Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel capsizing.Ĭodex Hammurabi Law 238 (c. Methods for transferring or distributing risk were practiced by Babylonian, Chinese and Indian traders as long ago as the 3rd and 2nd millennia BC, respectively. Pictured, Governors of the Wine Merchant's Guild by Ferdinand Bol, c. Merchants have sought methods to minimize risks since early times. The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risks, especially if the primary insurer deems the risk too large for it to carry. A mandatory out-of-pocket expense required by an insurance policy before an insurer will pay a claim is called a deductible (or if required by a health insurance policy, a copayment). If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. The amount of money charged by the insurer to the policyholder for the coverage set forth in the insurance policy is called the premium. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured, or their designated beneficiary or assignee. Furthermore, it usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship. The loss may or may not be financial, but it must be reducible to financial terms. The insurance transaction involves the policyholder assuming a guaranteed, known, and relatively small loss in the form of a payment to the insurer (a premium) in exchange for the insurer's promise to compensate the insured in the event of a covered loss. A person or entity who buys insurance is known as a policyholder, while a person or entity covered under the policy is called an insured. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.Īn entity which provides insurance is known as an insurer, insurance company, insurance carrier, or underwriter. Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. An advertisement for a fire insurance company Norwich Union, showing the amount of assets in coverage and paid insurance (1910) Financial market participants
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