Insurance can have various effects on society through the way that it
changes who bears the cost of losses and damage. On one hand it can increase fraud;
on the other it can help societies and individuals prepare for catastrophes and
mitigate the effects of catastrophes on both households and societies.
Insurance can influence the probability of losses through moral
hazard, insurance fraud, and
preventive steps by the insurance company. Insurance scholars have typically
used moral
hazard to refer to the increased loss due to unintentional carelessness and moral
hazard to refer to increased risk due to intentional carelessness or
indifference ; Insurers attempt to address carelessness through
inspections, policy provisions requiring certain types of maintenance, and
possible discounts for loss mitigation efforts. While in theory insurers could
encourage investment in loss reduction, some commentators have argued that in
practice insurers had historically not aggressively pursued loss control
measures—particularly to prevent disaster losses such as hurricanes—because of
concerns over rate reductions and legal battles. However, since about 1996
insurers have begun to take a more active role in loss mitigation, such as
through building codes.
Methods of insurance
In accordance with study books of The Chartered Insurance Institute, there
are the following types of insurance:
- Co-insurance – risks shared between insurers
- Dual insurance – risks having two or more
policies with same coverage
- Self-insurance – situations where risk is not
transferred to insurance companies and solely retained by the entities or
individuals themselves
- Reinsurance – situations when Insurer passes some
part of or all risks to another Insurer called Reinsurer
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