Risk management is a process made of different steps followed by companies and countries to face risks.
By risk we mean the possibility of financial loss due to some unexpected events in the future.
The outcome of a financial operation in the future can rise or get down: we have some expectations and risk is linked to the possibility that the future events will be different from what we forecast today.
Risk it’s related to words used in statistics and economics such as volatility and uncertainty, and the process through which it’sidentified, measured and managed is called risk management. Usually, a company or a country tries to study all the existing risks, count the amount of possible loss for each of them, create strategies and techniques to manage them and, at the end, check the outcome.
Many economists have stated that for a country there is a positive correlation between risk and its economic development.
One instrument widely used to cover possible losses is insurance, a contract between an insurer and an insured (the policy holder) through which the insurer promises, in return for a premium, to fulfill its contractual obligations upon the occurrence of an event, often qualified as a loss, that usually consist of a refund of the loss amount.
It can be viewed as:
- a risk transfer arrangement: the insured transfer his risk to the insurer paying the premium;
- a risk financing arrangement: the promise that the insurer gives is a contingent capital that the insured secures for future use, subject to the terms and conditions of the contract.
We have two huge branches of the insurance market:
- life insurance market, whose contracts consist of death benefits and where we have two contractors: the insured, who carries the risk, and the beneficiary, who will take the benefit from the insurance company. These policies can have different coverage periods, such as yearly renewable term, life expectancy term or term to age 65;
non-life insurance market, split in:
- property insurance policies, that can be classified depending on the nature of property, the nature of covered perils, or on the nature of indemnification. Some examples of them are: fire insurance policies, boiler and machinery insurance (often used in many companies) and fidelity/crime insurance policies, with the last one mainly used to cover from some risks related to the employee’s dishonesty, forgery, extortion, theft and robbery;
- liability insurance policies, such as workers’ compensation policies or product liability insurance policies;
package insurance policies, where insurers can include property and liability insurance in a single contract.
How much developed is the insurance market in Italy?
Looking at some statistics of 2018, it is clear that the overall premium income in the insurance market started to rise again, reaching an amount of more than 140 billion, whit the premium income in the life segment that has seen a 2,7% increase.
As regards the other branch of the insurance market, non-life segment, we can state that the market has grown thanks to the amazing performance of the motor sector, which had experienced bad results in the previous six years.
For what concerns the leadership in the life segment, Generali got the first position, while in the non-life market, Unipol obtained the first place.
In conclusion, the insurance market has always been crucial in the economics world, because of the nature of people and companies who are averse to the risks. Now, we have just started a negative period related to the global Covid emergency, and when this happens, people start to fear. It’s therefore easy to imagine that once again insurance companies will try to mitigate this sentiment. How? By doing what they are born for: reducing uncertainty and giving peace of mind to their customers.