An insurance company is a nonbank financial institution that has a role that is not much different from a bank, which is engaged in services provided to the community in dealing with risks that will occur in the future. Insurance companies have different characteristics with non-insurance companies.
In the business world, there are a lot of risks that cannot be predicted. Rationally, business people will consider reducing the risks faced. At the level of family or household life, insurance is also needed to reduce the economic problems that will be faced if there is one family member who is at risk of disability or death.
2. Understanding of Insurance
Insurance is a term used to refer to actions, systems, or businesses where financial protection (or financial compensation) for the soul, property, health, etc. gets a replacement from unpredictable events that can occur such as death, loss , damage or illness, which involves regular premium payments within a specified period of time in exchange for a policy that guarantees such protection.
According to the provisions of Article 246 KUHD, insurance or insurance is an agreement by which the insurer binds himself to the insured by receiving premiums to provide compensation to him due to losses, damage or loss of expected benefits which may be suffered as a result of an event
According to the provisions of Law No. 2 of 1992 dated 11 February 1992 concerning Insurance Business (“Insurance Law”), insurance or insurance is an agreement between two or more parties with the insurer binding itself to the insured by receiving insurance premiums to provide compensation to the insured due to loss, damage or loss of expected profits, or legal responsibility to a third party that might be suffered by the insured arising from an uncertain event, or to provide a payment based on the death or life of someone insured.
Based on the above definition, insurance is a form of agreement which must be fulfilled the conditions as in Article 1320 of the Civil Code, but with the characteristic that insurance is a chancy agreement as stated in Article 1774 of the Civil Code.
Insurance companies have different characteristics with non-insurance companies such as Underwriting activities, claims and reinsurance. Underwriting is the process of assessing and classifying the degree of risk associated with the prospective insured, as well as making decisions to accept or reject the risk.
Actuarial (Actuarial) is a function of an insurance company that applies mathematical principles to insurance, including calculating / calculating premium price lists and ensuring the company’s health in financial terms.
Claims are expenses that are liabilities of insurance companies to policyholders in connection with insurance agreements between insurance companies and consumers (policyholders) as a result of insured or matured events.
Reinsurance is the party that receives reinsurance from an insurance cover. Retrosesion is a risk transfer from a reinsurance company to another reinsurance company.
3. Main Function of Insurance
a. Risk transfer
As a means or mechanism for transferring the possibility of a risk / loss (chance of loss) from the insured as an “Original Risk Bearer” to one or several underwriters (a risk transfer mechanism). So that uncertainty in the form of the possibility of a loss as a result of an unexpected event, will turn into certainty insurance to change losses into compensation or claim compensation with premium payment terms.
b. Fund Collector
As a fund collector from the community (policy holder) to be paid to those who experience disaster, the funds collected in the form of premiums or insurance costs paid by the insured to the insurer, are managed in such a way that the funds are berkemang, which will later be used for pay for a loss that might be suffered by one of the insured.
c. Balanced premium
To regulate in such a way that the premium payments made by each insured are balanced and reasonable compared to the risks that are transferred to the guarantor (equitable premium). And the size of the premium to be paid by the insured is calculated based on a premium rate (rate of premium) multiplied by the Sum Insured.
4. Insurance Purpose
The insurance goals are as follows:
- Providing guarantees of protection from the risks of losses suffered by one party.
- Increase efficiency, because it does not need to specifically conduct security and supervision to provide protection that takes a lot of energy, time and money
- Equitable costs, that is enough just to issue a certain amount of costs and do not need to replace / pay for themselves the losses incurred which are uncertain and uncertain
- The basis for banks is to provide credit because banks need collateral protection for collateral provided by borrowers of money.
- As savings, because the amount paid to the insurance company will be returned in a larger amount. This is especially true for life insurance.
5. Basic Insurance Principles
In the insurance world there are 6 basic principles that must be met, namely insurable interest, utmost good faith, proximate cause, indemnity, subrogation and contribution.
A. Insurable interest
Is the right to insure, arising from a financial relationship between the insured and the insured and legally recognized. So, you are said to have an interest in an insured object if you suffer a financial loss in the event of a disaster that causes loss or damage to the object.
This financial interest allows you to insure your property or interests. If there is an accident over an insured object and it is proven that you have no financial interest in the object, then you are not entitled to receive compensation.
B. Utmost Good Faith
It is an action to express accurately and completely, all material facts about something that will be insured whether requested or not. This means that the insurer must honestly explain clearly everything about the extent of the terms and conditions of the insurance and the insured must also provide clear and correct information on the object or interest insured.
In essence, you are obliged to tell as clearly and thoroughly about all the important facts relating to the insured object. Even this principle explains the risks that are guaranteed and excluded, all terms and conditions of coverage are clear and precise.
C. Proximate Cause
It is an active, efficient cause that raises a chain of events that give rise to a result without the existence of an intervention that is initiated and actively by a new and independent source. So if the insured interest has an accident or an accident, then the first active and efficient causes are sought which move a series of events uninterrupted so that in the end a disaster or accident occurs. A principle used to find the causes of losses that are active and efficient is: “Unbroken Chain of Events” which is a series of unbroken chain of events.
It is a mechanism by which the insurer provides financial compensation in an effort to place the insured in the financial position that he has shortly before the loss (KUHD article 252, 253 and is confirmed in article 278).
Is the transfer of claim rights from the insured to the insurer after the claim is paid. The subrogation principle is regulated in article 284 of the Commercial Law Act, which reads: “If a guarantor has paid the full compensation to the insured, then the insurer will replace the insured’s position in all matters to sue the third party who has caused harm to the insured”.
It is the guarantor’s right to invite other insurers who share the responsibility, but it does not have to be the same as the obligation to the insured to participate in providing indemnity. You can insure the same property with several insurance companies. But if there is a loss of the insured object, the principle of contribution automatically applies.