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Insurance And Ethics
By: Joseph Kenny
Insurance contracts are often seen as a form of gambling. That is because they
appear as a type of wager that takes place over the lifetime of the policy.
Basically the insurance company is willing to bet that you and your property
will not suffer the loss insured against. In exchange for making this bet, and
taking on the risk, the receive your premium. If they win the bet, they keep the
premium, if they lose, they make the payout. In this sense, they are often
compared to a type of long term financial casino.
The difference between your premium amount, and the amount the insurance company
will have to pay out if the loss occurs, is simply the odds the insurance
company is getting for taking on the bet. It’s just like going to the horse
races and betting on a horse that pays out 10 to 1.
This view of insurance has led to a number of people and religious communities
disapproving of insurance because of its similarities to gambling. Among those
groups that avoid insurance are the Amish and Muslim communities. What these
people do instead is create a system of what is known as social insurance. What
this means is that if there is a disaster and someone suffers a heavy loss, then
the whole community will step forward and help them to deal with their loss and
rebuild. While this system is very simple, it has the potential to be just as
effective a safety net as insurance. However, it requires that the community
actually does step forward and help those who suffer from disasters. This means
that it is more successful in small closed and closely knit communities than in
large modern societies.
Social insurance systems therefore are not always effective. Often the community
that is supposed to adopt it is not suitable. Also, in very large disasters the
system can break down as a small community will not be able to rebuild itself
completely without outside assistance. This is why larger modern insurance
systems can be more robust. However, in extremely large disasters, modern
insurance systems can also run into difficulties. This is witnessed by the fact
that it is impossible to insure against certain risks such as floods and
earthquakes. This is because the damage would be simply on too large a scale for
the insurance companies to cope with.
There are other ways in which insurance doesn’t follow the gambling model. For
instance insurance companies seek to reduce the risk of the loss occurring
constantly, for instance by requiring the installation of fire alarms, or by
reducing the loss if the insured against event does occur, for example by
providing rehabilitation to accident victims. Therefore insurance is like a
gamble in the reward and risk elements, but other elements are different.
About the Author:
Joseph Kenny is the webmaster of the insurance site http://www.insure121.com/ where you will find information, news and links to the leading providers of car
insurance in the UK |
