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An insurance is a contract, called an insurance policy, by which an Insurance Company (the insurer) undertakes, by charging a premium and to in the event of the occurrence of the event whose risk is covered, to indemnify, within the agreed limits, the damage caused to the insured; either through capital, income, or through the provision of a service. The following are involved in this contract: the insurer, which must always be an insurance company, which is the entity responsible for coverage in the event of a claim; the insured, owner of the insurance policy and responsible for paying the corresponding premium; and the beneficiary, who is the person who will collect the corresponding compensation in the event of a claim. These three figures do not always have to be the same person and they can all be different.
There may also be one more figure, the insurance agent, who is the person who mediates between the insured and the insurance company before the purchase of the insurance policy, at the time of formalization (purchase) and after of the purchase (modifications that are necessary, processing of claims, etc.).
The amount of money charged for insurance is called the premium. The premium guarantees that the insurer is obliged to comply with the benefits that it has promised to the policyholder.
Risk management, which is the practice of assessing and controlling risk, has developed as a discrete field of study and practice.
The transaction involves the insured assuming a relatively small and known loss in the form of paying a premium to the insurer in exchange for the insurance company's guarantee to compensate (indemnify) the insured in the event of a loss financial or commercial
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be compensated.
From a mathematical point of view, insurance transforms the risks to which people are subjected into bearable probabilities throughout an organization. Insurance is configured as a basic piece of the current social structure. The insurance institution has two major manifestations in society:
- Social security, which is a compulsory system of coverage, administered by the State, aimed at providing protection and well-being to citizens, which usually guarantees an economic benefit in case of retirement, incapacity to work, death, unemployment, etc.
- Private insurance, which covers and protects persons or entities who hire it, may be compulsory or voluntary. Examples of private insurance include theft or fire insurance of a property or car insurance or accident insurance.
Types of private insurance.
Private insurance can be classified as personal insurance, property insurance or damage and service insurance, although they are also differentiated as personal injury insurance and material damage insurance.
In insurance that covers damage to people, if it refers to personal damage, the person is covered in the event of any situation or unforeseen event that affects them. These include life insurance, private and accident medical insurance, which cover the insured in case of illness and the integrity of the person in the event of an accident. Insurance against property damage partially or totally covers property loss due to an accident or catastrophe, and can be home insurance, theft insurance, car insurance, fire insurance and also civil liability.
Solidarity insurance
A solidarity insurance is an insurance that, after contracting it, generates a donation of an amount proportional to the policy. This donation is made by the insurance company, or failing that, by the brokerage or insurance agent. There is usually a collaboration of these entities with different NGOs, associations or non-profit foundations to which the donations will be derived, presenting different destination options. The policyholder will be the one who decides where to direct the donations generated.
History
The appearance and development of insurance goes hand in hand with the evolution of the different forms of social organization. In its beginnings there were non-monetary forms of insurance without technical or legal bases, but rather as a feeling of solidarity in the face of misfortune and as a risk distribution mechanism. Very primitive forms of insurance against bad harvests, in Antiquity and the Middle Ages, occurred through the storage of cereals in granaries of temples or lords, since one of the social functions that these surpluses fulfilled was their distribution or sale in times of bad harvests or hardship. In the same way, the members of the medieval guilds that functioned in the manner of the Brotherhoods, had among their missions to provide mutual aid in case of illness, disability or death of them.
The first insurance system itself, documented, is maritime insurance that appeared in the Mediterranean during the Middle Ages as a result of the development of maritime trade. It was a demonstration of private insurance, with a profit motive from the insurers.
An important boost to insurance appears with the trade of the Indies after the discovery of America. The Seville Trading House, created in 1503, was in charge of everything related to trade and navigation with the New World, regulating all related aspects, including insurance and risks assumed by the boats.
Through the Ordinances issued in Monzón in 1510, its regulations were modified, with various measures to prevent insurance fraud and to make them truly effective. For this reason, oral contracts were prohibited and it was also prohibited for both cargo and ships to be insured for more than two thirds of their value. In this way, both the owner and the captain were interested in reaching a successful port.
In 1543 the Consulate of Seville was founded, to which exclusive jurisdiction over insurance would be transferred. It is at this time when the insurance is established, not only as a guarantee that guarantees any risk, but also as a form of financing or tax that allowed the Institutions and their main tasks to function. Thus, in the Consulate of Seville, also called the Consulate of Merchants, Casa Lonja or the Stock Exchange, were represented all traders with the Indies, excluding foreigners. The Consulate's income came from breakdown or maritime insurance, mandatory for anyone who had been trading with the Indies for more than a year or who had loaded merchandise for more than 1,000 ducats; which made it possible to cover the organization of a Navy for the defense of ships against attacks by pirates and corsairs.
