To many individuals, insurance may seem like nothing more than a monthly or annual bill they must pay because the state government or a lender requires it. The reality of the insurance industry is that it is a vital force in securing the well-being of both individuals and businesses, and it actively promotes the health and security of the economy and business environment around the world.
At its most basic, insurance offers mental relief from the constant uncertainty of potentially adverse circumstances. You may not be able to prevent the fire in your home or business, but at least you know your insurer will pay for most of your out-of-pocket costs. Similarly, you can't predict the day you're diagnosed with a terminal disease; but if your life and health insurance policies are in force, you know you can pay for treatment and provide for your family when you're gone.
The evolution of any business is based on risk. For example, airlines carry an enormous amount of risk when they fly planes full of passengers each day. The plane itself is worth a lot of money, the passengers all face injury and death, and the baggage could get lost or damaged. Airlines carry insurance policies to manage all this risk. Without an insurer willing to pay these various liabilities on their behalf, airlines would not function. Insurance allows businesses to take necessary risks without fear of huge financial loss.
Insurance is not just about paying losses that occur but also preventing losses in the first place. Because fire insurers know, often much better than individuals and businesses, the causes of many fires, they can offer professional assistance for avoiding the most common causes of fire loss. Similarly, workers' compensation insurers deal with workplace injuries every day. They can advise businesses about proper safety techniques to minimize injuries and make the business a safer place for workers and customers alike.
Insurers do not immediately spend all the premium dollars they collect. Generally, insurers are required by state governments to maintain a cash reserve equal to or greater than a certain percentage of their liabilities. While they possess this money, they tend to invest it in a wide range of endeavors, from municipal contracts to short-term bonds. Local, state, federal and international economies are all bolstered by insurance companies when they use their pooled capital to fund other projects until it is needed to cover a loss.