0
Note that when we speak about a risk, we are not referring to a loss that has actually been suffered but a loss that is likely to occur. It is thus an expected loss. The cost of this expected loss (which is the same as the cost of the risk) is the product of two factors
The probability that the peril being insured against may happen, leading to the loss. Probability always lies between 0 and 1, where 0 means impossibility of loss occurring and 1 means certainty of it happening.
The impact or severity which is the amount of loss that may be suffered as a result of a loss. A mild earthquake may cause little or no loss whereas a major earthquake may result in widespread losses and hence more severe.
The cost of risk would increase in direct proportion with both probability and amount of loss.
When deciding whether to insure or not, one needs to weigh the cost of transferring the risk against the cost of oneself bearing the loss that may arise. The cost of transferring the risk is the insurance premium - driven by the two factors mentioned in the previous paragraphs.
The best situations for insurance would be where the probability is very low but the loss impact could be very high. In such instances, the cost of transferring the risk through its insurance [the premium] would be much lower while the cost of bearing it oneself would be very high.
Wiki User
∙ 6y ago
Add your answer:
Earn +20 pts
How do you start an insurance company to self insure for fire only in Canada?
You don't need to start an Insurance Company to Self Insure. Self Insurance is defined by the absence of an Insurance Company. A self Insurer simply retains the risk of a loss. If you have a group of individuals who are wanting to Self Insure then what you will Want to Start Is a "Risk Rentention Group". Risk retention Groups are licensed by your Local Insurance Regulating Authority. You should contact them regarding rules and regulations for "Risk Retention Groups".
Basic concept of risk and return?
The higher the risk, the higher the return.
Discuss the concept of risk and how it might be measured?
Risk refers to the source of danger. It is a possibility of incurring some misfortune or loss. The concept of risk is very important as it helps provide cover.
Which reputable auto insurance company will insure high risk drivers?
Examples for auto insurance companies that will insure high risk drivers are Assurant, Allstate, Chubb Corp, FM Global, Genworth Financial or GuideOne Insurance.
Hard to insure homeowner's insurance?
Hard to insure homeowners insurance could mean that you have poor credit or represent high risk to a homeowners insurance company.
Top 10 Risk management Insurance Brokerage Firms?
India Insure risk management services is the best insurance brokerage firm in india.
How does the concept of risk assessment apply to the security survey?
Risk assessment is crucial in a security survey as it helps identify potential threats and vulnerabilities within a system or environment. By evaluating risks, security professionals can prioritize areas that require mitigation measures to prevent security breaches, theft, or other incidents. This process helps in developing an effective security strategy that addresses the most critical risks first.
Can you assure an automobile?
Only if it is very concerned. If you mean 'insure' then yes, you can. You can insure for almost any type and level of risk, but the premium may make it prohibitively expensive. The most common risks to insure a vehicle for are theft, fire and accidental damage.
When should you cancel your comprehensive insurance?
When you feel it is no longer necessary such as not having the car anymore, the cars value being to low to insure, or you don't think it is or risk of being damaged by perils out of your control.
What is the risk identification advantage gained by preforming an operational analysis?
What is the wingman concept as it relates to risk management
What insurance companies will insure a lifted truck in California?
Many Insurers will insure modified vehicles why any others will not. Just ask your agent which company will accept you Lifted trucks are more expensive to insure because of the high risk associated with modified vehicles.
What is the basic concept of risk pooling?
The basic concept of risk pooling is to ascertain the mortality rate,financial background, literary parameter of the insured while issuing life policy to a person.
