Doing business in the insurance sector is a risky business. Strictly speaking, we can divide them into three categories. These are 1. Financial and non-financial risk 2. Pure and notional risk 3. Fundamental and specific risk. So in this article we will talk about some of the risks that you may face in insurance.
3 Types of Risk in Insurance
So let’s look at the three main risks in insurance.
1: Financial and non-financial risks
This is the type of risk where you measure results financially. In this type of accident, we can calculate the damages and tell you the exact amount of the damages. The following example illustrates financial risk.
Accidental property damage. Your ship sank in a storm. You will lose a certain amount. By deducting the depreciation, we can calculate the value of the boat. The same goes for your car accident. You can measure the loss in monetary terms.
If a thief steals your money, bike, car or furniture. In this case, you can calculate the amount of damage.
A fire has caused property damage to your business. Your equipment and supplies are valuable assets. So you can easily calculate the amount of damage.
Accidental injuries require medical attention. You can easily check your medical expenses.
If the sole breadwinner dies, the family will face difficulties.
You can measure such damages in m0ney. Such damages are not guaranteed. You can trade in cars, refill factory machines and buy new ships. If you are single and have life insurance, your family will have no problem after your death. We can call this risk financial risk or insurable risk in insurance.
Non-monetary risks are risks whose losses cannot be measured in monetary terms. A wrong choice or wrong decision gives rise to this type of risk. Not counting money correctly creates the problem of mental disorder. They are like this.
I bought a car. You don’t like the color of your car or you choose another brand that offers better performance at the same price. It hurts to think about it, but we can’t rely on it.
Choosing a career is very difficult. If you don’t choose your career wisely, you will be disappointed throughout your life.
Choosing the right bride is the most important part of a wedding. Shame on being in a bad marriage.
This type of risk cannot be measured and therefore cannot be insured against.
2: Net risk and perceived risk
Other types of risk in insurance are pure risk and speculative risk. We call this risk pure risk, which is always a loss with no gain or maximum loss. No chance to get anything. From a pure risk perspective, the results are not in our favor. There is always the possibility that something may be lost or given to you. There is no gain like loss. As much as you can get from such an event.
On the other hand, betting is a form of risk where profit can be made. You can make a profit from this type of risk but you won’t lose anything.
Let’s take an example. Suppose you own a soap manufacturing company. There are two types of hazards at work. We have pure risk and we have speculative risk.
There are risks in running a company. ie:
- Loss of property due to natural calamities like storm, earthquake etc.
- Fire can destroy storage.
- Your device may be damaged.
- It can be stolen. This can cause damage.
- People injure themselves while performing their duties.
In addition, there are the following:
- Fixed price position in the market
- A change in the method of production or consumption. For example, you make a bar of soap and people start using liquid soap.
- Sometimes you have to sell products on credit to wholesalers.
The first example is an example of pure risk taking. Here you can measure the amount of damage. You can insure yourself against this risk.
Otherwise, you cannot calculate the loss. Even if it affects your business, you can’t protect yourself from it happening.
3: Basic risk and special risk
The final type of risk in insurance is primary and specific risk. This is usually due to natural disasters. It is not in the hands of individuals and groups. Such incidents affect many people. A lot of damage has been done in this incident. I will give you some examples. ie:
- Landslides, storms and floods
- Earthquake Tsunami
- fire and other natural disasters;
- Drought and famine
- Wars, riots and acts of terrorism have claimed many lives.
In such a case, the responsibility of the government will be to take the necessary steps and do the necessary work. If the deficit becomes large, it is the government’s job. However, due to demand some insurance companies are now insuring these risks.
Specific risk is the opposite of fundamental risk. Individuals or groups are involved in these cases. minimal damage. We can insure the event. These incidents are caused by negligence, poor judgment, lack of respect for the law or law.
Some of the requirements are:
- Explosion and fire due to negligence
- Death by careless driving
So this is a risk in insurance. Consult your insurance advisor to ensure that the policy you purchase covers all risks. Ask your agent about this. Clear all doubts before choosing a policy. There are different types of insurance in the market. Each of them offers different features. So let’s go shopping. Choose the policy that is best for you. Don’t make hasty decisions. Read the entire paragraph first. Decide if you are satisfied. If you liked this article, please like and share it. Ask your question in comment for more details.