What is Insurance?

December 21, 2017

Insurance is a cornerstone of civilisation.

 

 Often misunderstood, insurance is among the oldest financial structures in the world, tracing its origins back to ancient Chinese and Babylonian merchants, in the 3rd and 2nd millennia B.C., who realised a simple truth:

 

Insurance is solidarity. We are stronger together.

 

When undertaking perilous journeys, Chinese merchants would distribute their wares across many vessels or wagons, thereby limiting the potential loss from any one being sunk or lost. Similarly, the Babylonian Code of Hammurabi included provisions to protect merchants against losses at sea. When a merchant received a loan to fund their shipment, each would pay the lender an additional small sum in exchange for the lender’s guarantee to cancel the loan should the shipment be lost, or stolen.

 

Insurance creates sustainability.

 

Individuals who are exposed to similar risks come together and agree to support one another. If any one of them suffers a loss, the others will share the burden, thereby supporting the victim, and ensuring their ability to maintain their livelihood.

 

By distributing risk within a community, no one person suffers disproportionately. But how does this work, exactly?

 

  • An insurer collects small amounts from a large number of people (referred to as the insurance “community”), in order to create a reserve of funds.

  • This community must be homogenous, in other words, contain individuals who share similar characteristics, and face similar risks.

  • Using historical experience and predictions, insurers can estimate how much loss a given community could suffer over a given period of time.

  • Using this information, together with the size of the community, and leaving a margin of error, insurers can determine how much each member of the community must give to create a suitable reserve of funds.

  • These funds are then used to pay out claims, and protect each member of the community against unbearable losses.

 

Modern insurances are based around these same principles. Did you know, for example, that a standard Swiss car insurance protects you against damages to third parties for up to CHF 100’000’000? Incredibly, this part of the contract only costs each insured person a few hundred CHF per year, and remains relatively stable, given the size of the insurance community.

 

Having a well-adapted and optimised insurance portfolio is a key part not only of your finances, but of actively supporting your community as well.  

Please reload

Our Recent Posts

Please reload

Archive

Please reload

Tags

Please reload

 

Geneva 

Arnold-Winkelried 6 

1201 Geneva

Nyon

Marchandises 12

1260 Nyon

+41(0)22 525 55 58

FINMA #33298

A.R.I.F. AFFILIATION #3180

COPYRIGHT © 2019 BY LAKE FINANCE INTERNATIONAL SÀRL - ALL RIGHTS RESERVED

Follow

Contact

Address