Insurance sector1. Insurance and RisksA. What is insurance? 保险的定义Insurance is an arrangement by which one party (the insurer保险人，保险公司) promises to pay another party (the insured or policyholder被保险人，持保人) a sum of money if something happens which causes the insured to suffer a financial loss. The responsibility for paying such losses is then transferred from the policyholder to the insurer. In return for accepting the burden of paying for losses when they occur, the insurer charges the insured a price, the insurance premium保费. Consider two next-door neighbors, Bob and Steve. Both own houses worth $80,000, but Bob has insured his house against possible loss by fire at a premium of $150 while Steve is uninsured. By insuring, Bob has been able to transfer the loss of $80,000 to his insurer. His financial position is therefore the same whether or not his house burns down: whatever happens all he has to pay is a premium of $150. Although Steve avoids paying $150, he has to bear the full costs of any fire. He is therefore $150 better off than Bob if there is no fire, but $79,850 worse off in the event of a conflagration火灾. Insurance works because the insurer can collect premiums from a group of people in similar circumstances, not all of whom will suffer losses in any one year. These premiums are then pooled together, and used by the insurer to pay losses. Losses are thus shared out among all the policyholders rather than borne solely by the unlucky few. Nowadays insurance not only shares losses among individuals and organizations, it also spreads them over time. This is possible because in years when losses are lighter than expected, insurers can build up reserves (out of premium contributions and their investment earnings) that can subsequently be used in more difficult years. B. Risks Risk is present whenever human beings are unable to control or perfectly to foresee the future. Although we cannot foresee the future, we can to some extent measure it. When we toss a coin掷硬币 we do not know what will happenbut we can make a very good guess: we have equal chances of getting either a head or a tail. We use the term risk where: although the precise future outcome is unknown, the possible alternatives can be listed (such as heads or tails); and the chances associated with those possible alternatives are also known (such as a 50 percent chance of either heads or tails). There are mainly four types of risk四种风险类型: a. Fundamental and particular risk Fundamental risk affects either society in general or groups of people, and cannot be controlled even partially by any one person. Particular risk, on the other hand, refers to those future outcomes that we can partially control and it arises from individual decisions. b. Pure and speculative risk 纯粹和投机风险Speculative risk is present if either beneficial or adverse outcomes could stem from a specific event, whereas if possible harm is the only alternative to the present status quo the situation is one of pure risk. C. The relationship between risk and insurance Buying insurance is one method of controlling the financial aspects of the unknown future. If you buy an insurance policy, you exchange a situation of risk for one of financial certainty. While insurance controls risk mainly by transferring the responsibility for paying for losses from one person to another, it may also affect the risk directly, by influencing the chance of a loss occurring. This may happen in two opposing ways保险出现的两种不同的方法: a. Insurers may encourage policyholders to be more careful, by rewarding those whose losses are small. They may also offer advice on how to prevent losses. b. On the other hand, policyholders may either deliberately故意的 cause losses in order to obtain money from insurers, or be less careful because of the insurance protection. This behavior is termed moral hazard道德风险，交易双方由于信息的不对称性，使得在交易合同发生后，一方可能从事于有损另一方利益活动的风险. In practice, not all risks can be insured, and the insurability of a given risk depends on a number of factors保险取决的因素（可进行的保险）: a. Losses are measurable in monetary terms. b. Only pure risks are insurable. c. The insurer must be able to collect together a sufficiently large group of separate and independent exposure units which are subject to broadly similar risks. This is so that the law of large numbers大数法则，大数定律，风险单位数量越多，实际损失的结果会越接近于从无限单位数量得出的预期损失可能的结果，大数法则是现代保险业赖以建立的数理基础，保险公司正是利用在个别情形下存在的不确定性将在大数中消失的这种规则性，来分析承保标的发生损失的相对稳定性，按照大数法则，保险公司承保的每类的标的数目必须足够大，否则缺少一定的数量基础，就不能产生所需要的数量规则 can operate effectively. d. Losses must be fortuitous偶然的. 2. Mathematic Basis Before we introduce the basic law of mathematics in insurance, the law of large numbers, another definition needs to be mentioned first, risk transference. Risk transference,风险转移 sometimes called pooling风险汇聚, involves the transfer of risk from the individual to a pool of the insurance companys policyholders. The insuranc