What is Insurance?
The insurance can define as an organisation providing the financial protections for the financial losses happens due to the fortuitous event. In another way, the loss-sharing arrangement calls as the insurance.
The insurance contract takes place between the insured or the assured and the insurer or the underwriter. So the insurer is the party who manages the risk pool.
Why you need a Foreign Trade Insurance
Foreign trade involves a lot of logistics activities. Cargo has to move from one location to another. During the movements, there is a risk of something happening to the cargo.
Not only the cargo being shipped, the vessel and the crew, passengers also should be insured. The capital cost for ship construction is a lot more than buying just a vehicle. The vessel getting damaged can be a huge burden to its owner. It is a huge relief to the vessel owner on insuring the vessel. Not only the vessels, but any floating craft can also insure under marine insurance and be entitled to claim financial losses under insured perils.
Insurance protection takes due to the risk or the possibility of meeting a danger.
The risks have economic consequences which encourage cargo owners to insure their goods. The insurance companies concern on the pure risks where either there is a chance of loss or no loss.
The perils identify the cause of a risk. Fire, Storm, Theft are some common perils. The loss or the decrease of the value of cargo depending on the hazard associated with the risk.
What is a Hazard?
Hazard is any factor contributing to risk.
What are the Types of Hazards?
- Physical Hazards
- Storage of flammable materials
- Construction materials
- Moral Hazards
- Attitudes of the individuals
Increase in moral hazards increases the physical hazards.
What is Insurability?
This is the ability to insure the risk. All the risks are not insurable.
Basic Criteria for Insurability
- The loss should happen by chance
- Ability to assess the frequency and magnitude of the loss
- Regally recognizable relationship between the insured and the financial loss
- No excessive exposure to loss
- Insurance must not be a threat to the public interests (Ex: Should not encourage crimes)
- The premium of the insurance should affordable
What are the Functions of Insurance?
The primary function of the insurance is to cover the financial losses of the insured.
Other than to the primary objects, there are secondary benefits too.
The businesses don’t have to have a fear in case of the losses as underwriter is there to cover the financial losses. So, this provides a means of stabilizing the costs involved in managing the risks.
Stimulate Business Enterprise
The owners start large scale enterprises as they can transfer their risks to a third party via insurance. If such a facility is not available, owners will have to think a lot before going into large scale. With insurance, cover owners have the ability to make decisions freely due to financial protection.
Remove Fear & Worries
The business sector has confidence when planning their economic activities. Because then can keep their fear and worries aside due to insurance protection.
Reduction of Losses
Insurance helps to reduce losses through their actions and recommendations in rating, survey, inspection services and salvage.
Other than to above, there are a positive impact on society like creating employments, and sources of capital investment.