Chapter-2 Risk and insurance. Concept of risk The definitions of risk: Risk is the chance of damage or loss. Risk is doubt concerning the outcome of a.

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Presentation transcript:

Chapter-2 Risk and insurance

Concept of risk The definitions of risk: Risk is the chance of damage or loss. Risk is doubt concerning the outcome of a situation. Risk is something or someone considered to be a potential hazard.

During a lifetime an individual can be exposed to many risks, some of these are: RISK TO HUMAN LIFE ACCIDENTUNEMPLOYMENT LIVING TOO LONG BEYOND RETIREMENT. ILLNESS PREMATURE DEATH

Components of risk UNCERTAINITY LEVEL PERIL & HAZAD RISK

Level of risk The level of risk is normally assessed in terms of the: probability (or frequency) of a certain event happening, and the extent (or severity) of the event if it does happen.

Types of hazard Hazards can be categorised into one of the following types: Physical hazards Refer to the dimensions and physical characteristics of the risk. Example: a family history of heart disease, high blood pressure etc. is a physical hazard. Moral hazards Refer to the habits and activities of the individual that increase risks. They may also arise from a state of mind, i.e. the attitude and behaviour of the individual. Example: consumption of alcohol, smoking etc.

high risk are: Risky job profile Existing medical conditions Lifestyle of the individual Age group of the individual

Insurable risks The following types of risk can be insured against: financial risks pure risks particular risks.

Financial risks The risks that can be measured in monetary terms are known as financial risks. Loss of life Disease/disability Savings accumulation Retirement

Pure risks Pure risks are those risks where there is no possibility of making a profit. In pure risks there can be a loss and the best possible outcome is one of breaking even.

Particular risks Particular risks are personal or local in their effect. The consequences of these risks occurring affect specific individuals or local communities. LIKE SEA AREA, HILL AREA AND SO ON.

Risk transfer Pooling of risks Pooling of risks is one of the fundamental principles of insurance. With pooling of risks an insurance company pools the premium collected from several individuals to insure them against similar risks. The insurance company maintains different sets of pools for different risks.

Example OF Pool risk Separate pools will be maintained by insurance companies for; LIFE INSRANCE CAR INSURANCE HOME INSURANCE TRAVEL ISURANCE

THANKS

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