An insurance service is a product presented on a thematic market. The price for it is expressed by the selected tariff. The tariff rate (gross rate) is formed by the load and net. To express the value resort to the money used in the state. The equivalent of a service is the amount. If it is supposed to calculate percentages of a certain value, they speak of a percentage ratio.
Basic aspects
The goods presented on the insurance market are based on net rates. The bulk of this amount is used to pay the policyholder. The insurer estimates the likelihood of occurrence of an event from which the client is insured, and from these risks already determines what the net base should be.
As basic information, they resort to medical statistics on incidence, accidents, and accidents. Analysts responsible for calculating the amounts should take into account how often people get burned, receive various kinds of damage, or become victims of traffic accidents.
For an adequate analysis, it is necessary to collect information for a certain time period and calculate the average statistical value. This value is necessary for the correct determination of the insurance payment, which would be a balance between the interests of the insured and the benefit of the client.
An insurance service is, in a sense, a mathematical fraction. The numerator is the amount payable over a specific time period, and the denominator is the revenue from customers who have purchased policies for the same time. The ratio of these two values expresses the degree to which insurance amounts are unprofitable. For the calculations take a hundred average cases. Without taking into account the standard deviation, it is impossible to adequately study the dynamics of occurring insurance situations.
Load rate
This element guarantees the availability of amounts for administrative tasks. From here, the organizer receives money for events, forms reserves.
The insurance market would be inconceivable without a profitable component also included in the net load. Each enterprise independently determines how large the share of the load in the gross rate will be.
Relevance of the issue
An insurance service is a specific product, yet for many unusual, incomprehensible. Statistics show: offers are much more demand. For the company to count on success, a preliminary study should be organized to determine insurance interests. Not realizing, not counting how great the needs of the client are, do not try to start a new business in the field of insurance. When analyzing the market situation, it is necessary to assess the well-being of potential customers, the features of their everyday life, typical thinking and behavior, priorities.
The provision of insurance services is a complex area of business. Only an enterprise can achieve success in it, the analysts of which can analyze the target audience in detail. For this, attention will have to be paid to the characteristics of nationality. It was revealed that men and women are interested in insurance services to varying degrees.
Formation of an insurance program taking into account all these factors helps to develop a useful product, the demand for which will be great. An important aspect is monetary. The price should match the capabilities of the target audience, tied primarily to people.
Officially and correctly
An insurance service is a product first introduced to a potential customer in the 17th century.It is believed that it was then that the insurance market emerged in Lloyd's coffee shop. Currently, our country has legislation that limits the essence of insurance, defines the terms of all phenomena that are part of its structure, and also protects the interests of participants. At the international level, agreements have been ratified by representatives of our country. From the laws it follows that there is a collective concept of financial services - it includes services provided in the field of insurance, as well as banks related to the circulation of securities, leasing.
The essence of the financial services of an insurance company is to raise funds from various individuals and then work with them, to place amounts in order to obtain benefits. Economically, such enterprises are intermediaries through which money flows between points of turnover. At the same time, insurers protect the interests of their clients, for which they use the money collected for the reserve. The client, transferring a certain amount to the company, thereby replenishes its reserve, which is used to increase wealth and payments to those to whom it is due by agreement.
How does it work?
The services of insurance companies are beneficial for people who face risks and want to protect themselves from them whenever possible. But how much does this work in the opposite direction? It is logical to assume that there would be no insurance market if the company did not make a profit. This is achieved through the competent management of the accumulated financial masses. Insurers transfer money to the company that creates the fund and places its mass in assets - real estate, transport, securities, precious metals. In fact, insurance cannot be imagined without a successful investment.
Financial and insurance services are important for all market participants, including those in whom the funds are invested, thereby insurance companies are becoming an important element of the economic structure. It is necessary for internal investment. The most significant companies are specialized in long-term insurance programs, as a rule, on the life of a client. People bring money to such enterprises for many years and decades, which makes it possible to invest in long-term and promising projects.
Opportunities and Future
The contract for the provision of services and insurance premiums are instruments for gaining the trust of a potential client and methods for obtaining funds from him. Any company operating in this area should be able to raise owners ’funds. The best way to do this is to promise to pay a large sum if the situation specified in the agreement occurs. The company invests the money received, transfers it to the interested parties at the agreed time intervals, who are obliged to return everything with interest in the future.
An insurance company actually receives money from one object and redirects it to another, while the initial and final elements of this chain are not directly related, but their interests are correlated. The presence of interests is not caused by the relations of objects that close the chain of interaction, moreover, often they simply do not realize the existence of each other.
Of course, the provision of insurance services is always associated with the risk of unsuccessful disposal of money received from the client. A company can invest too risky, as a result, the money will be returned not at a profit, but at a loss, and in other cases they will not be returned at all. As a result, persons who were entitled to insurance compensation under the agreements will not receive anything. For example, in this situation, enterprises engaged in the accumulation of people's pensions actually deprive them of financial stability in the future. This situation in the Russian long-term insurance market took shape in 1998.
Dangers lurk at every turn
As part of the provision of insurance services, an enterprise may receive a risky, expensive project as a client. At the same time, the firm’s analysts responsible for risk analysis may not be able to do their job and not correctly and fully evaluate all the dangers associated with the implementation of the plan, which leads to an underestimation of the requested remuneration.
If an insured event occurs, the firm will be required to pay considerable amounts to the client, but the proceeds at the conclusion of the contract were too small. At the same time, the interests of other customers of the same enterprise are infringed. If they also find themselves in a situation of an insured event, they will increase the risk of being left without money, as the overall level of protection from the insurer decreases. If a certain company reinsures the risks of an enterprise collaborating with a risky project, its interests will also be infringed.
