| | FEBRUARY 20208Consultants Reviewhe Commission on Insurance Termi-nology of the American Risk and In-surance Association has defined in-surance as `the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify in-sured for such losses, to provide other pecuniary benefits on their occurrence, or to render ser-vices connected with the risk.' In layman's terms, that means insurance allows individuals or companies to ex-change the possibility of a large loss for the certainty of smaller periodic payments, known as premiums. The transfer is completed through a contract, known as an insurance policy, that lays out the responsibilities of both the insurer and the insured.The premiums are much lower than the expected payout in case of a loss. Insurers are able to take on the significant risks transferred to them by the insured be-cause of two key concepts:Pooling: This is the spreading of incurred losses of a few insured over a much larger group of insured.The Law of Large Numbers: The more exposures an insurer underwrites, the more accurately it will be able to predict the expected number and cost of losses.Ideally, insurable loss exposures have the following characteristics:· A large number of similar exposure units;· Losses that are accidental;· Losses that are definite and measurable.Even when the ideal conditions mentioned above are met, insurance companies must overcome two other ob-stacles, adverse selection and moral hazard, in order to build a profitable book of business.AXA XL, the P&C and specialty risk division of AXA, is known for solving complex risks. For mid-sized companies, multinationals and even some inspirational individuals, they don't just provide re/insurance, they reinvent it.By Indranath Mukherjee, Head of Operations, Strategic Analysis, AXA XL (A division of AXA)INSURANCE ­ THE TRADITIONAL BUSINESS OF RISK TRANSFER IN THE NEW AGE DIGITAL ERA TIN MY OPINIONIndranath Mukherjee, Head of Operations, Strategic Analysis
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