Insurance (collective)

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With insurance (deprecated insurance ) the basic principle of the collective is underwriting ( insurance principle or principle of equivalence ) refers to an amount of money (= where many insurance premium ) in the institutional investor insurers pay to the occurrence of such damage , the insured event , from this institutional investor a damage compensation to receive. Since the insured event will only occur in the case of a few insured persons, the assets of the capital collection point are sufficient if the contribution is payable. The prerequisite is that the extent of the damage can be estimated statistically and therefore the contribution required by each member of the collective can be determined using actuarial methods.

Basic principle of insurance

Legal description

There is no legal definition of insurance. In judicial law, the following criteria for insurance business within the meaning of Section 1 (1) VAG have emerged:

  • Remuneration for assuming the obligation,
  • Operation of the business according to plan by deliberately building up the risk compensation collective,
  • Independent business, i.e. no dependent ancillary agreements of another business,
  • Legal entitlement to benefits when the insured event occurs,
  • Uncertainty of performance (assumption of risk) and
  • Systematic assumption of a large number of similar risks (as homogeneous as possible risk compensation collective).

While the first four are objective criteria, the latter two are subjective. In the case of major risks, there may be very few risks where the risk is similar. Nevertheless, there is insurance if these are combined with relatively few other similar risks in a group that is relatively unhomogeneous. In some cases, the probability of occurrence may be very high (e.g. in the case of loss of glasses insurance) and thus the benefit is relatively uncertain, without this excluding the attribute “insurance”.

Economic description

Alfred Manes defined insurance as the elimination of the risk of an individual through contributions from many ( English "The essence of insurance lies in the elimination of the uncertain risk of loss for the individual through the combination of a large number similarily exposed individuals who each contribute to a common fund of premiums sufficient to make good the loss caused any one individual " ). Karl Hax defined insurance as "the planned coverage of an individually uncertain, but generally estimable money requirement on the basis of an inter-economic risk compensation". For Dieter Farny , insurance is the coverage of an individually uncertain, overall estimable need for money, on the basis of a risk compensation in the collective and in time.

Mathematical description

The insurance is based on the mechanism of jointly bearing risks in a collective (pool, portfolio ). The advantage of this joint support is based on a mathematical law described by the law of large numbers , according to which, with an increasing number of similar events, the actual outcome is adapted to the expected outcome (i.e. the mean value of all possible outcomes). The spread (variability) of the outputs around the mean value decreases with increasing collective size according to law, mathematically described by the central limit value theorem . In the ideal case of the central limit theorem, the standard deviation falls with an increasing number of risks of n as . Accordingly, the greater the collective, the less the risk of the output fluctuating. This risk-reducing effect of jointly bearing risks in a collective is known as risk compensation in the collective . As a result, the risk of failure of the risk equalization, i.e. that the collective does not have enough money to pay for all the damage, becomes smaller and smaller as the collective increases. Ultimately, a large collective needs proportionally less capital as a provision for such a failure than a small collective or even an individual for its own risk. Lower capital means, above all, lower financing costs, and thus the risk balancing in the collective means that risks can be hedged more cheaply for everyone involved than would be possible individually.


For example , a house has an insurance value of € 100,000. Let's say the probability that it burns down is 0.1% every year. In order to protect himself against the loss of the house, the homeowner would have to have € 100,000 available in reserve at all times. This constant availability of money results in financing costs of, for example, 1%, i.e. € 1,000 per year. This means that individual protection of the house against fire costs € 1,000 every year, even if the house does not burn down (in addition, the average loss from fires of € 100 per year is added). If, on the other hand, 100,000 homeowners get together and protect themselves together, fires will almost certainly occur collectively, on average 100 per year with total costs of 10,000,000 €. However, this only costs the individual € 100 average fire costs, distributed across all 100,000 homeowners. In order to be armed against a random number of fires, the collective still has to provide additional capital, but with sufficient security this is only € 10,000,000, for example. Even if one assumes particularly high financing costs for this capital, for example 20%, the individual only accounts for financing costs of 20 €. This means that collective coverage would only cost each individual € 120 instead of € 1,100 (on average over many years) for individual coverage. The larger the group, the less capital is required for coverage and the closer the insurance price approaches the pure expected value of the damage of € 100.

This also directly results in the calculation of the price for the insurance protection ( insurance premium ) that is required: It consists of the expected value of € 100 per house plus a security surcharge of € 20, which represents the financing costs for the collective's capital and thus ultimately the expected profit. By taking out insurance, the homeowner transfers an uncertainty worth € 1,100 for a fee of € 120 to the insurance collective. This extreme difference in value allows that even if the organization of the collective causes additional costs and an appropriate profit surcharge is also levied, the insurance still brings about a high benefit for the individual economic subject.

Organization of insurance

Economic function of insurance

This substantial reduction in the cost of protection against risks through insurance made it possible in the first place to build valuable industrial plants, which are essential for the modern economy, and also to build up private assets, the large number of which in turn enables effective protection in the collective. The development of the modern industrialized countries is thus inseparably linked to the development of the insurance industry.

