Essay: Characteristics of Insurable Risks
Nowadays, due to complexity of the world there are many risks in different spheres of life and some of them are insurable while others are not. An insurable risk is a risk for which insurance policy may be acquired. Insurers are very discriminative in selecting risks to take that is why there exist special characteristics of insurable risks. It is mostly in interest of an insurance company to follow the principles of insurable risks because it has to be able to avoid big financial losses and be able to cover the losses of the clients. The characteristics of insurable risks make it clear why some risks cannot be covered.
The potential loss has to be meaningful enough from a perspective of an insured so there could a willingness to pay an insurance premium rather than having unknown outcome. For example, loss of mobile phone is not insurable risk because a person can cover this loss, while fire in the apartment is an insurable risk because the loss of a place to live in is significant for the owner. The loss must be well-defined and out of policy owner’s control. For example, a store owner cannot intent to put the store on fire to get the benefits from the insurance company. If a client knows that somebody wants to set on fire his house and an insurer is aware about this fact, it will be not insurable risk. Also, the timing of the loss cannot be expected. For instance, in case of progressing cancer, a person cannot get a life insurance. It must be possible for an insurer to apply methods and technics to calculate probability of the risk so the required premium can be established. For example, where life insurance is concerned, an insurer collects information on client’s health. There must be a large number of similar risks being insured so there is a sufficiently large market for a particular risk. If the risk is not spread over a large segment, the probability of loss is increased. Covered risks have to be...
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