Insurance services of organizations, responsibility for their implementation, the nuances of the work process in the current market situation are elements of a strictly private business. From this it can be assumed that checking and evaluating the prospects, reliability, opportunities associated with the client is nothing more than a private task of the enterprise, deciding whether to make an agreement.
At the same time, this approach proved to be incorrect, since the interests of the insured, policyholders and reinsurers are closely interrelated, and in total all this affects the financial social stability of the national level.
Insurance enterprises are an important element of the redistributive system of finance, plying between economic sectors and categories of the population. An insurance company is an indispensable element of the financial system as a whole. The public in the broadest sense of the word is interested in the quality work of this sector and all its participants.
Information imbalance
The nuances of providing insurance services are determined by the specific content - the essence of the product. A rather complicated content is inherent in such a service, and it is not easy to understand the mechanics of the market - for this you need to have specific knowledge and professionalism. This is especially important for individuals offering insurance services. For this reason, in this area, the provision of services is the responsibility of specialists, professionals who have passed certification and accreditation.
Non-professionals are not given the right to insure those who wish. The trade enterprise has a staff of employees who understand the essence of the proposed service, its contents, the nuances of the provision, as well as all the features of laws governing financial relations.
Currently, the development of insurance services has gone the way of standardization. There are generally accepted rules for the provision of the service, a voluminous official document in a specific legal language. Only a person trained to work with such data can understand it, but for the layman, all this usually seems like a dark forest, and the subtleties elude attention.
In addition, the documentation governing the activities of insurance companies is rather complicated, and people live at a fast pace and cannot afford to spend days and months evaluating and analyzing such papers. If you need to delve into the rules of insurance, it is better to seek advice from a law firm. True, the price of such a service is quite high.
Case Nuances
By concluding an insurance contract, the average person rarely reads the documentation, realizing that it will be too difficult to understand it. Especially meticulous people are ready to contact a lawyer to analyze the proposed contract, but the price of the consultation is comparable to the premium that must be paid to the insurer, so this way does not promise benefits, and therefore, is not in demand.
This situation is not new. And for many companies working in the field of insurance, it has become a source of considerable benefit.For example, the practice of prescribing the absence of payments in the car insurance agreement in the event that the accident occurred due to the fault of the driver is widespread. Since the insurer, when signing a contract, almost never reads it, and if it studies it, it is not careful enough, in the event of an accident it often awaits unpleasant news - no compensation is required.
All types of insurance services of firms that have chosen the path of information imbalance are associated with less risk than for others. Losses in their bulk are not covered by the insurance program, and those that still had to be paid were compensated for the predominant percentage of cases by subrogation.
Contractual imbalance
As part of the provision of insurance services (medical insurance, long-term, funded, automobile, and any other), the enterprise takes on the risks of the client and manages them. Such a service is peculiar, and success in it is ensured by high capitalization. In our country, there are relatively few OVCs and insurance enterprises; all of them are listed in specialized statistical publications published on the website of the supervisory service of the state level.
These companies have incomparably more customers - tens of millions of non-binding agreements, as well as mandatory medical insurance, concluded without fail by all citizens. If the active work of the enterprise involves the conclusion of an individual agreement, each of these becomes a source of danger. In total, there will be so many risks that it will be impossible to manage them.
To find a way out of the situation, standardization of contractual conditions and forms is practiced. This helps to make risks standard, making it easier to work with them. Using standard forms of documents, insurance companies provide themselves with the opportunity to survive in the market. There is practically no alternative; otherwise, it will not be possible to achieve a correspondence between financial stability and the quality of service. The right to use standardized documentation is assigned to insurance companies by applicable law.
What follows from this?
Contractual imbalance is a situation where the client does not have the opportunity to influence the content of the agreement between him and the insurer. There are only two options: agree to the terms or refuse to sign the papers.
The insurance company invests funds received from the client in the financial documentation, the profitability of which in both percentage and absolute terms is quite large. In the event of default, delinquent persons are required to pay interest, taking into account the current refinancing rate. If the claim is presented to the insurance company, it becomes difficult to apply the agreed rule. The creditor may look for lost profits associated with non-fulfillment of obligations by the debtor, but this only works well in theory.
To prove his position, the client must understand the nuances of the insurance company, know where the company’s money is invested, how it is organized - and this information is hidden from the average person. Insurance services are specific, and litigation related to them is complicated, which determines the high price of the escort service, which cannot be done without. In the predominant percentage of cases, the costs of litigation are more significant than the amounts recovered from the consideration of the debtor, that is, the victim still remains in the red.
Anti-selection
An important nuance of the insurance market is the so-called adverse selection, that is, the selection of those exposed to risks to a greater extent than others. These are the people who often purchase insurance programs. If the price of the service is formed from the calculation of the average statistical risk, the company becomes unprofitable.The only way to prevent this is to increase the cost of the service, but only those whose risks are even higher agree to buy more expensive insurance.
There are many factors that activate such adverse selection. For example, if, within the framework of an agreement, the insurer assumes the obligation to prolong the contract for another year, then those people who are more likely to encounter the described danger will be more interested in such a program than for all others.
When working on products, tariffs, rates, analysts of an insurance company must take into account anti-selection, and an unaccounted factor can start it.
This nuance of the work process is taken into account in the legislation and in the application of legal norms to insurance enterprises. Firms providing insurance services practice accrual of bonuses to those who are inherent in lower risks, and in tax practice there have been precedents for attempts to tax such bonuses, valued as free provision of services. The situation turned out to be rather controversial, and was generated by a misunderstanding of the essence of the insurance system. As a result of judicial audits, all decisions of the tax inspectorates were canceled.