In the 17th and 18th centuries, the first insurance companies appeared in England. The modern industrial society, based on individualism and the reduction of the family environment, forces us to seek protection through legal formulas against personal and patrimonial risks derived from technological progress.
Macroeconomic aspects
From a macroeconomic point of view, the insurance institution provides two major contributions:
- Investment plunge. According to Kenneth Arrow, the shift in the risk posed by insurance is very profitable from a social point of view as it induces the undertaking of new economic activities and it can be said that in the absence of insurance activity, the volume of investment would be lower and would ultimately reduce the income and well-being of the population.
- It contributes to avoiding inequalities. Insurance avoids extreme impoverishments that have their cause in death or sinister, contributing to greater economic equity.
The insurance contract
The insurance contract is one by which the insurer undertakes, through the collection of a premium and in the event that the event whose risk is the object of coverage occurs, to indemnify, within the agreed limits, the damage produced to the insured or to satisfy a capital, an income or other agreed benefits.
The contracting party or policyholder, who may or may not coincide with the insured, for his part, undertakes to pay that premium, in exchange for the coverage granted by the insurer, which prevents him from facing damages greater economic, in case the accident occurs.
Insurance sector
Insurance companies are financial intermediaries from an economic and financial point of view. This sector differs from other economic sectors in that, to start its activity, it needs a relatively small fixed capital, since it does not need to make large investments in assets to carry out its activity and its working capital is advanced by its own clients on account of the product to start manufacturing at that time (security). Therefore, theoretically, its technical financing needs are very small. On the other hand, the product they sell, security, is guaranteed to all customers, although delivery is only made to part of the customer. Time also plays in favor of the insurer, since the corresponding cost (the accident rate) is distributed, postponing it and giving rise, meanwhile, to an accumulation of savings that form the so-called technical provisions; For this reason, from a financial point of view, the policyholder of an insurance policy is a lender that provides credit to the insurer so that it manufactures the product (the security), thus becoming the insurer a mere investor of non-funds. consumed.
The insurance activity, by its very nature, converts into a long-term investment what, in general, the insurance contracting party did not even consider saving. However, it is a saving that from a financial point of view is very stable and long-term.
In the European Union, as well as in most countries around the world, private insurers are subject to control and supervision by administrative authorities, and in order to operate they need to obtain special authorization, since insurance It is a contract in which the insured pays the premium in advance, while the insurer will indemnify him afterwards when the accident occurs and therefore it is in the public interest that by then the insurer has the financial capacity to do so. All this is done under provisions of Administrative Law issued by the authorities. In Spain, this control of private insurers is carried out by the Ministry of Finance and Competitiveness through the General Directorate of Insurance and Pension Funds (DGSFP), while in the European Union supervision is carried out by the European Insurance Authority and Retirement Pensions -EIOPA- (European Insurance and Occupational Pensions Authority), based in Frankfurt (Germany).
Elements of an insurance operation
- risk
- the insured object
- the insured interest
- the insured sum
- the insurance premium
- the sinister
- compensation
Regulations
Argentina
Through Decree no. 108,295 of June 21, 1937, the Superintendence of Insurance of the Nation in Argentina (SSN) was created in order to regulate and control the insurance activity.
Spain
Art. 149.11 of the Spanish Constitution grants competence in basic insurance legislation to the State
In Spain, until December 31, 2015, insurance was governed by Royal Legislative Decree 6/2004, of October 29, which approves the revised text of the Law on the regulation and supervision of private insurance, being the applicable Law as of January 1, 2016 the new Law 20/2015 mentioned above and by the Regulation of Management and Supervision of Private Insurance, approved by Royal Decree 2486/1998, of November 20, which should be repealed and replaced by a new one, since this was promulgated not for the 2004 Law, but for the previous law, Law 30/1995, of November 8 (BOE no. 268, of 11.9.1995), that is to say, it is possible that, if a new one is not promulgated before January 1, 2016, the Law in force at that time will have a Regulation promulgated not for the previous law, which would already be serious, but for the previous one of the previous one. The commercial aspects of the insurance contract are governed by Law 50/1980, of October 8, on Insurance Contracts, although it should be noted that the precepts of this Law, although they are of an imperative nature, do not prevail over what the parties have arranged in the policy, since the contractual clauses that are most beneficial to the insured are always valid.
