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BUSINESS SERVICES 89 for a risk of large possible loss. The risk of loss. There are uncertainties loss of risk still remains but the loss of happenings of time and amount is spread over a large number of of loss. Insurance removes these policyholders exposed to the same risk. uncertainties and the assured receives The premium paid by them are pooled payment of loss. The insurer charges out of which the loss sustained by any premium for providing the certainity. policy holder is compensated. Thus, (ii)  Protection: The second main risks are shared with others. From the function of insurance is to provide analysis of past events the insurer (an protection from probable chances insurance company or an underwriter) of loss. Insurance cannot stop the knows the probable losses caused by happening of a risk or event but can each type of risk covered by insurance. compensate for losses arising out of it. Insurance, therefore, is a form of (iii) Risk sharing: On the happening risk management primarily used to of a risk event, the loss is shared by all safe guard against the risk of potentialthe persons exposed to it. The share is financial loss. Ideally, insurance is obtained from every insured member defined as the equitable transfer of theby way of premiums. risk of a potential loss, from one entity (iv) Assist in capital formation: The toanother,inexchangeforareasonable accumulated funds of the insurer fee. Insurance company, therefore, is received by way of premium payments an association, corporation or an made by the insured are invested in organisation engaged in the business various income generating schemes. of paying all legitimate claims that may arise, in exchange for a fee (known as 4.5.3 Principles of Insurance premium). Insurance is a social device in The principles of insurance are the which a group of individuals (insured) rules of action or conduct adopted transfers risk to another party (insurer)y the stakeholders involved in the insurance business. The specific in order to combine loss experience, which provides for payment of losses principles of utmost significance to a from funds contributed (premium) valid insurance contract consists of by all members. Insurance is meant to the following: protect the insured, against uncertain (i) Utmost good faith: A contract of events, which may cause disadvantage insurance is a contract of uberrimae to him. fidei i.e., a contract found on utmost good faith. Both the insurer and the 4.5.2 Functions of Insurance insured should display good faith The various functions of insurance are towards each other in regard to the as follows: contract. It is the duty of the insured (i) Providing certainty: Insurance to voluntarily make full, accurate provides certainity of payment for the disclosure of all facts, material to the Reprint 2026-27