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See discussions, stats, and author profiles for this publication at: Insurance Concepts Chapter · January 1998 DOI: 10.1007/978-1-4615-6187-3_8 CITATIONS 0 READS 9,045 1 author: Some of the authors of this publication are also working on these related projects: Perception du risque et décision d'achat des consommateurs View project The Economics of Cider - International Workshop in Beaune - May 22, 2018 View project J. François Outreville Burgundy School of Business, Dijon, France 165 PUBLICATIONS 1,298 CITATIONS SEE PROFILE All content following this page was uploaded by J. François Outreville on 04 June 2016. The user has requested enhancement of the downloaded file.
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INSURANCE CONCEPTS 8 Objective This chapter examines the characteristics of insurance contracts. It defines the notion of insurable risks and insurable interest. Insurable risks are the raw materials for the existence of insurance contracts. An insurance policy is a legal contract between the insurer and the insured. Although the direct advantages and related costs arising out of the existence of insurance contracts are obvious to most readers, there are other benefits and indirect costs generated by the existence of these contracts. Definition of an Insurance Contract A legal definition of insurance that appears in many insurance laws is the following: A contract of insurance is that whereby one party, the insurer, undertakes, for a premium or an assessment, to make a payment to another party, the policyholder or a third party, if an event that is the object of a risk occurs. It is often defined as a contract of indemnity. The insured is not to make any profit out of the insurance but should only be compensated to the extent of the pecuniary loss. Although various definitions have been offered, one of the most helpful is to define insurance as a mechanism (or a service) for the transfer to someone called the insurer of certain risks of financial loss in exchange of the payment of an agreed fixed amount. The payment is due before the contingent claim is serviced by the insurer. If from the insured's point of view, insurance is a "transfer," from the insurer's point of view, insurance as a "pooling" mechanism. It is possible for the insurer to reduce the risk which he faces by offering an "insurance service," by pooling together a large number of exposure units or risks.
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Insurable Risks While the definition presented above indicates what insurance is from the point of view of the policyholder, there are many risks of economic loss that no insurance company is willing to accept. From a risk management perspective the ideally insurable risk is a pure, static and particular risk. From the viewpoint of the insurer, certain conditions must exist before insurance is possible (Table 8.1).
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