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89
VIEWS OF WESTERN SCIENTISTS ON THE ESSENCE OF INSURANCE
Egamberdiev Abbos Ilyosovich
Samarkand Institute of Economics and Service
Rafiyeva Zarina Xusanovna
Teacher
Abstract:
This paper examines the main theoretical approaches of Western scientists to defining
the essence of insurance. The analysis covers the economic, legal, behavioral and sociological
aspects of insurance as a mechanism for protecting against risks. The views of such authors as
Frank Knight, Kenneth Arrow, Harold Laski, Richard Thaler and others are presented. It is
shown that insurance is interpreted not only as a financial instrument, but also as an essential
element of the social and legal system of society. The study emphasizes the versatility of
insurance and its importance in modern conditions.
Key words:
insurance, risk, economic theory, Western scientists, behavioral economics, social
protection, underwriting, legal approach, risk theory, risk management
Insurance is one of the oldest economic categories that has gone through more than one stage of
evolution and, despite such a long period of its development history, there is still no
unambiguous point of view in understanding both its economic essence and the role it plays in
the economy and the construction of relationships with other categories. One of the main topics
of discussion in the process of discussing the place and role of insurance is its classification as a
financial, legal and (or) economic category. This discussion has dragged on for many decades. It
should be noted that the scientific views of Russian economists differ from foreign ones. The
non-standard views of Russian scientists are largely due to the specifics of insurance in the
context of the functioning of a planned and administrative economy and the lack of a single point
of view on the economic essence of finance.
At present, a fairly large base of scientific works has been accumulated devoted to, firstly,
determining the place and significance of insurance in the economy and economic theory;
secondly, disclosing the theory of finance and determining the place of insurance relations in it;
thirdly, the relationship between insurance and credit; fourthly, studying the specifics of
insurance as an economic category. The absence of a unified point of view on the concept and
functions of insurance, as well as its essential interrelations of various categories located in the
same plane, once again emphasizes the complexity of this problem, the need to generalize and
analyze existing theoretical views.
Statement of the problem. The problem formulated above determines the task of forming a
theoretical basis for the issue of the relationship of insurance with other related economic
categories, such as finance, credit and investment. The disclosure of the issue of the relationship
of these categories is based on the target priority of the party whose interests the relations under
consideration are aimed at, namely: the insurer, borrower, investor, taxpayer or budget recipient.
In this regard, this study used general scientific methods, such as analysis, synthesis,
generalization and induction.
Results. In traditional economic theories explaining the functioning of the economy as a whole,
insurance was considered either as a "private moment that is not economically significant, or as
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an ordinary sector of the economy, the mechanism of which is quite explainable within the
framework of such theories." Thus, A. Smith emphasized the importance of such an institution as
insurance for the economy: “Insurance enterprises ensure a significant stability of the state of
individuals; by distributing among many people those losses that would ruin an individual, they
make them easier for the whole society.” D. M. Keynes included insurance in the price and
considered it within the framework of risk cost management: “The long-term supply price turns
out to be equal to the sum of the primary costs of production, additional costs, risk costs and
interest expenses; and in analyzing the long-term supply price, one can resort to decomposing it
into these components.” P. Samuelson revealed insurance from the position of opposition to
speculation: “Insurance at first glance also seems to be one of the forms of speculation, in reality
it leads to directly opposite results. Insurance is economically beneficial for the same reasons
that speculation is harmful. Where speculation creates risk, insurance helps to reduce it.” In
addition, many theories did not take into account the very specificity of insurance relations - the
presence of risk. It is the risky nature of these contractual exchange relationships that determines
the size of the insurance premium and the obligations assumed by the insurer.
The issue of insurance definitions that would accurately and unambiguously reflect the economic
essence of the insurance category also requires attention. In insurance theory, the problem is
defining the very concept of insurance as an economic category. The issue of defining the
essence of insurance as an economic category has long been controversial in economist circles.
For more than 150 years, economists around the world have been trying to define insurance that
would cover all its possible manifestations and would not include anything superfluous.
Historically, more than 100 different definitions of the economic category of insurance have
been formulated. The main difficulty is that the system of insurance relations should cover only
relations regarding compensation for damage (it is not without reason that etymologically,
“insurance” in Russian comes from the word “fear”). However, there are accumulative types of
insurance that are often not associated with causing damage or harm (marriage insurance or life
insurance, for example). Therefore, it is quite difficult to combine in one definition the essence
of insurance as a means of compensating for direct damage and at the same time as a means of
future material provision of any human needs. Recently, insurance relations have increasingly
become identified with transfer relations related to social protection of the population.
Meanwhile, many types of social insurance (not providing for advance payments and having the
nature of insurance coverage), according to some researchers, are not insurance, but fall under
the existing definitions. Another difficulty is that there are two areas in insurance that differ
significantly in their essence. These are risky types of insurance and savings, traditionally united
under the name of "life insurance". If in the first case, insurance is intended to compensate for
losses, always material, associated with specific property, then in the second case, life, health,
and ability to work of a person are subject to insurance, which, due to their specificity, cannot be
assessed in monetary terms.
Thus, economic analysis can be used as a tool for assessing the achieved level of stability in the
financial condition of an insurance company.
It should be said that the main factors determining the financial condition are, firstly, the
implementation of the financial plan and, if necessary, an increase in own working capital due to
profit and, secondly, the turnover of working capital (assets). The criterion indicator that shows
the financial condition is the solvency of the organization. Since the implementation of the
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financial plan, first of all, depends on the results of production and business activities as a whole,
it can be said that the financial condition is determined by the entire set of business factors.
We will determine the financial condition of the insurer using financial analysis, which is the
process of identification, systematization, and analytical processing of financial information.
The purpose of financial analysis is to calculate key parameters that give an objective and
accurate picture of the financial condition of the organization, profits and losses, changes in the
structure of assets and liabilities, in settlements with debtors and creditors. The information
obtained as a result of its implementation helps to determine the prospects and directions of the
company's development.
As the analysis of domestic literature has shown, there is no single method of financial analysis,
each author introduces his own characteristics into the assessment process, but most financial
analysis methods are based on the criteria for assessing the financial condition of an insurance
company, namely:
liquidity (solvency);
profitability (profitability);
business activity.
It is important to note that both absolute cost indicators characterizing the volume of activity and
relative indicators (coefficients) reflecting the quality of the insurance business are used to
analyze various aspects of the insurance organization's activities. Thus, to assess the
effectiveness of the balance sheet of an insurance organization, the ratio of assets and liabilities
is determined. And, for example, the main indicators of financial stability are the financial
independence ratio, the equity capital adequacy ratio, the equity capital mobility ratio and others,
after analyzing which one can draw a conclusion about the share of borrowed funds and current
assets. When assessing the financial condition of the insurer, one should analyze the level of
solvency and the overall financial potential of the insurance company, the under-reserve ratio,
the equity capital adequacy ratio. Western scientists interpret insurance as a multi-level
phenomenon: it is an economic risk management tool, a contractual legal relationship, a social
protection mechanism, and a behavioral phenomenon reflecting a person's choice and perception
of risk.
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