What's Insurance
Insurance under Law No. 2 Th 1992
Insurance under Law No. 2 Th 1992 concerning insurance business is an agreement between two or more parties, in which the insurer binds itself to the insured, by receiving insurance premiums, to provide compensation to the insured due to loss, damage or loss of expected profits or legal liability of third parties the insured may suffer, arise from an uncertain event, or provide a payment based on the insured's death or life.
Agencies that channel risks are called "insured", and entities that accept risks are called "insurers". The agreement between the two bodies is called policy: this is a legal contract that explains every protected term and condition. Costs paid by the "insured" to the "guarantor" for the risk borne are called "premiums". This is usually determined by the "guarantor" for funds that can be claimed in the future, administrative costs, and profits.
For example: a partner buys a house for Rp. 100 million. Knowing that losing their home would lead to financial ruin, they took insurance protection in the form of a home ownership policy. The policy will pay for the replacement or repair of their homes in the event of a disaster. Insurance companies regarding their premiums of Rp1 million per year. The risk of losing the house has been channeled from the homeowner to the insurance company.
Insurance in the Commercial Law Act (KUHD)
Definition of Insurance according to the Code of Commercial Law (KUHD), concerning insurance or coverage for the rest of its life, Chapter 9, Article 246:
"Insurance or Coverage is an agreement in which an insurer binds himself to an insured, by receiving a premium, to provide compensation to him due to an expected loss, damage or loss of profit, which he may suffer from an unspecified event."
Insurers use actuarial science
Insurers use actuarial science to calculate the risk they expect. Actuarial science uses mathematics, especially statistics and probability, which can be used to protect risks for estimating future claims with reliable accuracy.
For example, many people buy home insurance policies and then they pay premiums to insurance companies. If a protected loss occurs, the guarantor must pay the claim. For some insured, the insurance benefits they receive are far greater than the money they have paid to the guarantor. Others may not make claims. When averaged out of all policies sold, the total claims paid out are lower than the total premium paid to the insured, with the difference being costs and profits.
Insurance company profitsInsurance companies also get investment returns. This is obtained from the premium investment received until they have to pay a claim. This money is called "float". The guarantor can get a profit or loss from the float price change and also the interest rate or dividend on the float. In the United States, property losses and deaths recorded by insurance companies was US $ 142.3 billion in the five years ended 2003. But total profits in the same period were US $ 68.4 billion, as a result of float.
In the world of insurance there are 6 kinds of basic principles that must be met, namely:
Insurable interest
The right to insure, arising from a financial relationship, between the insured and the insured and legally recognized.
Utmost good faithAn action to reveal accurately and completely, all material facts (material fact) about something to be insured whether requested or not. The meaning is: the insurer must honestly explain clearly everything about the extent of the terms / conditions of insurance and the insured must also provide clear and true information on the object or interest insured.
Proximate causeAn active, efficient cause that causes a chain of events that gives rise to an effect without the intervention of a start and actively from a new and independent source.
Indemnity
A mechanism whereby the insurer provides financial compensation in an effort to place the insured in a financial position he has just before the loss (KUHD articles 252, 253 and confirmed in article 278).
Subrogation
Transfer of claim rights from the insured to the guarantor after the claim is paid.
ContributionThe guarantor's right to invite other insurers who are equally bear, but not necessarily the same obligation to the insured to participate in giving indemnity.
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