The purpose of insurance is to protect the insured from being wiped out financially due to the cost of an unexpected or disastrous event. Coverages against loss or damage can be found for almost any type of eventuality. The concept of coverage for a group of people is that by sharing the risk of potential loss, no one policy holder needs to be financially devastated.
Insuring organizations are desirous of having a very large base of individuals so that the cost of payouts for claims is spread over more payees. These organizations try to recruit more policy holders without incurring more claims. This is what makes the company successful. Wise investment of the available funds is another way for the companies to stay solvent.
Insurers take advantage of huge masses of data available in order to define the level of risk for a certain type of policy. The companies can have a role in reducing risk by supporting regulations and laws and by funding research and treatments. Companies can also reward actions of policy holders to reduce the level of risk in homes and vehicles.
Reducing claims related to automobile accidents might mean lobbying for safer automobiles, incorporating features like seat belts and passenger side air bags. Policy holders can get discounts for installing anti-theft devices on older vehicles. Automobile manufacturers are encouraged to make safety features such anti-lock brakes standard on vehicles.
Reducing the prevalence of diseases such as cancer, heart disease and diabetes will have long term effects on the cost of health care. Insurers can fund research and education to fight the diseases directly or indirectly. When the health of the insured population is better, rates can be reduced. Programs such as stop smoking and exercise may improve health of policy holders, thus reducing the cost of claims against the insurers.
Insurers offer protection against loss for homes and belongings through renters and homeowner’s policies. Discounts for installation of effective alarm systems to warn homeowners of the presence of fire, smoke or radon gas is one way to provide risk management practices. Establishment and enforcement of stricter building codes to protect against structural damage due to earthquakes is another way to reduce the cost of claims.
Insurance companies are in favor of preventative measures to keep costs under control. Any claim that can be avoided will mean more money in the investment pool. These companies play a significant role in the economy of any country because of the massive amounts of capital involved.
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