Insurance has been variously described as
- A provision made by wise engineer against unforeseen risks
- As pooling of risks where the fortunate pay the unfortunate
- As an attempt to reduce or transfer risks.
By whatever description it goes, one point is clear, that insurance involves the reduction of effects of unforeseen or uncertain risks or events that can befall a business organization or engineering project by shifting part of the burden of the occurrence of the events to another group or organization for a payment of some fee called premium. The individual or organization attempting to reduce the burden of the risk on itself is called the ‘insured’ while the organization accepting to bear the burden of the risk in the event of its occurrence (for a fee) is called the ‘insurer’
Legally it is stated that ‘where a person, corporation or firm called the insurer or assurer in consideration of a sum of money, called premium agrees to pay a certain sum of money to another person called the insured upon the happening of an uncertain event (e.g. loss caused by fire) or upon the happening an event uncertain as to time (e.g. death), there is a contract of insurance or assurance'
You May Read: Electrical Contractors Insurance
Insurance is an important aspect of business because there are many kinds of risks associated with construction project which engineering companies must try to guard against e.g theft, fire, flood, employee inquiry etc. Insurance companies are ready to accept the burden of occurrence of such risks because they receive sufficient premiums from clients and they can reasonably calculate the probability of occurrence of the event based on past data. In a sense, insurance is a pooling of risks because the insurance company does not bear the loss alone but with a number of clients paying the premiums.
In our next post we be discussing on types of insurance for engineering projects