With each area of business (generally human activity) is associated a risk. Enterprises (people) prevent these risks by shifting the risk to the insurance company for a fee, called the premium. Profit of the insurance company is then given by the difference between the collected premiums and paid compensations for damages including costs of operation.
Business risk also applies to insurance companies themselves. Thus, so-called reinsurance companies have emerged to “provide” insurance of insurance companies. The existence of security is particularly important in cases of large claims such as floods, tsunamis, etc., when payment of damages would exceed options of insurance companies.
Linking between insurance companies and banks occurs when operating financial services, especially in the area of standardized products. Banks and insurance companies are mutually intertwined. Therefore, the insurance market performs alongside insurance companies and banks.
Credibility and stability of the insurance industry to the economy is one of the basic conditions. This credibility and stability cannot be achieved only by market mechanisms, so the business of insurance companies, reinsurance companies, insurance intermediaries and independent loss adjusters is regulated by restrictive and decreed rules, especially in the form of legislation governing insurance and reinsurance activities and insurance mediation. The insurance supervision is called the monitoring of compliance with these rules and following up the consequences. It is exercised by the supervisory authority, whose scope is divided into the following activities:
- Licensing - granting permissions (concessions) to insurance and reinsurance entities
- Controlling - control of compliance with regulations, compliance with concessions, control of reserves, solvency monitoring
- Legislative activity - preparation of draft legislation
- Other activities - consulting and advisory services to insurance companies