Insurer as organizer of the risk equalization collective

In principle, this effect can always be achieved through a jointly organized risk compensation collective. In practice, however, in view of the number of risks required, such risks can usually not be organized on a purely collective basis without central coordination. This is why entrepreneurs (called insurers ) appear in a market economy who organize such collectives and thus make them available as service providers for the economy.

You yourself make use of the risk compensation effect in order to carry out the systematic assumption of risks with an entrepreneurial risk that is acceptable in terms of profit opportunities.

The essential characteristics of such a privately organized, profit-oriented insurer are:

  • The insurer charges the policyholders a firmly agreed insurance premium . The insurer must then compensate for any damage that may occur.
  • The insurer provides equity capital to cover higher losses , which is therefore at risk. If the contributions are higher than the damage and other expenses of the insurer, the remainder remains as profit to compensate for the provision of this risky equity. If they are lower, the insurer must cover the loss from equity. Insofar as the safety or profit surcharges in the premiums represent an appropriate remuneration for the risk of the equity capital, the capital markets will then be willing to replace the equity capital lost and the insurer can thus continue the business.

Often the profits are not distributed, but remain with the insurer in order to increase the equity base and thus the security of the insurer. At the same time, this accumulation of profits also increases the value of the insurer for the owner.

Because of the risk balancing effect, the insurer suffices even a small safety margin in the premiums and a relatively low equity to be able to operate the business with sufficient security for the policyholder and a reasonable profit on the equity.

Mutual insurance and employment insurance

Insurance is thus the economic protection of risks against premium payments based on the principle of probability; it is operated either according to the association principle as mutual insurance or according to the speculation principle as employment insurance . However, even the mutual insurers today hardly operate a pure risk equalization collective (apart from a few smaller associations, mostly animal insurances, e.g. cow guilds), but instead levy fixed contributions according to the speculative principle. In principle, however, the profits and the equity belong to the members, i.e. the policyholders.

We encounter ancient pre-forms of mutual insurance in the Egyptian, Greek and Roman funeral associations (collegia tenuiorum), which ensured a decent burial of their members and the cult of the dead with regular contributions. The development of mutual insurance, which has continued into modern times, does not begin until the early Middle Ages in Northern Europe with the guilds and cooperatives that are based on a mutual loyalty relationship and come together for the common fulfillment of religious, political, economic and social purposes, and preferring to jointly assume risks and provide assistance dedicated to death, fire, cattle dying, shipwreck and capture. In the 17th and 18th centuries, on the initiative of the state, the first public insurance companies, which are also not profit-oriented, emerged.

social insurance

The branches of social insurance can only be counted as insurance to a limited extent, as they are only pay-as-you-go ( pay-as-you-go ) state-organized compulsory insurance. In addition, in the statutory pension insurance, the contributions are not shared among the beneficiaries, but paid by one generation for the other ( generation contract ). It does not create any provisions, but is financed from the current income and is therefore not demographic-proof.

Insurable risks

The insurable risks are very diverse. The prerequisite, however, is that they are realized according to statistically comprehensible principles. Therefore, for example, risks that are essentially based on human behavior, such as the economic success of a company, market price risks or willful behavior, cannot be insured. The insurable risks can, however, be reduced to a few risk groups, which, however, have no exact limits:

  • biometric risks , including the individual risks affecting life and livelihood, such as incapacity for work, need for care, longevity and premature death. You are covered by life insurance products
  • Cost risks (such as legal fees, medical expenses), for example, by the legal expenses insurance and health insurance cover
  • Damage risks (e.g. fire, accident, theft) are covered by numerous types of damage insurance (e.g. residential building insurance, accident insurance, household contents insurance)
  • Liability risks are numerous forms of liability insurance cover

Legal bases

The legal system separates insurance law into the ever more extensive social insurance law and private insurance law, which in turn includes insurance company law, insurance supervisory law and insurance contract law. Insurance contract law is special contract law and as such is the special private law that does justice to the special features of the insurance contract.

Insurance arrangements

Coverage principles

For the coverage of entitlements, especially in the case of personal insurance , two basic coverage principles have emerged.

Atypical insurance

A lottery is very similar to an insurance company in some respects, not least because insurance companies originally had a lot of betting or lottery character. However, gambling is neither used for financial risk prevention nor for collective savings. Furthermore, an insurance should cover the financial consequences of a certain event; however, this event is the desired target in a lottery. The player does not want to prevent the profit, but rather to achieve it.

A special form of the lottery is the tontine , in which a group of investors raises an amount that is paid out to the survivors of the group after an agreed term has expired. Here the premium payment is not at risk. For the performance, the biometric risk is used to increase the return for the survivors. However, the tontine insurance is to be regarded as the forerunner of our current pension insurance.

The capitalization transactions ( savings insurance ; French : Contrats de capitalization ) that are customary in France in particular are also not (life) insurance policies in the true sense of the word , since they are exclusively savings transactions.

Insurance in the context of risk management

Before a risk can be properly insured, it must be identified, assessed and how the risk should be dealt with must be determined. Risk management deals with this process, which should precede any insurance conclusion . Risk management is the holistic handling of risks. A general, simple definition of risk is uncertainty. The components of a risk are:

  1. A value (thing, person, process, system, state)
  2. The dangers to which the asset is exposed
  3. The impact if the hazard materializes on value (direct and indirect financial and non-financial effects).

