While types of insurance vary widely, their primary goal
is to allocate the risks of a loss from the individual to a great number
of people. Each individual pays a "premium" into a pool, from which
losses are paid out. Regardless of whether the particular individual
suffers the loss or not the premium is not returnable. Thus, when a
building burns down, the loss is spread to the people contributing
to the pool. In general, insurance companies are the safekeepers of
the premiums. Because of its importance in maintaining economic stability,
the government and the courts use a heavy hand in ensuring these companies
are regulated and fair to the consumer.
In the absence of insurance, three possible individuals bear the burden of an
economic loss; the individual suffering the loss; the individual causing
the loss via negligence or unlawful conduct; or lastly, a particular
party who has been allocated the burden by the legislature, such as
employers under Workmen's Compensation statutes.
