Insurance is a powerful tool in developing your business and protecting your personal assets. It is flexible and can be adapted to cover many risks.
Insurance protects for actual loss suffered. Technically this is called indemnity. Insurance pays the person who has suffered a loss to cover that loss.
Insurance does not cover a pure financial loss. For example insurance cannot cover a reduction in the value of your business because there has been an economic downturn and investors are more wary. That is a financial loss. At the boundary, it is possible to buy credit insurance. Credit insurance covers the loss suffered due to non-payment of a specific debt.
Insurance is divided into three main categories:
Property Insurance provides cover for things - your house; your car; your factory nd its machinery; the contents of your home; etc.
Property insurance will cover the loss of or damage to these items.
Business insurance will often offer a business interruption add on to property insurance. If you factory is damaged and you cannot produce goods then you have a loss or income, or even contractual penalties. Business Interruption covers these losses.
Casualty Insurance covers you for a liability. If a can of food in your shop falls on someone's head and injures them they you have a liability to pay for damages and compensation. Casualty insurance covers these liabilities. The largest part of motor insurance is a casualty insurance which pays for people that you might injure in a car accident.
Life Insurance covers the health and wellbeing of individuals. The most basic form of life insurance pays a set amount if a named person dies. Life insurance extends to critical illness insurance and various forms of incapacity insurance. Incapacity is where a person becomes to sick to work either through accident or disease.
Most life insurance is for individuals. Companies can buy life insurance for their employees as an employee benefit. Some companies might buy Key Man Insurance. Key Man insurance is a life insurance policy that covers the business for losses if a key Director or Employee dies or becomes incapacitated.
The body parts of many celebrities have been insured - so why not?
You could insure your dog's nose if you would suffer a loss when your dog's nose got damaged. Pet insurance exists and is there to cover the expense of taking an injured pet to the vet. But insurance does not need to stop there. The English Truffle Company offers Trained Truffle Dogs. The noses of these dogs find valuable truffles and their owner would make a loss if the dog's nose were damaged. An insurer, most likely in Lloyd's, would cover this risk.
In addition to the main categories of insurance, there is an area known as specialty insurance. This tends to be the insurances that are hard to fit into the other classes - such as credit insurance and political risk insurance.
Anything that fits the description above can be insured. The challenge is to get an underwriter to accept the risk. If an underwriter is to accept the risk then they will need to be able to price the risk. Pricing insurance risk is explained in the How Is Insurance Priced Section of the Learning Centre.
There are a number of lists of strange insurances on the internet. Most of these centre around a few significant themes.
Insurance can be priced if it covers specific, defined risks. The underwriter, usually with an actuary, can then work out the chance of a loss happening and the likely size of the loss.
Insurers cannot price and therefore will not accept what they refer to as "sleep easy insurances". These are insurances where the buyer wants cover on the basis that nothing is likely to go wrong, but they would like someone else to take the risk if something does go wrong. Insurers take the view that the buyer should understand the risk better than the insurer themselves does. If the buyer is uncomfortable there is unknown, unspecified risk - then why should the insurer be happy to take that risk?