Insurance can help with many business related items, one of them being the assessment of cost. Here is a look at how insurance can do this.
Insurance as a necessity
Insurance helps to deal with the high amount risks that are an inherit part of business. It is because of these risks that it is important to have an organized system to determine how much a business will pay for an insurance policy. This is done so that every policy holder is treated the same and given the same comparable amount of insurance This means that for every type of insurance there are mathematicians and actuaries that come up with the specific numbers of an insurance policy.
These numbers come from the amount of risk a business has. An insurance company has to know more about the risks of any given business than the actual business owner. Insurance companies have to understand the risk factors involved for their particular type of insurance They also have to be able to draw up numerous contracts and be ready to make changes depending on new risks that are discovered. The insurance company has to be aware of all the angles of risk for that particular type of insurance.
For example, with fire insurance the insurance company needs to know the different risks of fire. This includes the type of manufacturing a company does, chemicals and machinery used, etc. In marine insurance similar measures have to be taken, as well taking risk factors of how far a boat or ship goes, the type of cargo it carries, the weather conditions it sails in, and so on and so forth. Information such as this can then be turned into a mathematical equation that determines the rates and the amount of coverage that is needed.
Why insurance is necessary
Insurance for business is extremely necessary, indicating all of these complex equations are required. Why is this? It has to do with the different variables that make up business risk.
As an individual, you have no way of knowing whether you will have to deal with a natural disaster like a fire or a flood, an employee injury, or loss or damage of your business’ products. This creates an exceedingly risky gamble. However, insurance does not look at the individual.
Insurance companies look at your business group as a whole, among other factors, that can allow them to assess your risk as a member of a group. Take, for example, car insurance Younger drivers tend to have to pay higher insurance rates than older drivers. This is because, as a group, younger drivers tend to have a higher accident rate than more experienced drivers. Drivers that already have accidents on their record tend to pay higher insurance premiums than drivers that don’t. This is because they have been placed into a higher risk category by the insurance company. As the variables change, say a driver gets older or the accident rate goes down, then the risk changes and the premium also changes. Insurance is about reducing the affects of risk, whether you are an individual or business.