- The essence of insurance as an economic and financial category
- functions of insurance
- classification of forms and types of insurance.
Insurance meets one of the primary human needs – security. Since ancient times, people have been looking for ways to protect themselves from the fear of possible losses of property, health, and ability to work, i.e. they have been looking for insurance protection. Long-term observations allowed people to conclude that the damage was uneven. It was noted that the number of persons interested in insurance protection, as a rule, is greater than the number of victims of various hazards.
Under such conditions, the joint distribution of damage between the persons interested in insurance protection smoothes the consequences of adverse accidental events. At the same time, the greater the number of subjects involved in the allocation of damage, the less funds for compensation for damage are required from each participant. So there was insurance, the essence of which is a solidary closed layout of damage.
Funds for compensation of damage to victims can be accumulated by persons interested in insurance protection after the occurrence of an adverse event or in advance through the formation of special insurance funds.
Insurance (reserve) funds are specially created in material or monetary form reserves that are intended to compensate for losses resulting from the impact of adverse events of an accidental nature.
Insurance funds can be created in different ways:
Centralized insurance (reserve) funds are created at the expense of budgetary and other state funds in order to provide certain types of compulsory social insurance, compensation for damage from natural disasters and large-scale accidents and catastrophes. They are formed in different kinds, not just in cash and are at the disposal of the state..
Decentralized insurance funds are created in cash and in self-insurance by individual economic entities and citizens at the expense of their own income (each individual uses part of its income not for current consumption, but saves). They are designed to overcome temporary financial difficulties in the activities of an individual organization or individual.
Insurance funds of specialized insurance organizations (insurers) are created at the expense of insurance premiums of persons interested in insurance protection (policyholders). Such funds have only a monetary form and are used to compensate for the resulting damage in accordance with the terms and conditions of insurance. In this case, the loss of one policyholder is distributed among all participants in the creation of the insurance fund.
As an economic category, insurance is a relationship for the formation of trust funds of money and their use for compensation for damage in the event of adverse random events, as well as for providing monetary assistance to citizens in the event of certain events in their lives. Insurance is, on the one hand, a means of protecting business and people’s well-being, and on the other – a type of income-generating activity.
Insurance is characterized by redistributive relations associated with the formation of an insurance fund with the help of pre-fixed insurance premiums and with the expenditure of the funds of this fund for compensation of damage to insurance participants. Such distributional relationships allow the insurance category to be considered an integral part of the finance category.
The specificity of financial relations in insurance consists in the probabilistic nature of the distribution of funds of insurance funds. The probability of damage is the basis for the construction of insurance payments, with the help of which the insurance fund is formed. The use of the funds of the insurance fund is associated with the occurrence and consequences of insured events.
Insurance activity ( insurance business) is the sphere of activity of insurers such as r insurance, reinsurance, mutual insurance, as well as insurance brokers, insurance actuaries for the provision of services related to insurance and reinsurance.
The purpose of organizing an insurance business is to ensure the protection of the property interests of individuals and legal entities..
The objectives of the organization of insurance business are:
– implementation of a unified state policy in the field of insurance;
– establishment of insurance principles and formation of insurance mechanisms that ensure the economic security of citizens and economic entities.
Insurance functions
Risk is the main function of insurance. It is associated with risk coverage, compensation of losses to victims of adverse accidental events due to the redistribution of funds of pre-formed insurance funds. Through the insurance mechanism, a significant part of losses arising from fires, natural disasters, man-made disasters and other accidental events is compensated.
Insurance allows you to smooth out large expenses for compensation of losses, since periodic small contributions give insurance participants a guarantee that they will not have to bear large costs for the elimination of the consequences of any accidents.
The preventive function of insurance is aimed at reducing the probability of occurrence of insured events. With the help of insurance, the probability of occurrence of various adverse events is reduced and losses from them are reduced due to the fact that part of the received insurance premiums are sent by insurance companies to special reserves of preventive measures. Funds from these reserves are used to prevent accidents, fires and diseases. Such measures reduce the risk of insurance events, which is beneficial to insurance companies, insured persons and society as a whole.
The savings function of insurance is manifested in life insurance and consists in the possibility of increasing the level of well-being by accumulating large amounts at the expense of small, periodically paid insurance premiums (for example, insurance for living up to a certain age or event, pension insurance, insurance for marriage).
The control function of insurance is to ensure control over the strictly targeted formation and use of insurance funds.
In a market economy, the investment function of insurance is becoming increasingly important, which increases the investment potential and contributes to the growth of well-being.. The investment function is that life insurance companies have the funds received in the form of insurance premiums for a long time and can invest them in the development of the economy. Therefore, in developed countries, insurance companies are the largest investors for business and the state.
The social function of insurance is to protect against social risks associated with the life of people. Insurance companies provide assistance to the insured in case of disability and as a result of accidents and diseases. They finance the treatment and rehabilitation of victims, compensate for lost income. In the event of the death of the insured, his relatives are paid funds that do not reduce the achieved standard of living.
Thus, insurance serves as a stabilizer of citizens standard of living.
