Based on the preceding definition, an insurance plan or arrangement typically includes the following characteristics:
See Also
The Risk Management Process: 4 Essential StepsNature of InsuranceHow do you solve a problem like Demand Variability?What Are the Benefits of Supply Chain Risk ManagementPooling of losses
Payment of fortuitous losses
Risk transfer
Indemnification
Pooling or the sharing of losses is the essence of insurance. Pooling is the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss. In addition, pooling involves the grouping of a large number of exposure units so that the law of large numbers can operate to provide a substantially accurate prediction of future losses. Ideally, there should be a large number of similar, but not necessarily identical, exposure units that are ...
