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    Introduction To Insurance

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    Vatsal Zadafiya
    The document provides an introduction to insurance, defining key terms like risk transfer, risk financing, and capital transfer. It outlines different types of insurance and distinguishes insurance from gambling by explaining that insurance lessens existing uncertainties while gambling creates new uncertainties.

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    Introduction To Insurance

    Uploaded by

    Vatsal Zadafiya
    126 views14 pages
    The document provides an introduction to insurance, defining key terms like risk transfer, risk financing, and capital transfer. It outlines different types of insurance and distinguishes insurance from gambling by explaining that insurance lessens existing uncertainties while gambling creates new uncertainties.

    Original Description:

    Introduction to Insurance markets and operations.

    Original Title

    Introduction to Insurance

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    The document provides an introduction to insurance, defining key terms like risk transfer, risk financing, and capital transfer. It outlines different types of insurance and distinguishes insurance from gambling by explaining that insurance lessens existing uncertainties while gambling creates new uncertainties.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    126 views14 pages

    Introduction To Insurance

    Uploaded by

    Vatsal Zadafiya
    The document provides an introduction to insurance, defining key terms like risk transfer, risk financing, and capital transfer. It outlines different types of insurance and distinguishes insurance from gambling by explaining that insurance lessens existing uncertainties while gambling creates new uncertainties.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    The key takeaways are that insurance involves risk transfer, risk financing, information transfer, and capital transfer from the insured to the insurer. Different types of insurance discussed include life insurance and non-life insurance. Common elements in definitions include risk transfer, risk financing, and contingent capital payments.

    The different types of insurance discussed are life insurance and non-life insurance, which is also called property and casualty insurance.

    The common elements found in definitions of insurance are risk transfer, risk financing, information transfer, and capital transfer.

    INTRODUCTION TO

    INSURANCE
    INSURANCE MARKETS AND OPERATIONS 7FNCE018W |

    DR SIMONE KRUMMAKER

    27. SEPTEMBER 2016

    SEMESTER 1 2016/2017

    What is Insurance
    Types of Insurance
    Definition of Insurance
    Insurance vs Gambling

    AGENDA
    27. SEPTEMBER 2016

    WHAT IS INSURANCE?

    27. SEPTEMBER 2016

    27. SEPTEMBER 2016

    INSURANCE MARKET: RISK SHARING


    Retrocession

    Reinsurers

    Cession
    Primary insurers

    Insurance
    Insured persons
    and companies

    27. SEPTEMBER 2016

    TYPES OF INSURANCE
    Types of Insurance

    Life Insurance

    Non-Life Insurance
    (also Property & Casualty)

    27. SEPTEMBER 2016

    INSURANCE | AN ATTEMPT OF A DEFINITION 1


    The classical definitions
    Insurance is the exchange of an uncertain loss of unknown magnitude

    for a small and known loss. (Hax, 1964)


    Insurance is the exchange of money now for money payable

    contingent on the occurrence of certain events. (Arrow, 1965)

    27. SEPTEMBER 2016

    INSURANCE | AN ATTEMPT OF A DEFINITION 2


    At the broadest view
    Insurance is a means or procedure that reduces uncertainty with respect

    to the future. (Zweifel and Eisen, 2012, p. 44)

    27. SEPTEMBER 2016

    INSURANCE | AN ATTEMPT OF A DEFINITION 3


    International Risk Management Institute (IRMI)

    A contractual relationship that exists when one party (the insurer)


    for a consideration (the premium) agrees to reimburse another party
    (the insured) for loss to a specified subject (the risk) caused by
    designated contingencies (hazards or perils)

    American Risk and Insurance Association (ARIA)

    Insurance is the pooling of fortuitous losses by transfer of such risks


    to insurers, who agree to indemnify insureds for such losses, to provide
    other pecuniary benefits on their occurrence, or to render services
    connected with the risk
    27. SEPTEMBER 2016

    GROUP EXERCISE
    Please go together in groups of 2 or 3 students
    Task

    Analysing the various definitions of insurance, which elements do they


    have in common? Can you label these with general category names?

    27. SEPTEMBER 2016

    INSURANCE | AN ATTEMPT OF A DEFINITION 4


    Key Elements of Insurance
    Risk transfer arrangement
    The insured transfers the risk to the insurance company

    Risk financing arrangement


    The insurer promise to give contingent capital that the insured secures for the future. The insured is subject

    to less cash flow volatility. (Borch 1984)

    Information transfer
    The insured is obliged by the insurance contract to provide certain information to the insurer

    (Schulenburg 2005)

    Capital transfer
    Capital is transferred over time as well as from a state of no loss to a state of loss
    27. SEPTEMBER 2016

    WHAT IS INSURANCE?
    GAMBLING VS. INSURANCE

    Y(t)

    Y(t)
    Wealth with gambling
    and winning

    Wealth without risk


    Wealth with insurance
    (loss and no loss)

    Wealth without gambling


    Wealth with gambling
    and losing

    Wealth with loss and


    without insurance

    27. SEPTEMBER 2016

    WHAT IS INSURANCE?
    GAMBLING VS. INSURANCE
    Both
    Swap a fixed amount against a contingent claim

    (quid pro quo/ the return of the service only after particular ex ante defined event)

    q Gambling
    Creates uncertainty

    q Insurance
    Lessens and spreads an already existing uncertainty

    27. SEPTEMBER 2016

    READING AND BIBLIOGRAPHY


    Core Reading
    Rejda, G. and McNamara, M. (2014). Principles of Risk Management and Insurance, 12th Edition,
    Pearson, Chapter 2
    Further Literature
    International Risk Management Institute. Glossary of Insurance and Risk Management Terms,
    https://www.irmi.com/online/insurance-glossary/default.aspx
    Borch, K. (1985). A Theory of Insurance Premiums, Geneva Papers on Risk and insurance,Vol. 10, pp. 192-208
    Hax, K. (1964). Grundlagen des Versicherungswesens, Gabler Wiesbaden
    Arrow, K. (1965). Aspects of the Theory of Risk Bearing, Helsinki
    Schulenburg, J. M. Graf von der (2005).Versicherungskonomik,VVW Karlsruhe

    27. SEPTEMBER 2016

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