is a form of risk management primarily used tohedgeagainst theriskof a contingent,uncertainloss.
Insurance is defined as the equitable transfer of the risk of a loss, fromone entity to another, in exchange for payment. An
is acompany selling the insurance; an
is theperson or entity buying the insurance policy. The
is afactor used to determine the amount to be charged for a certainamount of insurance coverage, called the
.Riskmanagement, the practice of appraisingand controlling risk, has
evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed andknown relatively small loss in the form of payment to the insurer inexchange for the insurer's promise to compensate (indemnify) theinsured in the case of a large, possibly devastating loss. The insuredreceives acontractcalled theinsurance policywhich details the
conditions and circumstances under which the insured will becompensated.
Insurers' business model
Underwriting and investing
The business model can be reduced to a simple equation: Profit =earned premium+ investment income - incurred loss - underwritingexpensesInsurers make money in two ways: