The History and Principles of Insurance

As we know that the Great Fire of London can be traced today, that in 1666 13,200 houses were set on fire. After this disaster, Nicholas Barbone opened an office to insure buildings. In 1680 he founded England’s first fire insurance company, “The Fire Office”, to insure brick and frame houses. The first insurance company in the United States provided fire insurance was built in 1732 in Charles Town (modern day Charleston), South Carolina.

In 1752, Benjamin Franklin established the Philadelphia Aid to insure homes with fire from damage. It refused to insure some buildings in which the risk of fire was very high, such as 100% wooden buildings.

Principles of Insurance:

The exact time or event of the loss needs to be uncertain. The value of the loss should be relatively surprising. To calculate price levels, to determine premiums or in other words, insurers need to be able to estimate them. Insurers need to know what price they will have to pay once the insured event occurs. Most types of insurance have a maximum level of payment, with many exceptions such as health insurance.

The disadvantage must be significant: the legal doctrine of de minimis (from Latin: about minimal things) states that negligible matters are not covered. The payment paid by the insured to assume risk by the insurer is known as ‘premium’.

Possible causes of chance that may give rise to insurance claims are named “perils”. Examples of hazards can be fire, theft, earthquake, storm and the number of additional potential risks. An insurance policy will state which facilities are included in the policy and which are not. The damage should not be a catastrophe on the scale, if the insurer is insolvent, it will be unable to pay the insured. In the United States, there are guaranteed funds to reimburse insured victims whose insurance companies are insolvent. The program is managed by the National Association of Insurance Commissioners (NAIC).


A person willing to take a risk (any person, corporation, or organization of any kind) becomes an ‘insured’ party once the risk is assumed by the ‘insurer’, the insuring party, through a contract From, is defined as an insurance policy. . This legal agreement specifies the coverage (reimbursement) provided by the insured to the insured for 100% of the specific risks (indemnities), in the event of loss, and in the event of loss. duration of the contract.

For a specified risk when the insured parties experience a loss, the coverage allows the policyholder to produce a ‘claim’ against the insurer for the amount of the loss when specified by the policy contract.

Financial viability of insurance companies

The financial stability and currency of the insurance company should be a major factor when purchasing an insurance contract. An insurance premium currently paid provides coverage for damages that may arise for a few years in the future. Because of that, the financial strength of the insurance carrier is of paramount importance. Over the years, some insurance companies have become unable to pay, disregarding coverage to their policyholders with out-of-coverage (or only less prescription from the government-backed insurance pool and a history of insurance-friendly payments for losses). Many independent rating agencies, such as Best, provide facts and rate the financial strength of insurance firms.

Risk Assessment

The insurer uses actuarial science to consider the risk that they prepare to consider. Information is gathered, with reasonable accuracy, for future insurance claims. Actuarial science statistics to analyze the risks associated with the probability and extent of the perimeter covered, and these scientific principles are used by insurers, in combination with other factors, to determine the rate structure.

Gambling analog

Some people wrongly consider insurance as a type of bet (especially associated with moral hazard) that is executed over a policy period of time. The insurance company bets that there will be no damage to you or your property if you put money to the opposite result. Virtually all homeowner’s insurance does not cover flooding. Using insurance, you are managing risk that you might not otherwise have withheld, and it does not give itself a chance of profit (net risk). In other words, gambling is not an insurable risk.

“Insurance” of social solidarity

Some of them religious groups avoid Amish and Muslim insurance and instead rely on the support given by their society on the attack of disasters. This can be thought of as “social insurance”, as the risk of any individual is collectively considered by the community that will fully bear the cost of reconstruction. In a closed, mutual aid community in which others can actually take steps to rebuild the total lost property, this arrangement can work. Most societies cannot effectively support this type of model and it will not act for catastrophic risks.