insurance scholars, it is useful for analyzing the com- mon elements of a true insurance plan. BASIC CHARACTERISTICS OF INSURANCE Based on the preceding definition, an insurance plan or arrangement typically includes the following characteristics: DEFINITION OF INSURANCE There is no single definition of insurance. Insurance can be defined from the viewpoint of several disci- plines, including law, economics, history, actuarial science, risk theory, and sociology. But each possible definition will not be examined at this point. Instead, we will examine the common elements that are typi- cally present in any insurance plan. However, before proceeding, a working definition of insuranceone that captures the essential characteristics of a true insurance plan-must be established. After careful study, the Commission on Insurance Terminology of the American Risk and Insurance Association has defined insurance as follows.1 Insurance is the pooling of fortuitous losses by trans- fer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services con- nected with the risk. Although this lengthy definition may not be acceptable to all risk managers and . Pooling of losses Payment of fortuitous losses Risk transfer Indemnification Pooling of Losses Pooling or the sharing of losses is the essence of insur- ance. Pooling is the spreading of losses incurred by the few over the entire group, so that in the process, 38 CHAPTER 2 / INSURANCE AND RISK CASE APPLICATION There are numerous definitions of insurance. Based on the definition stated in the text, indicate whether each of the following guarantees is considered insurance. a. A new television is guaranteed by the manufacturer against defects for 90 days. b. A new set of radial tires is guaranteed by the manu- facturer against road defects for 50,000 miles. C. A builder of new homes gives a 10-year guarantee against structural defects in the home. d. A cosigner of a note agrees to pay the loan balance if the original debtor defaults on the payments. e. A large group of homeowners agrees to pay for losses to homes that are damaged or destroyed by fire during the year