Roles Of Insurance In Risk Management | Enterprise Risk Management
The role of insurance in risk and investment management in today business environment is one we must take serious. Insurance in risk management is one aspect of business we have often neglected. However, the importance of risk management in insurance sector can never be over emphasized. In understanding the roles of insurance in risk management we will have to consider some of the definition of insurance in risk and investment.
In one of the posts made on this platform, we defined insurance as a pool of risk where individuals who are exposed to the same perils contribute into the same find out of the fund, and the unfortunate are made fortunate.
Insurance in other stance can as well be defined as the risk transfer mechanism where a person or a group of individuals transfer there risk to a bigger and stronger party called an insurance company or companies.
Professor Nwite, a renowned Prof. In insurance defined insurance as a process where by losses are heightened upon many rather than upon a few, he also pointed out the difference between risk management and insurance management, as both maybe addressing the same issue but are different.
Insurance since its inception has had so many definitions that may be accepted, however, very few of all the definition are accepted for the additional technique applied in the definition, the most accepted definition of insurance was by one Arukwu who defined insurance as a business that struggles for the survival of the other business, though it is not a philanthropic organisation, because it is also established for making profits, his points where well thought out as they highlighted the insurance and risk management key notes.
Finally in our insurance definition stride, let’s consider the definition given by Ivamy, where he said that insurance is a contractual agreement or an agreement between two parties, these two parties are the insured and the insurer, where the insured pay a little consideration called premium view of risk to be insured, so that in the situation where there is loss, the insurer will put the insured in the same financial position prior to the loss.
Roles Of Insurance In Risk Management -Types Of Insurance Policy
There are various classes and types of insurance, these categories of insurance determines the roles of insurance in risk management in firms, types of insurance policies available for individual customers as well as those big firms
- Accident insurance policy
- Credit insurance policy
- Motor insurance policy
- Key man insurance policy
- Legal expense insurance
- Fidelity guarantee insurance
- Employers liability insurance
- Contractors all risks
- Performance bond
- Product liability insurance
- Cash in transit
- Risk transfer mechanism
There are other various types of insurance that an investor needs but these are some of the quick summaries of importance of insurance.
Importance Of Insurance
This is always taken as the primary function. That is the process where by the insured transfers the risk he or she cannot bear to a greater or more stronger party called the insurance company by paying little consideration called premium.
Roles Of Insurance In Risk Management
A Common Pool
The common pool referrers to where people who are exposed to the same perils contribute into a common fund, out the fund, the unfortunate is made fortunate, this situation is better explained by marketing segmentation.
Securities Insurance policies
Insurance policies offers some sorts of securities to investors with the hope that if anything happens to their investment, that insurance companies will put them in the same position as before, in other words “compensation”, this in simple or lay mans language explains the role of risk management in insurance companies and how they are carry out.
Insurance companies encourage the investors and provides them with the possible thing to do to reduce the security of the loss like guarding of their machines provision of some preventive measure like the fire extinguisher, exit doors and windows, proper arrangement of the office space, this simply means that the roles of insurance in risk management does not stop at compensating for loss, but also to help prevent loss in any situation.
Abinitio, all these measures the money which could have been used for the repair and replacement are now converted back to the business. It is also important to note that they encourage pension scheme and also some life assurance policies. The fact is that one of the most difficult things to do is to save. It is the money saved that is at the end invested into the business, insurance encourages this.
Investment Of Fund
Before the investment of fund, the insurer will have to study the business to know the possible area to invest and advise and then encourage them to take adequate policies to protect the business in case of mishap hence they also remove fear from the investors.
There are some invisible earnings to the nation that form the insurance industry. Also brings visible earnings to the country and it also brings some social benefits. This is because the problem which could have faced the families of the policy holder are not taken care by the insurance companies. The importance insurance to investors cannot be over emphasized as the roles of insurance in risk management will continue to remain the back bone of corporate business.