Introduction to Insurance - Types, Functions and Spread of Risk

This article provides an introduction to insurance, including types of general insurance, secondary functions of insurance, and the spread of risk. It also discusses how insurance provides capital to society, assists in foreign trade, and increases efficiency.

Running head: INTRODUCTION TO INSURANCE
Introduction to insurance
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1INTRODUCTION TO INSURANCE
Table of Contents
Question 2..................................................................................................................................2
Answer A...............................................................................................................................2
Answer B................................................................................................................................2
Answer C................................................................................................................................3
Reference....................................................................................................................................4

2INTRODUCTION TO INSURANCE
Question 2
Answer A
Spread of the risk is the extent to which the insurance company can predict the
amount of losses through selecting independent and diversified risks those are significantly
large in number and uniform with regard to size. Losses are predicted with the reasonable
accuracy through law of the averages. Insurance is the risk transfer process that starts with
original insured who transfers own risk to insurance company through obtaining insurance
(Paudel et al., 2015).
Answer B
Secondary functions of the insurance are as follows –
 Loss prevention – insurance warns the business houses and individuals for embracing
the appropriate device for preventing unfortunate consequences of risk through
observing the safety instructions or alarm systems
 Provides capital to society – accumulated funds is used in the productive channels.
Capital shortage of society is reduced to wide extent through investment of the
insurance. Individuals, business houses and industries are benefitted through loans
and investment of insurance (Zallman et al., 2018).
 Economic progress – it supports the economic progress through providing security
against damages and losses.
 Assist in foreign trade – while the goods in foreign trade are transferred through
airways and waterways the importer and exporter is exposed to various risks. These
risks are mitigated through insurance coverage

3INTRODUCTION TO INSURANCE
 Increase efficiency – as it eliminates the risks and worries of the individual and
business houses, it improves the efficiencies of the people (Zallman et al., 2018).
Answer C
Types of the general insurance are as follows –
1. Property insurance
2. Fire insurance
3. Marine insurance
4. Liability insurance
5. Financial line insurance (Antonio & Plat, 2014).
6. Energy insurance
7. Employee benefit insurance
8. Health insurance
9. Motor insurance
10. Travel insurance (Antonio & Plat, 2014)

4INTRODUCTION TO INSURANCE
Reference
Antonio, K., & Plat, R. (2014). Micro-level stochastic loss reserving for general
insurance. Scandinavian Actuarial Journal, 2014(7), 649-669.
Paudel, Y., Botzen, W. J. W., Aerts, J. C. J. H., & Dijkstra, T. K. (2015). Risk allocation in a
public–private catastrophe insurance system: an actuarial analysis of deductibles,
stop‐loss, and premiums. Journal of Flood Risk Management, 8(2), 116-134.
Zallman, L., Woolhandler, S., Touw, S., Himmelstein, D. U., & Finnegan, K. E. (2018).
Immigrants Pay More In Private Insurance Premiums Than They Receive In
Benefits. Health Affairs, 37(10), 1663-1668.