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Published byAron Sletten Modified over 5 years ago
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e.g.: A factory catching fire, a ship sinking etc.
Risk The term Risk is used to describe all the accidental happenings which produce a monetary loss. e.g.: A factory catching fire, a ship sinking etc.
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Characteristics of Risk
Perils or Hazards: Any uncertain event which may cause a loss, such as fire, storm, theft and accidents etc. Hazard is a condition which includes uncertainty or loss of an event. E.g. driving a motor car without breaks, etc. Uncertainty of events: An event can be risk only when it is uncertain or the occurrence is out of man’s control. Insurance and risk: Risk is the basis of insurance. Any risk bearing object needs to be insured so as to cover its unexpected losses.
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Risk and Uncertainty Risk may be defined as a phenomenon closely associated with uncertain events. Uncertain Events: probability of occurrence can be calculated or not calculated.
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Probability of occurrence
Risk calculated Uncertainty not calculated Probability of occurrence
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Characteristics of Insurable Risks
Insurable Interest Pure and Major Risk Calculable Risks Monetary Risks Risk must be common at large Risk must be casual Object of risk not to be illegal Catastrophic Real risks Risk of reasonable insurance cost
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Causes of Risks Natural Forces Seasonal changes Natural calamities
Geographical changes Seasonal changes Natural calamities
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Unnatural Forces Human Forces Economic Forces Govt. Policy
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Lowering quality of products
Other Forces Adulteration Lowering quality of products Inefficient mgt. Obsolescence
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Kinds of Risks Speculative Risk Pure Risk Personal Risk Property Risk
Liability Risk
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Possibility of profit or loss
Speculative risk Possibility of profit or loss
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Causes loss only, profit can never be expected
Pure Risk Causes loss only, profit can never be expected It is to be noted that only pure risks and not the speculative which are covered under the preview of insurance.
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Personal Risk: relates to persons or human life e. g
Personal Risk: relates to persons or human life e.g. illness, disease, unemployment, death, injury etc. Property Risk: causes loss to property such as fire crash, breakdown etc. Liability Risk: creates financial liability on a person on the occurrence of an uncertain event.
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Treatment of Risk Avoidance of risk Risk reduction or prevention
Assumption of risk Transfer of risk Insurance Management of risk and risk research
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