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Insurance, In Law and Economics, Is A

Insurance, In Law and Economics, Is A

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Published by: Trisha9313 on Jan 08, 2010
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05/25/2012

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INSURANCE
Insurance
, inlawandeconomics, is a form of risk managementprimarily used tohedgeagainst therisk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, inexchange for a premium, and can be thought of as a guaranteed and knownsmall loss to prevent a large, possibly devastating loss. An
insurer
is acompany selling the insurance; an
insured
or 
policyholder
is the person or entity buying the insurance. The
insurance rate
is a factor used to determinethe amount to be charged for a certain amount of insurance coverage, calledthe
premium
.Risk management, the practice of appraisingand controlling risk, has evolved as a discrete field of study and practice.
Contents
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o
 
o
o
 Principles of insurance
Commercially insurable risks typically share seven common characteristics
1.
A large number of homogeneous exposure units
. The vast majorityof insurance policies are provided for individual members of verylarge classes. Automobile insurance, for example, covered about 175million automobiles in the United States in 2004. The existence of alarge number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effectstates that as the number of exposure units increases, proportionallythe actual results are increasingly likely to become close to expected proportions. There are exceptions to this criterion.Lloyd's of London is famous for insuring the life or health of actors, actresses and sports

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