The subject of why insurance exists is the first to be dealt with in the Insurance White Paper published by Somos Seguros, the UNESPA initiative for insurance transparency. This is a very interesting topic because it allows us to understand the nature of something that is an essential part of the engine of the economy.
We need insurance because there are risks
Insurance is a financial instrument that allows reducing economic uncertainty about the future by signing a contract or policy with an Insurance Company that undertakes to guarantee a future payment if the foreseen circumstance occurs in exchange for paying a certain amount of money or premium. .
If there were no insurance, we would be helpless in the face of certain circumstances that could literally ruin our lives or, at the very least, greatly complicate our existence. «The insurance covers precisely the uncertainty, what could happen,» says The White Book of Insurance. The same document explains that «the existence of insurers becomes important from the moment we are aware that everything in this life, every decision we make, every action we take, carries risks.» Moreover, as the document goes on to say, «the insurance sector considers them all, even those that we have never noticed» .
Insurance protects us all
Many insurances are mandatory because they protect the interests of those affected. This is the case of compulsory civil liability insurance that must be contracted with the vehicles or for the performance of certain activities.
In this sense, The White Paper on Insurance says that «insurance acts almost like a kind of chain of favors since, although we have not contracted any insurance, we are covered by those that the people around us have contracted». And he gives the example of the chickenpox vaccine; that not only protects oneself from the virus, but also prevents the spread of the disease. «The same thing happens with insurance: by protecting ourselves with insurance, we also benefit society as a whole, since the rest of the people are covered for the claims that we may cause.»
Although the existence of insurance does not make us immune to problems, it does at least guarantee that someone will respond when risks arise and become real problems, both in our daily, business and professional lives. In this sense, the insurer deals with calculating the risks, estimating the probability of something happening and the cost of solving it.
Mutualization
The insurer deals with repairing or compensating the damage using the money from the premiums of all the insured. This is mutualization, which is based on the fact that accidents do not happen to all policyholders on a daily basis and, therefore, while some do not need to use insurance, what others pay goes to repair the contingencies of others. This solidarity system protects us all. Hence the importance of the fight against fraud .
