Benefits of Insurance
Reducing Risk
There is more to general insurance than simply compensating loss. It is one of the most effective mechanisms ever developed for assessing, managing and reducing risk.
In this way, insurance makes a major contribution to society. It drives up standards by placing pressure on the factors that generate insecurity. It breaks the spell of risk and releases us to take rational choices.
General insurance provides freedom from crushing personal and business liabilities, protects against accidents, crime, fires and natural dangers and supports innovation and risk-taking. A world without insurance would be a more daunting and poorer place.
As a result, the insurance industry has applied years of pressure to improve road safety, reduce accidents in the workplace, and prevent fires and thefts.
Insurers have worked to a simple principle for several hundred years: the greater the risk, the higher the premium. Detailed classification allows insurers to set premiums for different kinds of risk, reflecting the probability of loss.
Premiums are based on the experiences of hundreds of similar policyholders. For example, motor insurance is generally based on the make and model of car, the ease with which it can be repaired, the age and sex of the driver and the number of thefts reported for that type of vehicle.
As a general rule the more careful we are the less we will pay. Accidents and losses push up the price of insurance, particularly if those losses are avoidable.
So it makes good business sense for insurers to help customers to avoid or reduce their risks by encouraging safer behaviour. The industry also contributes to broader initiatives, often in partnership with government, to make our lives safer.
The insurance industry is a powerful contributor to national prosperity – by liberating enterprise and protecting businesses.
