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Insurance and why it's important
Insurance is about a group of people in a community sharing risk. A large number of people pay a small amount of money (known as a premium) into an insurance ‘pool’ to cover for any losses they may sustain through unforeseen circumstances. Most people own something valuable, such as a car, house, furniture, or a business. They want to protect these valuables, along with less tangible but equally important things, like their health or ability to work.
If a person’s property is damaged, stolen or destroyed, or if someone suffers an injury, the ‘pool’ of money is used to help pay for repairs, replacement or compensation for injury.
Insurance is all about peace of mind. Deciding to take out insurance cover means that people don’t need to pay the full cost of the loss or damage when an event occurs. When the worst does happen, insurers step in to help people and businesses quickly get back on their feet, minimising disruption and financial burden. This is an example of risk management, identifying and assessing possible threats and taking steps to mitigate potential negative outcomes, either by reducing the likelihood of these events occurring, or planning effective ways of dealing with them if they do. Risk management is an important part of business management, as well as being something that we all do in everyday life.
Insurance premiums are calculated based upon the level of risk. This is known as a ‘price signal’. The price signal makes people aware that they are exposed to a significant risk and encourages people to take necessary steps to reduce their exposure.
Insurance is a key part of Australia’s economic infrastructure, underpinning much of our national economic activity, from building a skyscraper to purchasing a family car.
Insurance also plays an important role in making people and businesses more aware of the risks they face.
Understanding your exposure to natural disasters is an important part of making Australian communities and businesses safer and more resilient to natural disasters. Whilst we can’t control the weather, there are many things we can do to minimise the economic and social impact of natural disasters.