Why Insurance is one of the
World's Largest Industries
The insurance industry is so ubiquitous
in modern society that most people don't ever think about why it has become
such a large and pervasive force. Insurance is best defined as a form of
risk management, where one entity transfers risk to another entity in
exchange for a financial payment.
This basic notion of trasferable risk has long been a part of human society,
and some commentators have suggested it is a philosophy always linked to the
notion of community. For example, when one member of a community faces
hardship, it is up to the rest of the community to look after this
individual in order to secure the basic structure of the communal unit. This
notion is still the basis of insurance practice today, even though the
principles behind it have been
commercialised and dealt out mostly to private insurance companies.
The insurance industry as we know it today is said to have begun as a direct
result of the Great Fire of London in 1666, where more than 13,000 houses
were affected. Since this time, a number of private insurance companies have set up shop around the world, dealing with a large and growing number
of policy types and contracts. The insurance industry is one of the largest
industries in the world simply because it effects such a large number of
people, both private citizens and business enterprises. The transfer of risk
that is at the very basis of the insurance philosophy is something of value
to many people around the world, who prefer the defined small losses
associated with ongoing insurance premiums (Geschlossene
Fonds) to the potential of large losses
that might result without access to appropriate insurance. Insurance is the
management of risk, and the nature of risk is such that it is undefined and
potentially damaging to all small entities.
The insurance industry was initially based around the protection of property
in relation to fire and natural disasters, but has grown since then to
include practically all aspects of human activity. It is possible to obtain
insurance today for almost anything you can imagine, from your health and life to your physical
possessions and legal responsibilities. Insurance has become such an all
pervasive force in society because of the willingness of the industry to
appropriate its basic principle of financial protection to all aspects of
human activity. People and businesses like to control their day-to-day
finances against the risk of any contingent, uncertain losses. The insurance
industry offers individual entities access to a level of certainty and
control in exchange for a small and defined level of loss, which most people
are happy to exchange for financial control and certainty.
