Insurance is a well-known means of financial risk management. It is where an individual or an entity gets financial compensation in case of a loss. The entities that offer these services are known as insurance carriers, and they do so comfortably by pooling the risks of their clients to make the products more affordable.
This concept of insurance dated back to the 2nd Melania BC, this was the first documented instance of the insurance model in the Code of Hammurabi. The model was developed and practised by early Babylonian merchants who practised their trade across the Mediterranean Sea. In this example, when a trader got a loan from a lender specifically to fund a shipment, the merchant would pay some money, and in exchange, the lender gave them the guarantee that they would cancel the loan in case the shipment was lost at sea or before arrival.
Insurance has evolved a lot since those early days; today it is a trusted way of safeguarding individuals interests from loss and uncertainty. Insurance providers have also built very profitable businesses around this concept, and today it is one of the industries that contribute a great deal to economic growth.
Today there are many types of insurance policies available in the market. A study has shown that an individual or entity can find an insurance company that will insure them for virtually any risk. The price of insurance policies is typically dependent on the risk. The most common insurance policies include; motor vehicle, health insurance, Life insurance and homeowner insurance policies. Different countries have regulations that ensure that almost everyone in the population has at least one of these policies.
One thing that is worth noting is that there is a big difference between personal insurance policies and business insurance policies. Primarily individual plans are tailored for people to insure them against everyday risks. On the other hand, business plans cater for the needs of individual businesses and the risks involved in their daily running. Ultimately it makes it hard for enterprises to insure their businesses, and that is why the premiums cost more than other insurance plans.
According to Mirador Wealth, a leading financial advisory firm in Sydney, Australia, “Modern day insurance plays a massive role in the creation of wealth, seeing that it is a very profitable business it leads to an increase in white collar employment. In addition to this, the profits from insurance premiums get invested in government securities and the rest in stocks.”
These funds therefore directly contribute to the economic and industrial growth of a country which in turn provides more jobs for qualified individuals, and this leads to capital formation. In most cases, there are business opportunities that arise from this industry. The unique way that insurance gets sold means that there is room for insurance intermediaries to step in and build businesses around the sale of insurance.
These intermediaries are known as brokers, insurance companies, in turn, give them commissions on sales made. Most brokerage firms have made a killing by making direct sales of general insurance policies to enterprises that offer these plans to their employees as benefits.