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New Zealand Insurance
Welcome To New
Zealand's #1 Insurance Information Website, here you can find
all the top Insurance companies In NZ. If you
or your business would like to be included on this website
please feel free to contact us, also if you have any questions
about the products and services feel free to send us an email. |
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Insurance
In law and economics, is a form of risk management primarily
used to hedge against the risk of potential financial loss.
Insurance is defined as the equitable transfer of the risk of a
potential loss, from one entity to another, in exchange for a
premium and duty of care. |
Principles of
insurance
Losses must be uncertain.
The rate and distribution of losses must be
predictable: To set premiums (prices) insurers must
be able to estimate them accurately. This is done
using the Law of Large Numbers which states that:
The larger the number of homogenous exposures
considered, the more closely the losses reported
will equal the underlying probability of loss. If
the coverage is unique, the insured will pay a
correspondingly higher premium. Lloyd's of London
often accepts unique coverages. (e.g., the insuring
of Tina Turner's legs and Jennifer Lopez's buttocks)
The loss must be significant: The legal principle of
De minimis dictates that trivial matters are not
covered. Furthermore, rational insurance uses
existing insurance when the transaction costs
dictate that filing a claim is not rational.
The loss must not be catastrophic: If the insurer is
insolvent, it will be unable to pay the insured. In
the United States, there is a system of Guarantee
Funds that run at the state level to reimburse
insured people whose insurance companies have become
insolvent. This program is run by the National
Association of Insurance Commissioners (NAIC). To
avoid catastrophic depletion of their own capital,
insurers almost universally purchase reinsurance to
protect them against excessively large accumulations
of risk in a single area, and to protect them
against large-scale catastrophes.
Additionally, “speculative risks” like those
incurred through gambling or through the purchase of
company stocks are uninsurable. |
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