The mechanism of Insurance is very simple. People who are exposed to same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who sent goods are exposed to the same risks, which are related to water damage, sinking of the vessel, piracy,etc. The owning factories are not exposed to these risks, but they are exposed to different kinds of risks like fire, hailstorms, earthquakes, lightning , burglary, etc.
Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them in the group may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all the others in the group. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all. Insurance helps to spread the cost or risks.
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