfortunate has happened. This means that when someone needs insurance they are probably in a difficult phase of their life. In truth insurance is one of the most important things that has allowed our modern world to develop. Take the following as examples:
When buying a house most people require a mortgage from a financial institution. The financial institution will only provide the mortgage if the house is insured against physical damage. Therefore without insurance many people would not be able to own their own home. It could therefore be said that Insurance enables people to own their own home. This concept similarly applies to business mortgages and loans.
A motor car is a heavy object that can cause death injury or great damage if involved in a collision with another car object or person. Usually such collisions are the result of driver error, and the driver is usually liable for his/her actions, which can result in millions of dollars being awarded to injured parties. Most people do not have the financial means to pay such large amounts, and therefore rely on insurance to protect them. It could therefore be said that Insurance enables people to drive cars.
How often do we hear of satellites blowing up during launch; satellites can cost hundreds of millions of dollars to build and launch, and are a vital part of our every day life whether it relates to telecommunications, television, or aircraft navigation systems. The owners of the satellite would probably not even think of investing hundreds of millions of dollars in building and launching a satellite, unless they knew that if something went wrong insurance would be there to protect them. Once more it could be said that Insurance is an enabler of our modern way of life.
From owning a home to launching a satellite, Insurance is there, enabling these and almost every other part of our modern lifestyle.