Risk and Insurance

As human beings, we all have basic needs that include both physical and economic security, food, shelter, and clothing. According to the Society of Actuaries, risk is the possibility of losing economic security. We encounter many economic risks throughout our day to day activities; whether the risk is a car accident, sickness, house fire, or even death. For such reasons, insurance was created to eliminate risk or substitute certainty for uncertainty. The concept of insurance dates back to at least 3000 B.C. with the Babylonians. As the merchants traveled across the Middle East and beyond they were at the mercy of the elements and man. The investors made loans for goods and would charge a "risk premium" to reflect the trips potential risk. The borrower would often post their belongings and family as collateral. In the event the cargo was lost or damaged their family and possessions could be sold to cover the debt (Bogardus and Moore).

Prior to present day insurance establishments, past generations handled economic risks in a more informal way, whereby if your house burned down the town would pull together and rebuild your home. Now the notion of collective insurance is still very much the same. The only difference is we are not physically pitching together to fix a loss but collectively through the payments of our premiums, losses are spread to cover another’s risk. For example, I pay a premium of $250 each month to Liberty Mutual to insure my home, car, and life insurance policies. In the event of a loss (economic risk), I would generate a claim to the insurer (Liberty Mutual.) Based on my designated insurance coverage Liberty Mutual will then either pay me

directly or the third-party involved covering my loss. In contrast i...

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... insurance company and the parties involved are fairly treated each state is regulated by the State Insurance Commissioner’s Office. The Insurance Commissioner is an independent State agency that regulates the insurance industry and protects consumers by ensuring that insurance companies and health plans act in accordance with insurance laws. (www.mdinsurance.state. md.us). No industry is completely safeguarded but when risks are assessed and handled properly it can be a win win situation for everyone.

Works Cited

Bogardus, Jack and Robert Moore. “Spreading the Risks: Insuring the American Experience.” Posterity Press (MD); 1st edition (March 30, 2003)

Rubin, Harvey, “Dictionary of Insurance Terms.” 4th Ed. Baron’s Educational Series; 2000

Feldman Anderson, Judy and Robert L. Brown. “Risk and Insurance.” Society of Actuaries, page. 4; P-21-05; 2005