Risk managment and insurance Essay Example | Topics and Well Written Essays - 500 words - 1

Risk managment and insurance - Essay Example Lencsis (1997) argues that the promotion of insurance solvency is the most vital goal of insurance regulation. It is of great importance to the regulators since it makes the outcome of insurance transactions certain and predictable. This is because, predictable results are the essence of insurance. As a result, the maintenance and promotion of the solvency of the insurer are at the regulators heart. The other explanation in this respect is that individuals insured are not capable of protecting themselves in respect of insurance transactions. This is due to the fact that insurance is more than a contingent promise that is to be provided in the future. As such, the promise is worth a company standing before it. Typically, a consumer cannot monitor or evaluate the solvency of an insurance company. Furthermore, insurance accounting and actuarial procedures are difficult and complicated, thus requiring a regulator to monitor the solvency of the insurance companies on behalf of the public (Lencsis, 1997). The other importance in respect of solvency regulation is that it ensures that the public is protected in case the insurance company becomes insolvent. Lencsis (1997) notes that the state of insolvency of an insurance company may cause a lot of tribulations and massive losses to the insured entities. Insurance solvency regulation is also of importance to the regulator especially with regard to life insurance, and to some extent property insurance, since they are responsible for sizable amounts of insured savings. Therefore, since the insurers’ operations parallel fiduciary operations, solvency regulation must be regulated for public interest (Lencsis, 1997). The solvency of an insurance company is very important to the regulators as it protects the insured from unscrupulous dealers and insurance companies that may become