Insurance entities
Law 20/2015, of July 14, on the organization, supervision and solvency of insurance and reinsurance companies (BOE no. 168, of July 15, 2015) is the provision that regulates the way in which As of January 1, 2016, the control of private insurers by the Administration. At the European Union level, this supervision is regulated by Directive 2009/138/EC of the European Parliament and of the Council of November 25, 2009, on access to insurance and reinsurance activity and its exercise (Solvency II). (DOUE no. L335, of December 17, 2009).
In relation to insurance entities, the law indicates that insurance activity may only be carried out by private entities that adopt the form of public limited company, mutual, cooperative (insurance cooperative) and social welfare mutual. Entities that adopt any form of public law may also carry out insurance activity, provided that their purpose is to carry out insurance operations under conditions equivalent to those of private insurance entities.
In accordance with article 101 of Law 27/1999, of July 16, on Cooperatives, insurance cooperatives are those that carry out insurance activity, in the branches and with the requirements established in the insurance legislation and, on a supplementary basis, by the Cooperatives Law. When looking at the cooperative legislation, it is also convenient to look at the provisions of the autonomous communities on the matter, since it is a competence transferred to them and most have enacted their own autonomous cooperative law, such as the one enacted by the Autonomous Community of Catalonia, Law 12/2015, of July 9, on cooperatives (BOE no. 194, of August 14, 2015 and DOGC no. 6914, of July 16, 2015 and correction of errors DOGC no. 6917, of July 21, 2015). Our authorities legislate on insurance cooperatives, both in the rules on cooperatives and in the rules on insurance, despite the fact that, as demonstrated in the research work "Competition in the supervision of private insurance" (La Ley Newspaper No. 8,103 of June 12, 2013), there is not, nor has there ever been, any insurance cooperative established in Spain.
Access to insurance activity by a Spanish entity is subject to prior administrative authorization granted by the Ministry of Economy and Competitiveness and processed before the DGSFP.
General Council of Associations of Insurance Brokers
The General Council of Associations of Insurance Mediators is a public law corporation whose purpose is to promote the defense and representation of insurance agents and brokers. In addition to the elected officials, it is made up of a group of 15 professionals, including the staff of the Study Center, at the service of mediation. The Council represents the union of 52 colleges, distributed throughout the Spanish geography, and offers a series of services to facilitate their professional activity in different fields.
In total, according to the census published in the 2014 Report, it grouped 7,618 mediators (close to 60% of them agents, and the rest brokers). Its work includes communication and information services, advice and assistance, documentation, training, platforms to facilitate the adaptation of professionals and companies to various legal requirements and even discounts and preferential treatment for members of different companies and entities with which the colleges and the Council have signed agreements.
Parties involved
The act of insuring is usually carried out between the person who wants to be insured (insured), and the entity that will provide the insurance (insurer). Despite how simple the above statement may seem, more than two parties are involved in the insurance contract and follow-up. We will discuss them below:
Policy
The most important part of insurance, since it is the contract between both parties. It is the document that contains the rights and obligations of the parties. It must have been accepted by both and it must include the personal data of the insured and the company, the amount to be paid and how often the payments will be made, a description of the insurance in question, from when and until when the policy is in force, the coverage that includes the insurance and the beneficiary of the insurance (who is the person who receives the compensation in the event that the established conditions are met).
Insurer
Entity that assumes the insured's risk coverage.
Contractor
Person who agrees and signs the insurance contract. He is the one obliged to assume the conditions of the contract, especially the premium, that is, he is the person who contracts the insurance and whose name appears on the policy. Normally it coincides with the insured, although in some cases this may not be the case, since the insurance may be paid by a person but the insured is a relative.
Insured
Person or object under which the insurance falls. Rather, who has the coverage and, therefore, who is exposed to risk. It is the holder of the insurance contract.
Beneficiary
It is the person who is indemnified in the event that the conditions provided for in the contracted policy are met. Depending on the case, policyholder, insured and beneficiary may or may not be the same person. In life insurance, for example, they can be three different people.
Mediators (optional)
An insurance mediator is an advisor who advises the client when taking out a policy. Your duty is to inform you of the different existing prices and what type of coverage is best for you. There are several types of mediators: traditional and online brokerages, insurance agents, banking operators, etc.