The economic essence of insurance is to provide insurance protection. Insurance coverage can be explained as a two-way response of mankind to the possible dangers of natural, technological, economic, social, environmental and other causes. On the one hand, the insurance coverage is called the objective need of individuals and entities in the preservation of their property interests associated with various aspects of life. On the other hand, this need is accompanied by a corresponding ability of people to ensure these interests.
If the need for protection is generated by fear, and the ability to protect the knowledge because of this fear, the need for appropriate natural or cash funds with which to ensure the safety of property, personal and other interests of the people, then we can say that the system came into effect insurance coverage.
Thus, insurance coverage can be defined as the perceived need for physical and legal persons to establish special insurance fund for the restoration of property, health, disability and personal income as the participants in the creation of these funds, as well as third parties.
Social practice over a long period of time has developed three basic forms of organization of the insurance fund:
Centralized insurance (reserve) funds set up by budgetary and other public funds. Formation of these funds is carried out both in kind and in cash. State insurance (reserve) funds are available to the government.
Self-insurance as a system development and use of insurance funds, economic entities and individuals. These hedge funds are decentralized in-kind and cash. These funds are intended to overcome the temporary difficulties in the activities of a particular producer or person. The main source of decentralized insurance funds are revenues of the enterprise or individual.
Insurance as a matter of system development and use of funds of insurance companies at the expense of insurance premiums for insurance of the parties concerned. The use of these funds is to recover damages arising in accordance with the terms and conditions of insurance.
At present, the ratio varies significantly between centralized, decentralized, funds and specialized funds, insurance companies. The shift occurs in the direction of strengthening the role of insurance.
Thus, the economic essence of insurance is to provide cash funds from contributions by interested parties in the insurance and are intended to recover damages from the persons involved in the formation of these funds. Since any damage (or the insurance risk) is probabilistic in nature, then there is a redistribution of the insurance fund in space and in time. We can say that the damages of the injured persons is due to contributions from all those who participated in the formation of these insurance funds.
There are the following functions of insurance, which express the social purpose of this category:
Risky function, which is to provide insurance protection against various risks - random events that lead to losses. As part of this function of the redistribution of financial resources among all stakeholders of insurance in accordance with the applicable insurance contract, after which the premiums (money), the insured will not be returned. This feature reflects the main purpose of insurance - protection against the risks.
The investment function, which consists in the fact that due to insurance funds temporarily idle funds (insurance reserves) is financing the economy. Due to the fact that insurance companies are accumulating at large amounts of cash, which are intended to redress, but until then, until the insured event occurred, they may be temporarily invested in various securities, real estate and other areas. Total investments of insurance companies in the world is more than 24 trillion U.S. dollars [1]. In the second half of the twentieth century in countries with developed insurance income derived from investments by insurance companies, began to prevail over the income derived from insurance activities [2].
The warning function of insurance is that by means of an insurance fund financed activities to reduce the insurance risk. For example, at the expense of the funds collected for insurance against fire, fire prevention measures are funded, as well as measures to reduce potential damage from a fire.
Saving function. In the life insurance category of insurance to the greatest extent closer to the category of loan, as there is an accumulation of certain insurance contracts of insurance premiums. Saving of money, for example, by endowment insurance, due to the need for insurance protection made by the family income. Thus, insurance may also have a savings feature.
The control function of insurance is contained in a strictly target the development and use of the funds of the insurance fund. This feature follows from the above and shown simultaneously with their specific insurance relations, in terms of insurance. In accordance with a control function on the basis of legislative and guidance documents by the financial control of the insurance holding valid insurance transactions.
The modern state is widely used category of insurance in the form of social insurance and pensions for public insurance to protect citizens in case of illness, incapacity (including age), survivor, death. However, the organization and activities of the state social insurance funds, pension funds are governed by special legislation other than legislation regulating the activities of specialized insurance companies, that is, the actual insurance, and in this article shall not be considered.
The insurance business is based on the principles of equivalence and randomness.
The equivalence principle is the requirement of balance between the income of the insurance organization and its costs. Many individuals at risk, but few of them really affected uninsurable. Payments for insured events are covered by contributions from many insurers avoid this risk.
Income from insurance operations consist of insurance premiums paid by policyholders. The costs are insurance payments and maintenance costs of the insurance company. In excess of income over expenditure of CO has income from insurance activities. If you have losses, it makes it impossible to fulfill its obligations to policyholders.
The principle of randomness is that the insured can only events that have signs of probability and randomness of their occurrence.
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