CHARACTERISTIC OF INSURANCE RISK

CHARACTERISTIC OF INSURANCE RISK

The following are characteristics of insurance risk:

Commercially insurance risks typically share the same characteristics (Mehr and camack, 1976).

1) A large number of homogenous exposure units the vast majority of insurance policies are provided for individual member of a very large clause.

2) Definite loss: The event that gives risk to loss that is subject to the insured at least in principled, take place at a known time in a known place and from a known cause ideally, the, time, place and cause of a loss should be clear enough that a reasonable person with sufficient information could objectively verify all these element.

3) Accident loss: The events that constitute the trigger of a claim should be fortuitous or at least outside the control of the beneficiary of the insurable, the loss should be pure in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculation elements, such as ordinary business risks are generally not considered insurable.

4) Large loss: The size of the loss must be meaningful from the perspective of the insured insurance premium need to cover both the expected cost of losses, plus the cost of issuing and ambushing policy adjusting losses and supply the capital be able to pay claims for small losses those later cost may be several time the size of the expected cost of losses, there is little point paying such unless the protection offered has real value to buyer.

5) Affordable premium: If the likelihood of an insured event is so high, or

the cost of the event so large that the resulting premium is large relations that any one will buy insurance even if on offer.

6) Calculate loss: There are two elements that must be at least estimated, if not normally calculated, the probability of loss and the empirical exercise, which cost has more to do with ability of a reasonable person in possession of a copy of insurance policy and a proof of associated with a claim presented under that policy to make a reasonable definite and objective evaluation of the amount of the loss recorded as a result of the claims.