Insurance

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. Ideally, insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a reasonable fee. In practice, however, the business of providing insurance protection often ends up in litigation between the parties involved, while the responsibilities of regulating insurance markets routinely winds up as a political football for government agencies. In general, it is contract in which one party agrees to pay for another party's financial loss resulting from a specified event.

Glossary

• 'Combined ratio' (calculated by dividing the sum of incurred losses and expenses by earned premium) = (incurred losses + incurred underwriting expenses) ÷ earned premiums; (or) = loss ratio + expense ratio + dividend ratio. A lower number indicates a better return on the amount of capital placed at risk by an insurer.