Insurance
This presentation is based on
ARGE Commerce (2003): Insurance,
Manz Verlag Schulbuch, Wien
Mag. Maria Peer
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Economic Importance
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Businesses and individuals face risks – fire,
lawsuits, natural disasters, theft, illness, business
interruption, accidents, death
Control the financial aspects of the future
Contractual agreement – one party agrees to
compensate the other party for losses
Insurer charges the insured a price – the
insurance premium
Transformation of risks into costs
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The pooling of risk
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Insurance based on the idea that a certain risk
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Occurs only rarely in a lifetime of a single person –
amounts to a higher frequence, if you regard
10,000 people
The insured pay premium into a common pool –
the money collected is used to
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Pay compensation
Cover administrative costs
Build up reserves for unforeseeable risks
Earn a profit for the insurance company
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Insurable – uninsurable risks
uninsurable
insurable
No insurance company will
agree to cover
• specualtive risk
• Business risk
Covered by an insurance
company – meet the
criteria:
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Loss occurs by chance, beyond
the insured‘s control
Possible loss must be financially
assessable and measurable
Financially serious to the insured
A large number of cases must be
subject to the same peril –
insurance companies can predict
accurately how many losses will
occur in the future
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The insurance premium
 What
the policy holder has to pay to the
insurer for taking on the insurance
coverage of a risk. Premium consists of
 Risk premium
 Administration costs
 Organisation costs
 Safe premium (life insurance)
 Additional fees
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How are premiums fixed?
 How
likely is it that a certain damage
occurs (e.g. a broken leg in a skiing
accident)
 Probability of loss can be estimated using
records
 The higher the risk, the higher the amount
of the premium
 No coverage of risks arising as a result of
war, trading losses or acts of God
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Re-insurance and Co-insurance
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Re-insurance: sharing risks which are too large
for one insurer – taking out insurance with
other insurance companies
Co-insurance: sharing risks, a few insurers
participate in the issue of one policy together
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the policy holder is informed about the division
of the risk
direct insurers are registered in the policy with
their shares of the risk
They get part of the premium
The leading insurance company takes over the
management
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Insurance contract parties
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Insurer: party who takes on the insurance
coverage of a risk against payment of a premium
Policy holder: party who wishes the insurance
company to take on the insurance coverage –
fulfils the duty to pay the premium
Insured: policy holder or contract is taken in favour
of a third person
Beneficiary: with a life or accident insurance,
policy holder can appoint one or more persons
who should get the compensation
Claimant: the person to whom the policy holder
must pay the compensation. The policy holder
claims coverage from the insurer
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The policy
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Document about the insurance contract –
piece of evidence that an insurance contract
has been taken out + content of the contract
Basically an insurance policy shows:
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Name and address of the
insurer
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Insured property or person
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Name and adress of the
policy holder
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Amount insured
Extent of insurance payment
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Policy number
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Beginning and end of
insurance contract
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Date of issue of the policy
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Premium, method of
payment, maturity of the
premium
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Line of insurance
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Reproduction of the signature
of the insurer
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Questions
1.
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6.
Who can give you information about
taking out insurance?
What is an insurance policy and what is
shown on it?
How are premiums calculated?
Discuss how re-insurance works and
what role it plays in the solvency of the
insurance industry?
Can all risks be insured?
Explain the basic concept of insurance.