Insurability

Risks insured by private companies typically share seven common characteristics:

1. Large number of similar exposure units: Since insurance works by pooling resources to take advantage of most of the insurance to the members of each major class, the insurance company that provided by the law of large numbers in which the estimated losses associated with the actual loss. The exception is Lloyd's of London, famous for insuring the life or health of actors, athletes and other famous figures. However, all this exposure are some differences that can produce different levels of premium.
2. Definite loss: The loss is incurred at the time known, in one place, and no known cause unknown. The classic example is the death of an insured person on a life insurance policy. Fires, car accidents, injuries and workers can all easily meet this criterion. Another type of loss can be determined only in theory. Working disease, for example, with prolonged exposure to unfavorable conditions in which they have no time or specific cause can be identified. Ideally, time, place and cause of loss should be sufficiently clear that a reasonable person with sufficient information to objectively verify all three elements.
3. Sometimes the loss is: This event is the trigger of a claim should occur, or at least outside the control of insurance beneficiaries. The loss must be pure in the sense that the outcome of an event that only one opportunity for cost. The event, speculative elements, such as from ordinary activities involve risk, or even buy lottery tickets, are generally not considered insurable.
4. Big losses: The size of the loss must be meaningful from the standpoint of the insured. Insurance premiums should cover the expected cost of the two losses, plus the cost of issuing and managing policies, job losses and provide the necessary capital to just make sure that insurance companies would be able to pay claims. For small losses the latter may cost several times the size of the expected cost of losses. There is almost no point in paying the fee, provided that the protection offered has real value for buyers.
5. Affordable premiums: If the probability of a very high incidence of the insured or the cost of the event so large that a large premium relative to the amount of protection offered are produced, it is unlikely that insurance be purchased, even if offered. As an officially recognized profession in the Financial Accounting Standards, the premium may not be so large that there is no realistic chance of losses for insurance companies. If there is no possibility of such loss, such transactions are a form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113)
6. Loss consider: There are two elements that are at least suspected, if not need to be understood literally: the possible losses and costs that accompany them. Probability of loss is generally an empirical exercise, while cost has more to do with the ability for a reasonable person in a copy of the insurance policy and proof of loss with a claim within the policy are very specific and objective assessment of the recoverable amount of loss with results presented calls.
7. Limited risk of large losses in unison: Insured losses independent ideal and non-catastrophic losses, not all at once strong and individual enough losses on the insurance company broke agents, insurance companies against losses on their exposure to choose individual events at the small limit their capital. Capital from an insurance company's ability to sell earthquake insurance and wind insurance in hurricane zones. In the U.S., the risk of flooding are insured by the federal government. In commercial fire insurance it is possible for an individual property, whose value is influenced far more than the entire capital restrictions on individual insurers. Such properties are usually shared among several insurance companies or insurance companies insured by the consortium, the risk in the reinsurance market.

|Back|