Quoted from the book “The Principles & Practices of Insurance” Insurance function can be classified in 3 functions, namely primary function, subsidiary function and other related function.
Table of Contents
INSURANCE PRIMARY FUNCTION
Risk Transfer
Insurance is a risk transfer mechanism, in which an individual or business entity can transfer something uncertain to another party, with a certain amount of premiums relatively small compared to the possibility of losses, the uncertainty of the loss is diverted to insurance.
Common Pool
At the beginning of the onset of marine insurance, traders at that time agreed to contribute to the losses (due to sea risks) experienced by someone among them. Such practices do not completely divert risk but only reduce risk.
In the development of the contribution was determined at the beginning before the loss occurred, so that each can already know for sure the burden of contribution, namely paying the so-called premium. The premium is accepted and collected in a fund or pool and developed to cope with claims that occur.
Equitable Premiums
Assuming that the risk transfer has been done through the common pool, the third main function is the contribution that must be paid by each participant should be fair.
The level of risk experienced by each participant can be different, for example for buildings made of wood has a higher level of risk compared to stone buildings. 18-year-old drivers are at higher risk compared to 50-year-old drivers.
Likewise, the value of the insured goods is not always the same. Differences regarding the level of hazard and the value will bring the consequences of the amount of contribution (premium) charged. These kinds of things are now the basis of underwriters in setting premium rates.
SUBSIDIARY FUNCTION
Stimulus to business enterprise
The function of Insurance as a driver of business is illustrated in insurance activities to make investments derived from insurance funds. In addition, with insurance can be give the courage of investors to build new businesses or develop their businesses.
Loss prevention
Insurance surveyors gain a lot of training and experience in identifying a risk making themselves have the ability to provide loss prevention advice.
The function of Insurance as loss prevention is illustrated in the advice recommended by insurance surveyors to do things that can prevent losses.
Burglary insurance surveyors can advise on the installation of detectors that can prevent or deter thieves. Surveyors of liability insurance (liaiblity insurance) can provide advice in the prevention of public demands due to working conditions or production.
Loss control
Recommendations from insurance surveyors are not only limited to loss prevention but also provide recommendations on ways to reduce losses. Advice on meeting the requirements of building construction, installation of sprinklers, alarms, is an effort to control losses if the risk occurs.
Surveyors may not be able to prevent thieves from entering, but surveyors can suggest something that can limit, complicate, impede, or slow down a thief’s steps.
Social benefits
Claims paid by insurance allow employers to rebuild their factories/ businesses, so as to avoid termination of employment due to factory fires. Insurance activities itself create jobs.
Through insurance, funds can be provided to overcome social problems, such as unit of disabled people, widows, orphans.
Savings
In life insurance products especially endowment insurance guarantees payment either died or lived at the end of the contract, the payment received by the insured at the end of the contract is basically an accumulation of premiums plus interest.
OTHER RELATED FUNCTION
Investment of funds
The set of insurance funds (premiums) provided to pay claims, is a source of investment funds that give rise to investment activities in the money market and capital market.
Invisible earnings
Insurance and reinsurance transactions occur within a wide range between countries. A country that receives a lot of premium income from other countries is the income of the country concerned from the trade in services.
In Indonesia what happens is the opposite. Many insurance companies in Indonesia place reinsurance abroad, so our trade balance deficit because premium payments are receipts for overseas and expenditures for Indonesia.
The reasons include:
- lack of technology and knowledge
- absence of integrity of insurance employers
- Insurance companies in Indonesia pay claims from reinsurance results abroad so that the function of the insurance company is only as an agent / broker only.
- consumers are still foreign minded (lack of nationalism), so choose a foreign insurance company.
Well, that’s the function of insurance that you must know in order to maximize what you will inso asuransikan. Well immediately insurance to be able to minimize the risk of losses, eits … but not all objects / risks can be insured loh…
INSURABLE INTEREST’
All right, let’s just discuss what are the risks that you can insovent or called ‘Insurable Interest”.
The risk that can be insured must meet the following criteria:
- Its value can be measured financially (financial measurement)
- Pure risk
- Particular & fundamental risk
- Fortuitous
- Homogenous exposure
- Reasonable premium
- Not against public policy
- Insurable interest
That’s the criteria insurable interest / risk that you can insow, What if there are no criteria above? If the Insurable Interest Criteria does not exist then you cannot insure them.
How to determine Insurable Interest?
To determine insurable interest, in insurance employment contracts, which are insured instead of ships, buildings, machinery or legal liability to third parties, but rather the financial interests of the insured “pecuniary interest of the insured”on the ship, house, engine, or for the financial interests of the insured person.
Well, In Indonesia itself the establishment of Insurable Interest based on the law is as follows;
Marine Insurance Act 1745.
It is not permissible to close marine insurance to anyone without any insurable interest, if it is later found that the insurance agreement is declared void and considered there is never an agreement.
Life Assurance Act 1774.
Contents:
- Life insurance contract without insurable interest is declared void from the beginning
- The name of the insured must be written in the policy
- The maximum compensation is the same as that written in the policy
- Not expanding/regulating cargo, ship and merchandise insurance
For point ‘2’ Insurance Company Amandement Act 1973 allowed the name of the person who is not called to benefit as long as it is still in or the description remains written in the policy, e.q. child deffered assurance.
Marine Insurance Act 1788:
- Illegal action when insuring ships, cargo, and merchandise without having insurable interest
- The name of the insured must be written in the policy
- Coverage without insurable interest is said to be gambling (criminal offence)
- Marine Insurance Act 1906
- Is a revision and refinement of the 1745 Act and 1788 Act
- Is the codification of the case law groups
- Marine coverage without insurable interest declared void
- Insurable interest must exist at the time of the loss
Marine Insurance Act 1909 (Gambling Policies)
Marine coverage without insurable interest is declared illegal and is unlawful gambling with criminal offenses.
So. wait let alone immediately insured.. to minimize the risk…
