Page 284 - IC38 GENERAL INSURANCE

Indeed, few things are as valuable as air and sunlight. We cannot live without
them. Yet they are not considered as assets in the economic sense of the term.

There are two reasons for this:

 Their supply is abundant and not scarce.
 They are not owned by any one individual but are freely available to all.

This implies that an asset must satisfy two more conditions to qualify as such
- its scarcity and its ownership or possession by someone.

c) Insurance of assets

In insurance we are interested in economic losses that arise from unexpected
and fortuitous events, not losses arising as a result of natural wear and tear.
Insurance provides protection only against financial losses arising from
unexpected events and not natural wear and tear, of assets due to usage
over time.

We must note that insurance cannot protect an asset from loss or damage. An
earthquake will destroy a house whether it is insured or not. The insurer can
only pay a sum of money, which would reduce the economic impact of the loss.

Losses can arise in the event of breach of an agreement.

Example

An exporter would lose a great deal if the importer on the other side refused to
accept the goods or defaulted on payments.

d) Life insurance

What about our lives?

There is indeed nothing as valuable to us as our own lives and those of our loved
ones. Our lives can be seriously affected when subjected to an accident or an
illness.

This can impact in two ways:

 Firstly there are costs of treatment of a particular disease.
 Secondly there may be loss of economic earnings, both due to death or

disability.

These kinds of losses are covered by insurances of the person or personal
lines of insurance.

Insurance is possible for anyone who has assets that have value [i.e. which
generate income or meet some needs]; the loss of which [due to fortuitous

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