Other dimensions of risk are the probability of occurrence and frequency. The insurance industry or the insurance market (as a term for everyone who deals with insurable risks) is primarily concerned with the risks that can be insured by an insurer; these are only part of all the risks. Other risks can be hedged in other ways, such as the risk of falling share prices through options . In addition, there are technologies that compete with or complement the insurance industry, such as securitization , which taps into the capital market for financial protection against risks. Many risks cannot or only partially be passed on to others, such as the entrepreneur's risk that a newly launched product will not be successful on the market; if one were to pass on this risk in full, one would also have no right to a profit. Because the profit is the reward for the risks taken.

Risk management deals with the question of the right instruments and methods for dealing with risks. Possible measures include, for example, reducing the frequency of risks, dealing with the situation in a planned manner if the risk materializes, bearing part of the financial impact yourself, insuring part of it. A critical step in dealing with risks is the identification of risks, because risks that have not been identified cannot be dealt with as planned.

Legal structure of the insurance

Insurance protection is granted within the framework of a special legal relationship, the insurance relationship . The insurance provider is the insurer, the insurance cover is received by the policyholder . Insurance relationships can be established by contract , law or, more rarely, a court decision. Since insurance is by definition carried out on the basis of risk equalization in the collective, insurers endeavor to establish large numbers of insurance relationships that are as similar as possible, which differ only in the inevitable individuality of the individual risks. Therefore, the insurance relationships, the risks of which are to be balanced in a collective, are basically identical and differ only in the individually insured risk. To this end, the insurers create uniform conditions for a certain type of insurance relationship , the so-called general insurance conditions, which bring about the greatest possible uniformity of the insurance relationships established on this basis. These types of possible insurance relationships that an insurer offers are also referred to by insurers as products . Since insurance is a collective business, the insurer does not “produce” individual insurance relationships, but rather the collective. Therefore this is economically his "product". The product term is also used here in a broader sense, which does not refer to the individual economic good or the individual service, but refers to the manufacturing process or the type of individual products manufactured in the mass production process. These products were or are still partially subject to state supervision of insurance. In this case, the product is the partly state-regulated insurance tariff .

Classification of forms of insurance

There are various ways of systematically presenting the variety of insurance companies. Six such grouping approaches are shown below:

  1. Individual and social insurance
    • Individual insurance is created through the conclusion of an insurance contract under private law
    • Social insurance is created by law on the basis of certain circumstances, e.g. B. through dependent employment, training or other protected circumstances.
  2. Personal and non-personal insurance
  3. Damage and total insurance
    • In the event of damage, the damage insurance covers the specific, usually verifiable amount of the damage actually incurred. With this form of insurance, an agreed sum insured only describes the maximum insurance benefit. Typical damage insurances are health , household contents , liability and reinsurance as well as motor insurance .
    • In the event of an insured event, the sum insurance pays out a predetermined sum insured without the actual damage having to be specified. Sum insurance is almost always personal insurance, the best-known example is life insurance, and there is also accident insurance. Occasionally there is also animal insurance or (abroad) car insurance in the form of sum insurance. New value insurance, in which the replacement value of a new object is always reimbursed regardless of the value of the destroyed object, is a borderline case between damage and sum insurance.
  4. Active and passive insurance
    The following classification can be made for damage insurance:
    • Assets insurance protect property that is on the assets side of a company. Examples are building insurance or comprehensive insurance .
    • Liability insurance protects liability towards third parties, that is, the liability side of a balance sheet is protected, for example by a product or motor liability insurance.
    Both groups differ in how they work. While the principle of in active insurance underinsurance are (the damage at considerable replaced underinsurance only in relation sum insured to the value of the damaged object) applies to the liability insurance the principle of Erstrisikodeckung, that is, the damage is still in full by the Reaching the agreed coverage.
  5. On the nature of the risk insured
    are different types of risks differentiated and on this basis are appropriate insurance in types of insurance , and further into classes of insurance or joint trade and insurance branch groups together.
  6. Life and non-life insurance
    • Life insurance is a sum insurance that does not cover partial losses and is characterized by mostly long-term contracts. Due to the insured risk, multiple claims per risk are not possible, but it may be affected by random fluctuations. In the event of an insured event, processing is very quick - due to the fact that the facts are easy to prove (death certificate) - the contributions are based on good statistical material.
    • The non-life insurance also covers partial and multiple losses. Settling an insured event can be quite lengthy, as all damages have to be proven (possibly by means of expert opinions, etc.). Mostly these are short to medium term contracts that are prone to cost inflation. They are very susceptible to random fluctuations (wind & weather).

See also

Web links

Individual evidence

  1. ^ Alfred Manes, Encyclopaedia of the Social Sciences , Vol. 8, 1932, p. 95
  2. ^ Karl Hax, Fundamentals of Insurance , 1964, p. 1
  3. Dieter Farny, Versicherungsbetriebslehre , 1995, p. 13