Utility of Insurance Company
A Insurance Article Contributed by Shobha Cutting
Utility of an Insurance Company
An insurance company provides means of transferring risk or protects against the monetary ill effects of a certain risk, in consideration of receipt of a specific premium. All of us confront risks of all types every day, in all aspects of our being. The future is uncertain and the possibility (or risk) of undesirable events occurring and causing harm to our interests is always present.
Good Risk Management is the process of assessing the risk involved in a certain situation and then developing strategies to manage that risk. In ideal risk management, the risks with the greatest loss and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled later. This process can be very difficult.
Balancing between risks with a high probability of occurrence but lower loss against a risk with high loss but lower probability of occurrence can often be inaccurate, leading to provision of inadequate protection by the risk manager who has the task of providing adequate resources against each type of risk. The question is - how much is adequate resource allocation to take care of the ill effects of a particular mishap or eventuality?
Role of an Insurance Company in Risk Prevention
We may prevent taking risks in several ways.
One way to prevent mishaps is avoidance. One may avoid traveling by air to be free from the risk of a plane crash or hijacking. But by such avoidance one also avoids or looses out on the benefits that would be available in the event of taking the risk.
One could reduce the magnitude of the risk. Example of such reduction is provision of a burglar alarm at your residence, to reduce the risk of theft. There is a cost involved in such risk reduction, which must be considered. Your insurance company, while determining the premium, considers this aspect.
One may accept or retain the loss if and when it occurs, or be your own insurance company. By default, retention of risk happens when we fail to employ any way for prevention of risks.
One may also transfer the risk or cause another party to accept that risk, primarily by contract, against payment of a premium. This is what happens when we obtain an insurance policy for any type of risk. The insurance company takes on the financial aspect of risk to the extent specified in the insurance policy, against payment of a specific amount called the insurance premium.
A good way of managing risks is to purchase insurance policies for the risks that have been decided to be transferred to an insurance company, avoid all risks that can be without sacrificing the entity's goals, reduce others and retain the rest.
Claiming Benefits from an Insurance Company
Insurance companies have prescribed procedures for dealing with any claims of the policyholders. The first step, invariably, is that the policyholder informs the insurance company of the occurrence at the earliest convenience and within a specific time limitation. In most cases, it is also necessary to report the matter to the police. You can proceed to deal with the occurrence as best you may, to temporarily repair the damage and prevent further damage.
Once the insurance company is notified of the occurrence, they will depute surveyors or some other representative to assess the damage and report to them. They will also provide claim forms which must be completed and submitted at the earliest convenience.
