The Importance Of Insurance

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Insurance is a very important factor to attaining financial viability in an economy. It is a very difficult concept that requires a profound augmentative erudition of insurable interests, viable policy holders, risk assessment and management. This essay seeks to provide an overview of insurance; specifically on assessment, measurement and management of both man-made risks and natural disaster risks. The essay further highlights the re-known formulas adopted in measuring man-made risks. In addition to this, it would provide a concise development and challenges arising out of the use of the risk assessment formulas. Finally, the essay will highlight the difficulty, previously arising, out of assessing, measuring and managing natural disaster risks and also elucidate the importance of science and technology in assessment of natural disaster risk.
Insurance: Its Definition and Conceptualization
The erudition of the economy is a never-ending process. This is because the economy is multifaceted and thus very complex. Be that as it may, economists and financial experts congruently elucidate that the viability of the economy is precipitated on financial stability. Financial stability is girded on the need of attaining a perfect balance between the savers and the borrowers; the savers are synonymous to investors. This intricate balancing act can only be achieved if more investors are lured into pumping in money into the economy. One incentive to achieving this is the precept of Insurance (Rajan 2005 p12).
Insurance is a concept that generates the equitable transfer of risk of loss from one party to the other for the exchange of payment. It thus seeks to manage unforeseeable risks. There are generally two parties to an insurance contr...

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... in the economy as well as highlighted how their relations are intertwined. It gave a brief description of the importance of insurance in an economy. The paper highlighted the risks involved in an economy that require a panacea from insurance sector. It highlighted the revolution of risk assessment models with man- made risks as well as elaborated the current developments in the models; both in application and attitudes. It further highlighted the complexities arising out of insuring natural disasters that are highly severe. The paper explained the different probabilistic modules adopted to estimate the amount of risk arising out of insuring natural disasters; a case in point was earth quakes. It has thus been established that through the modules, insurance companies are able to assess the viability of insuring natural disasters thus improving financial management.

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