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It works on the law of large numbers where contributions by

many in the form of premium paid will take care of the losses of

a few as by paying a small premium for covering a certain type

of loss, you will be protected for a certain sum of money that

you will receive if you face that loss.

The process of Insurance thus involves three aspects:

1. Firstly, there is an asset which yields value to its owner.

2. Secondly, there is a chance (risk) that the asset may lose

its value if a certain event happens.

3. Thirdly, there is a mechanism in place, known as Insurance,

by which the loss can be mitigated.

We have just elaborated that the idea of insurance took birth

thousands of years ago. Yet, the business of insurance, as we

know it today, goes back just two or three centuries.

We have also discussed earlier that the insurance business, by

its very nature, is susceptible to fraud. To make our journey

easier, let us look at definitions of some of the common terms in

Insurance domain:

Asset
An asset may be defined as anything that confers some benefit

and has an economic value to its owner. Asset is what is

insurable and is insured.

An insurable asset may be material or non-material

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