Insurance is a powerful machine that plays an important role in modern society. In general, insurance is defined as a particular form of risk management. Therefore, before examining in detail the basic insurance should be clear on what the word "risk".
Usually when there is a risk, there is uncertainty about an adverse outcome. But that definition is a bit 'dark and does not explain how one can really assess and manage this uncertainty. "In the insurance sector under the" risk "is used to include" a state where there is possibility of an unfavorable outcome. "The risk is linked to real economic loss and therefore can be measured. Risk is the probability of an adverse reaction, then the risk is the amount of probable loss.
Risk can be managed differently. For example, an individual or a company may avoid the risk of not participating in any hazardous enterprise at all. The risk may be retained, so that the potential financial loss is the sole responsibility of the person at risk. It can also reduce the risk of certain precautionary measures, for example, put locks on doors or installing a fire alarm system. Therefore, the amount of probable loss can be limited.Finally, the risk can be shared or transferred to another person or organization, and that's where we come to insurance.
The two fundamental principles that form the basis of insurance risk transfer and the law of large numbers.