Insurance Risk

The world of insurance is huge with hundreds if not thousands of possible policies for cover of so many, many things. But risk insurance will always be a major factor. In fact insurance risk is what determines the price of so many things.

The first aspect of risk in insurance relates directly to premiums. In short, the higher the risk is then the higher the premium. If the insurance company believes there is a higher risk of a claim being made, that policy will attract a higher fee. And there might even be more or greater conditions placed within such a policy. Survival in the insurance industry is all about risk management. If the company fails to correctly evaluate the risk factor, the company itself is at risk.

It’s a complicated business

Assessing insurance risk is no easy matter and if it is not done thoroughly and well, well we know the consequences.  In general terms risk can be deemed to be high or low and to make that judgment, every possible factor involved in the risk must be properly evaluated. The basis of insurance is risk and a fundamental requirement of the insurer is to evaluate the level of risk.

There are two major areas the insurer will consider when evaluating insurance risk – [a] the person or company seeking the cover and [b] the type of insurance being requested. Both of these components contribute to the risk. For example if the person seeking cover has a long history of making claims with different insurance companies, that person would receive a much higher risk assessment than someone else who has made few if any claims.

Then there is the object or subject which is to be insured. Again a very expensive object which is often removed from a secure environment, such as jewellery worn by its owner, will be evaluated as having a much higher risk management factor than say a common and mid-range motor car which is securely garaged and only used on weekends.

There are methods and systems employed by insurance companies to assess risk in as short a time as possible. When you consider that there are vast numbers of people and objects which seek insurance cover, to evaluate everything and everyone on a one-by-one basis would take ages. So the insurance companies have standard questions which feed information into their risk assessment.

Special circumstances are catered for as well. The objects are easily assessed by a system and then the person seeking the cover will provide details on such things as previous claims if they occurred. Finally all this data together enables the insurance risk to be calculated. Then the insurer will either agree or not to offer cover and if so, the costs will be set out for the customer to accept or reject.

Analysis of data is now a scientific activity where statisticians and underwriters combine to give certainty, or as close to certainty as is possible, to the insurance industry. This is how risk is managed and with such a scientific approach and some good fortune for the insurers, their profits will be high and the company successful.