An entity seeking to transfer risk becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance policy. When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims in theory for a relatively few claimants and for overhead costs.
Generally, an insurance contract includes, at a minimum, the following elements: identification of participating parties the premium, the period of coverage, the particular loss event covered, the amount of coverage, and exclusions An insured is thus said to be "indemnified" against the loss covered in the policy. So long as an insurer maintains adequate funds set aside for anticipated losses, the remaining margin is an insurer's profit. Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive steps by the insurance company. 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 scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and insurance fraud 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. However, since about 1996 insurers have begun to take a more active role in loss mitigation, such as through building codes. 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.
According to the study books of The Chartered Insurance Institute, there are variant methods of insurance as follows. Reinsurance situations when the insurer passes some part of or all risks to another Insurer, called the re insurer. The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Dual insurance having two or more policies with overlapping coverage of a risk (both the individual policies would not pay separately under a concept named contribution, they would contribute together to make up the policyholder's losses. Self-insurance situations where risk is not transferred to insurance companies and solely retained by the entities or individuals themselves. Accidents will happen is a slapstick silent film about the methods and mishaps of an insurance broker. Collection EYE Film Institute Netherlands.