Connect with us

Business

What is insurance? Actors, types of insurance, roles and functions

Published

on

Insurance is, by definition, a system which makes it possible to protect an individual, an association or a company against the financial and economic consequences linked to the occurrence of a particular risk (random event).

The means implemented by insurance organizations to protect them against this risk is to associate them with a community of people (the insured), who contribute to be able to compensate those among its members who suffer material damage or damage. Bodily injury in the event of the risk. Thus, insofar as it is the entire community of policyholders that materially covers the damage suffered by its members affected by the occurrence of the risk, insurance is a risk management system based on the concept of solidarity .

Insurance players

In France, there are three types of insurance organizations, governed by three distinct codes of law:

  • Insurance companies, which fall under the Insurance Code
  • Mutual (groups) governed by the Mutual Code
  • Provident institutions, whose activities are regulated by the Social Security Code

The world of insurance is not limited to insurers alone, but involves many other players.

The field of insurance covers in particular all the trades carried out in companies whose activities are governed by the Insurance Code, namely:

  • Jobs carried out within public limited companies (SA)
  • Professions carried out within mutual insurance companies (SAM)
  • Professions carried out within mutual insurance companies (SMA)
  • Intermediary professions such as general insurance agents and brokers
  • The professions of insurance auxiliaries represented by insurance experts

The different types of insurance

European community directives distinguish between two types of insurance:

  • “Non-life” insurance (property insurance, liability insurance and health insurance)
  • “Life” insurance (life, death, savings, retirement, etc.)

This distinction between these two types of insurance is based on the difference in the way premiums are managed. In general, non-life insurance manages premiums by distribution (collective management method where the premiums of the community of policyholders are used to pay claims for the community of policyholders for the same financial year), while insurance life manages them by capitalization (individual management method where the premiums of the insured are used to deliver a service to him at the time of the occurrence of the risk).

Alongside this distinction between non-life insurance and life insurance, there is another distinction between:

  • the general insurance(fire, accident, Miscellaneous Risks): they include property insurance and liability insurance
  • the Health Insurance: they group health insurance and life insurance.

From a general point of view, insurance companies are considered to be institutional investors; in fact, they have at their disposal an enormous mass of money made up of the premiums of the insured; they must therefore manage these sums on behalf of the insured and sometimes for a fairly long time. Insurance companies therefore have an enormous capacity to finance the national economy, through the investments they must make especially in the context of the budget deficit.

Insurance roles

Insurance aims to protect assets and people, but also plays an important role in the economy:

  • By making commercial relations more reliable
  • By playing an important role of investor in the national economy
  • By promoting investment

Insurance also plays a social role. The benefits paid to policyholders and beneficiaries of contracts allow them:

  • To maintain their income
  • To rebuild their heritage
  • Not to be the responsibility of the public authority for the victims of accidents
  • To safeguard jobs, skills
  • To preserve the economic fabric.

Life insurance

On an individual level, life insurance has a securing function in the sense that it guarantees people against the risk of death. In the event of death, for example, the insurer will pay a capital mentioned in the contract to the designated beneficiary. On the other hand, it can also allow the insured to build up capital or an annuity in life insurance; it then plays a savings function. Another characteristic of life insurance is that it can constitute a credit instrument for the policyholder through the possibility of obtaining from the insurer.

Reinsurance

Little known to the general public, reinsurance is an essential sector of the economy for the insurance business. In addition, it constitutes a first-rate instrument for any organization concerned with the good management of its risks. Although used in all sectors of insurance activity, it remains strongly oriented towards non-life insurance.

Reinsurance is a mechanism allowing all or part of the risk accepted by an insurer to be transferred to a reinsurer in order to limit its commitments. As such, reinsurance is colloquially referred to as second degree insurance insofar as it consists of genuine insurance for insurers. As a result, it represents one of the most unknown sectors of activity to the public due to the absence of a direct relationship between reinsurers and policyholders. Unlike insurance companies whose exercise of their functions is located at a regional, provincial or national level, reinsurance is essentially international. Thereby, the reinsurer generally accepting risks of low frequency but at a high potential cost can improve the pooling of its risks by distributing them on a global scale. This geographic pooling can even lead, for example, to the coverage of European storms, earthquakes in Japan and hurricanes in the United States within a single reinsurance treaty.