Insurance: what is its essence, main functions, and types, role in the development of the economy

 Insurance: what is its essence, main functions, and types, role in the development of the economy

Insurance is a procedure for protecting individuals or legal entities, their health, or property against various types of dangers. The main functions of insurance include many aspects and depend on the internal policies of insurance companies.

 

What is the essence of insurance?

Any type of economic activity a priori carries the risk of financial losses due to unforeseen situations. And this applies not only to the market and other relations of the 21st century. At all times, trade and economic relations between people were accompanied by the possibility of incurring certain material losses. Therefore, special funds created to protect the material resources of a person by compensating for damages existed many centuries ago. If we turn to the etymology of the word "insurance", we can find out that in translation from Latin it means "security". It is in this word that the whole essence of this term lies. The security provided by the program is created by reimbursement of material resources to the victim from the monetary fund, to which all clients make mandatory contributions. Thus, we can say that insurance is a contractual relationship between the client and the fund, where, for a material reward from the insurer, the fund takes measures in the event of risk events specified in the contract, in the form of compensation for damage. Let us consider in more detail the essence, functions, and types of insurance.

 

Principles of insurance

The basis of any insurance is special principles. The main principles of insurance are as follows:

·         => competitiveness

·         =>  honesty

·         => compensation for damage

·        =>  risks

·        =>  subrogation

·        =>  franchise

·         => contribution

·       =>   reinsurance

In addition, it can be mentioned that the basis of the listed principles is the rules of equivalence and randomness.

 

What are the types

Insurance can be divided into several varieties, the difference between which is the chosen object of protection, and at what insurance rate the contract is concluded. Russian legislation has established 4 main types, each of which has its own varieties and plays its role in insurance:

Personal insurance. This category includes the protection of the life, health, and ability to work of an individual. That is, it is a medical policy and ensures the protection of financial savings in case of accidents. The cumulative part of a person's pension is also characteristic of this category.

Property insurance. This definition is related to the objects of protection related to the property of both legal entities and individuals. The property includes personal effects, vehicles, real estate, jewelry, animals, household items, historically significant items, etc.

Liability Insurance. This category includes the protection of the client's liability to persons who may be harmed by the insured person. The loss caused to third parties will be reimbursed not by the client, but by the UK. This type has many varieties: for motor vehicle owners, enterprises, carriers, ship owners, professional activities associated with increased risk.

Business insurance. This type provides for the protection of business activities from the risks associated with losses. Businessmen quite often apply for this type of protection in order to secure their activities and, in the event of a risky event, not to be left with nothing.

 

What functions does it perform in the economy?

In the economic system, insurance performs a number of functions that are aimed at preserving financial resources. The following main functions in the economy can be distinguished:

Risky. One of the most important functions is aimed at compensating for damage from risk events that have occurred. This can be called direct insurance since the company assumes all responsibility associated with the receipt of possible damage by the client and guarantees to compensate for the harm caused to him.

Savings. The main function is to protect the client's savings or his property. The savings function of insurance does not apply only to legal entities, but also to individuals. Since the main purpose of this function is to protect savings, many SCs take on the role of investors.

Control. It is designed to maintain a balance between the insurance premium and possible risks. The control function of insurance performs supervision overall financial transactions and monitors the correctness of their implementation. Also, this function conducts regular checks of companies.

Warning. It consists in concluding an agreement and paying a premium, which the UK allocates for risk mitigation procedures.

Social. Based on the name, it can be understood that this function is aimed at solving social problems. It can be characterized as financial support for a client in case of illness, disability, or material payment by relatives of a deceased client.

The investment function of insurance involves financing the economy at the expense of unused funds of the fund. Funding comes through investments in securities, vehicles, innovative technologies, etc.

Preventive. It consists in the interest of both parties in the settlement of risk cases and, in turn, is divided into financial and legal forms.

Creation and use of insurance funds. A fund is formed in order to use reserve funds to compensate for losses from risky events. Therefore, the SC and the reserve fund are concepts that are inseparable from each other.

 

Legal basis of insurance

The legislation of the Russian Federation establishes that a legal entity should be engaged in the production of an insurance company. Organizers can be both legal entities and individuals. The UK can have different legal forms, the law applies equally to both commercial and government organizations.

The state administration of the UK includes the following tasks:

·      =>   issuance of licenses for the right to engage in this type of activity

·      =>   verification of the reserve fund and other economic functions of organizations

·     =>   control over the company's financial statements

·      =>  control of taxation