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Social Responsibility

There is more to general insurance than compensating loss. It is one of the most effective mechanisms ever developed for assessing, managing and reducing risk.
By helping society face up to and manage risk effectively, insurance makes a major contribution to our lives. It drives up standards because it puts continuing pressure on the factors that generate insecurity. It breaks the spell of risk and releases us to take rational choices, to experiment, build and create.

Insurance provides five strategic benefits to society.
 - Freedom from what would otherwise be crushing personal and business liabilities.
 - Security at home and work against accident, crime, fire and natural dangers.
 - Better Health from additional investment in medical care and an emphasis on rehabilitation.
 - Prosperity through support for entrepreneurial energy, innovation and risk-taking.
 - Flexibility by being better tailored to individual circumstances and so making social and economic life less reliant
  on government action.

A world without insurance would be a more daunting, poorer and stagnant place.
• How many of us would buy our own home if a single fire could wipe out our biggest investment?
• How many of us could afford to pay our mortgage if the family’s main breadwinner could not work or died?
• How many of us would drive regularly if a single road accident could result in being sued for a huge sum?
• How many people would start a business if they knew they would be liable for 100% of the cost of accidents,
  fires and theft?
• How many injured employees or consumers could obtain compensation if the full cost of their claims would
  bankrupt the company responsible?
• Years of pressure for better car safety standards have reduced death and injury on the roads.
• Improved safeguards, insisted on by insurance companies, have improved health and reduced accidents and
  deaths in the workplace.
• The insurance industry’s advice and incentives to take action have prevented thousands of fires and thefts.
• Private health insurance supplements the work of the NHS and enables millions to benefit from hospital
  operations and procedures. The insurance industry has improved our lives in many crucial areas.

Insurance helps people and organisations recover from loss. But it
also helps them avoid loss in the first place. Helping their customers
reduce the risks they face is fundamental to the insurance industry.
An insurance policy transfers all or most of the expense of a potential loss from the customer to the insurer,
for which the insurer charges a premium. The insurer pools the premiums from customers facing similar risks
and allocates resources amongst policyholders in order to meet needs as they arise.

Insurance underwriters have worked to a simple principle for several hundred years: the greater the
risk, the higher the premium. There is no such thing as risk in general, only specific types of risk. Detailed
classification allows insurers to set premiums for different kinds of risk, reflecting the probability of
loss. Competitive pressures, plus improved information technology, will keep making risk analysis more
tailored and precise: for example, household insurance is 20% cheaper in real terms than ten years ago.
For larger properties and organisations, the premium reflects research on vulnerability to factors like fire
and theft. In mass markets premiums are based on the experiences of millions of similar policyholders.
For example, motor insurance is generally based on the make and model of car, the ease with which it
can be repaired, the age and sex of the driver and the number of thefts in the area where the vehicle is kept.
As a general rule the more careful we are the less we will pay.Accidents and losses push up the price of
insurance, particularly if those losses are avoidable. So it makes good business sense for insurers to help
their customers to avoid or reduce the risks they face by for instance, attaching conditions to policies which
encourage safer behaviour, from fixing proper locks on doors to maintaining stringent health and safety
conditions in factories and offices. The insurance industry also contributes to broader initiatives,
often in partnership with government and other public or voluntary bodies, to make our lives safer.
Many companies run or help crime reduction schemes or foster a cleaner environment.

Insurance also plays a vital role in alerting society to the changing nature of risk. Rising costs of claims,
with a consequent effect on premiums and cover, are often an important signal to government that extra
measures need to be taken to address a particular risk – for example the consequences of climate change,
or addressing the problem of development on flood plains. This report looks in detail at the social value of
insurance: its contribution to society. It focuses on key public concerns – crime and fire prevention,
safer cars and safer roads, improving healthcare and adapting to climate change. But it also highlights
less obvious but equally vital effects: the reduction of fear, the liberation of enterprise and the promotion
of a more flexible society which is less dependent on taxpayers’ money.

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