When we talk about insurance, we refer to risks in all its forms. Therefore, having an insurance policy is just one way of sharing our risks with other people with similar risks.
However, while some risks are insurable (ie insurable risks), some cannot be insured according to their nature (ie uninsurable risks).
Insurable risks
Insurable risks are the type of risks in which the insurer makes provisions or insures against because it is possible to collect, calculate and estimate probable future losses. Insurable risks have previous statistics that are used as the basis for estimating the premium. It offers the possibility of losses but not gains. Risks can be predicted and measured, for example auto insurance, marine insurance, life insurance, etc.
This type of risk is one in which the probability of occurrence can be deduced from the information available on the frequency of similar past occurrence. Examples of what is an insurable risk as explained:
Example 1: The probability (or possibility) of a certain vehicle being involved in an accident in 2011 (of the total vehicles insured that year 2011) can be determined from the number of vehicles that were involved in accidents in each of some years previous (of the total vehicle insured in those years).
Example 2: The probability (or possibility) that a man (or woman) of a certain age will die in the insured year can be estimated by the fraction of people of that age who died in each of a few previous years.
Uninsurable risks
Uninsurable risks are types of risks that the insurer is not prepared to insure against simply because probable future losses cannot be estimated or calculated. You have a profit and loss perspective. Risk cannot be predicted or measured.
Example 1: It will be difficult to estimate the possibility that the demand for a commodity will fall next year due to a change in consumer taste, as the necessary prior statistics may not be available.
Example 2: The possibility that a current production technique will become obsolete or out of date by the next year as a result of technological advances.
Other examples of uninsurable risks are:
1. Acts of God: All risks involving natural disasters called acts of God, such as
For. Earthquake
B. War
vs. Flood
It should be noted that any building, property, or life insurance that is lost during a fortuitous event (listed above) cannot be compensated by an insurer. Furthermore, this non-insurability is spreading to those related to radioactive contamination.
2. Play: You cannot guarantee your chances of losing a gambling game.
3. Loss of profit due to competition: You cannot guarantee your chances of winning or losing in a competition.
Four. New product launch: A manufacturer that launches a new product cannot assure the chances of acceptance of the new product as it has not been tested in the market.
5. Losses incurred as a result of poor / inefficient management: The ability to successfully manage an organization depends on many factors and profit / loss depends on the judicious use of these factors, one of which is efficient management ability. The expected loss in an organization as a result of inefficiency cannot be assured.
6. Bad location of a company: A person who places a business in a poor location should know that the probability of success is minimal. Insuring that business is a surefire way to cheat an insurer.
7. Loss of profit due to falling demand: The demand for any product varies with time and other factors. An insurer will never insure on the basis of the expected loss due to decreased demand.
8. Speculation: This is the commitment in a company that offers the possibility of considerable profit but the possibility of loss. A typical example is the action or practice of investing in stocks, property, etc., with the hope of making a profit from a rise or fall in market value, but with the possibility of a loss. It cannot be insured because it is considered an uninsurable risk.
9. Opening of a new store / office: Opening a new store is considered an uninsurable risk. You do not know what to expect from the operation of the new store; It is illogical for an insurer to agree to insure you a new store.
10. Fashion change: Fashion is a trend that cannot be predicted. No expected fashion change can be assured. A fashion house cannot be insured because the components of the fashion house can become obsolete at any time.
eleven. Traffic offenses: You cannot get an insurance policy against the fines provided for crimes committed on wheels.
However, it should be noted that there is no clear distinction between insurable and uninsurable risks. In theory, an insurance company should be willing to insure anything if a high enough premium is paid. However, the distinction is useful for practical purposes.