Insurance and Risk Management: Principles, Career Opportunities and Industry Trends

Insurance involves two main players. The first party (insurer) provides financial protection against uncertain future risks, such as fire outbreaks, natural disasters and theft. The other party (the insured or policyholder) pays premiums—monthly or annual fees for the insurer’s services—to mitigate the risk of unexpected losses.

Insurance finance principles govern how a policyholder and an insurer should interact and do business together. Understanding these principles reveals how insurance works and what enables firms in the industry to operate effectively.

Read on to explore core principles, career opportunities and current trends in insurance.

The following are the basic principles of risk and insurance:

When applying for an insurance policy, the party to be insured must reveal every detail that may influence an insurer’s decision to cover a property or an individual. Accurate, complete information enables insurance companies to consider all relevant facts when evaluating the risks of covering a client. It means that they can charge the correct insurance premiums based on a client’s actual level of risk exposure. Insurers, in turn, have to disclose the terms and conditions of their services so potential customers can make informed choices when looking for insurance providers.¹

People buying insurance must prove that they will directly suffer a financial loss if the dangers from which they’re protecting themselves become reality. The goal is to prevent people or entities from getting compensated for misfortunes that don’t affect their financial well-being.²

The role of an insurance company is only to pay the replacement value of a property when a policyholder suffers losses caused by an insured risk. The principle of indemnity aims to put people and businesses back to the financial position they were in before a disaster occurred rather than enabling them to profit from it. It prevents insurance compensation from exceeding the actual financial damages someone sustains during a covered incident.³

Indemnity, however, doesn’t apply to life insurance, which provides financial help to beneficiaries when the insured person dies. That’s because it is impossible to value a person’s life in terms of money.³

Risk management in finance requires insured parties to take reasonable measures to reduce the probability of misfortunes occurring. As much as possible, they must also minimize the impact of those misfortunes when they happen. The goal is to prevent policyholders from neglecting basic preventative or risk control procedures just because they have insurance.²

For the insured to receive compensation from the insurer, the sustained damages in an incident must arise directly from or be closely connected to the risk covered in the insurance policy.⁴

Consider, for example, an insurance policy that covers business products against fire. If looters steal the products during or after a fire outbreak, the policyholder will suffer loss from theft and therefore won’t be entitled to compensation under the fire insurance policy. That’s because theft is a separate incident not directly tied to fire-related damages.

There are multiple career opportunities in the insurance industry. Finance careers in risk management and insurance include:

In this role, you investigate insurance claims—requests from policyholders to the insurance company for compensation after an incident, such as a workplace injury or fire outbreak. Your primary responsibilities are to inspect the scope of sustained losses, interview witnesses to determine exactly what happened and obtain any other relevant information about the incident through sources such as police reports. After that, you use your findings to prepare a report and calculate how much an insurance company should compensate the affected person or business.⁵

According to the worldwide employment website Indeed.com, claims adjusters earn an average annual salary of $63,093.⁶ For this position, many employers prefer job seekers with at least an associate's or a bachelor’s degree in fields such as finance and business.⁵

As a claims examiner, you review reports from claims adjusters to check whether the right procedures were followed during investigations of insurance claims. You then deny or approve compensation requests depending on what you find. You also ensure that your employer—the insurance company—complies with legal regulations when handling insurance claims.⁷

The typical education qualification for this position is a bachelor’s degree in business. According to Glassdoor, the average annual salary for professionals in this role is approximately $71,000.⁷

As an underwriter, you will evaluate the risks related to insuring a potential client. Using information from your assessment, you determine whether an insurer should approve or deny an insurance application. You also calculate the insurance premiums that a client should pay based on how frequently an insured risk is likely to occur. To qualify for this role, you need at least a bachelor’s degree in finance, business or a related field.^{8, 9}

In the United States, the average annual salary for an insurance underwriter is approximately $80,774.¹⁰

Traditionally, insurance companies managed claims manually, which is slow, time-consuming work that is vulnerable to human errors. Today, they can automate the process and save time by leveraging claim validation software powered by artificial intelligence (AI).¹¹

In addition to improving claim handling, AI enables insurers to evaluate insurance risks quickly and comprehensively. In just a few minutes, AI data analysis solutions can analyze large amounts of information—a client’s historical claims, credit scores, risk history and more—that humans can’t process at once. By analyzing more datasets simultaneously, the technology reveals patterns that may not be readily visible to the human eye. The resulting insights enable insurance companies to personalize coverage to customers and price policies more accurately.¹¹

These transformational trends suggest that the future of insurance is bright. According to Statista, the global insurance market grew by almost 10% between 2021 and 2022 and reached about $6 trillion. The trend will continue, as experts predict that the market will grow at a rate of 9% per year, amounting to over $8 trillion by 2026.¹²

As the insurance market continues to expand, the need for savvy finance experts grows, as well. It’s time to prepare. Gain the business acumen you need to thrive and lead in insurance and finance organizations worldwide.

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