How Insurance is different from Gambling
Although it is common to confuse insurance with gambling, from economic and legal point of view, gambling and insurance are two distinct matters. It is true that insurance company pays an insured a great deal more money than it has received in terms of premiums, but this does not mean that insurance is thereby a gambling contract. The very purpose of insurance is to eliminate risks, whereas gambling creates a new risk.
For example, ‘A and ‘B’ may agree that if the property of ‘C’ comes under fire, ‘A’ will pay taka 1000.00 to ‘B’ and if there is no fire, ‘B’ should pay taka 100.00 to ‘A’. In this case before this gambling contract neither party had any risk of losing or gaining any money from this source. When ‘A’ and ‘B’ agree to above proposition, each party becomes subject to a new risk of losing money. Moreover, neither ’A’ nor ‘B’ has any insurable interest on the property of ‘C’.
However, if an insurance contract has to be effected, it is only ‘C who can effect a fire insurance for the value of the property and the insurance company will, agree to indemnify ‘C’ to the extent of loss against a fixed premium. ‘C’ in this case, in fact, has exchanged a large uncertain loss for a small but certain loss called the premium. It is, therefore, obvious that insurance is not gambling. It is a means of eliminating pure risk.
Insurance is not gambling for many other reasons which can be stated as follows:
a) A contract of insurance is bound by the general principles of the law of contract but a gambling contract is not enforceable at law. The purpose,of having an insurance policy is to indemnify oneself against unforeseen loss and is mainly based on the principle of mutual co-operation. The fundamental principles of an insurance contract are consideration,insurable interest, utmost good faith and so on. These fundamentals and essentials of an insurance contract make it different from gambling.
b) The financial motivation of gambling is provided by the gain in the event of winning, while in the case of insurance it consists in the desire to have protection against loss. On the other hand, the amount received by the insured is not a gain. It is a compensation or financial aid after loss. The money that a gambler wins is a profit. But in insurance, there is no element of profit.
A pertinent question is that whether an insurer is guilty of wrongful devouring of the money of the insured. This may happen when the insured does not get back his premium if claim does not occur. Some scholars are of the opinion that insurance premium is in fact a price against a service. The insurer promises to provide security against possible loss of property. The contract of insurance is a contract of indemnity. Since there is no loss, there cannot be an indemnity. The premium, therefore, should be viewed as cost of services. It cannot be considered as wrongful devouring. It is totally different from the money earned from gambling. The owner of a casino house or the sponsors of horse race for betting do not render any service to the gambler and or to the society. On the other hand insurers provide an essential service to individual as well as to the society at large.
c) Insurance is not a game of chance. The amount of money required to meet the likely future claims can be measured by applying the law of large numbers. It is possible to calculate the average number of motor accidents, fire losses etc. per year. Actuarial science is verily applied to accurately measure the long-term liability of life insurers. Mortality table, morbidity rates are prepared on the basis of past statistics. This means, although the loss is uncertain or unknown to an individual, but the insurer can predict it in order to calculate premium based on probable losses against risks they underwrite. This is the reason why an insurance contract deals with pure risks and not the speculative risks. Insurers can predict and calculate the amount of losses as they take into account of the group as a whole faced with particular and pure risks. Speculative risks are not accurately predictable and measurable and therefore, not insurable.
d. There are several other differences between gambling and insurance contract. For example, applicability of insurable interest is a fundamental requirement for an insurance contract. This means without having any insurable interest on the subject matter of insurance, no one an effect the contract. Generally, the insured must have insurable interest at the time of loss of the subject matter of insurance. This makes the contract of insurance legally binding. But in case of a gambling contract, the gambler is not supposed to have any interest on the subject matter of insurance. The gambler is not interested to protect the property. He is not concerned about the security aspects of the subject matter and, therefore, not interested to improve the risk. The ambler hopes that the event he bets against, will occur and.he will make profit without any effort on the happening of that event.
On the other hand when the insured buys an insurance policy, he does not want that there should be an accident on his motor car or a fire should cause loss to his.property. Insurance cover is purchased to protect the property. This is done as a precautionary and security measure. The gambler is motivated by the hope of financial gain, but the insured is motivated by the desire of financial protection against the possibility of loss. Insurance cover is necessary to protect the property from the existing pure and particular risks. This is a means of mitigating loss, but a gambler always creates the risk. He willfully seeks at risk which was not there. These risks can be avoided. On the other hand the risk of fire, accident, for example are always there, whether or not an insurance contract is made to mitigate those likely losses.
e) Last but not the least, gambling is not useful and desirable to the society, whereas insurance provides a valuable service to the society, therefore, is desirable. From the point of view of desirability and usefulness, one can conclude that insurance contract is not a gambling contract. Islam does not permit gambling because it is not useful to the society.