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RISKS AND INSURANCE

Introduction :

A risk transfer mechanism -a means by which an individual or commercial organisation will pass on(transfer) the risk that it faces to another party

1.1 Risk and chance:

Risk may be defined as possibility of loss

Loss-injury, damage,liability to third parties, expenses and other losses capable of being measured in monetary terms

Risk = potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome)

An unknown loss is then transferred to the insurer by paying a fixed premium

1.2 Insurance

an equitable transfer of the risk of a loss, from one entity to another in exchange for a premium payment.

form of risk management primarily used to hedge against the risk of a contingent, uncertain loss

Official Document = Policy Document

1.3 How?

spreading the result of a financial loss among many persons, so that the cost to any one person is

small

Risk Poolienables the insurer to use the premiums paid by a ver

large number of people, to pay the claims of a relatively

enables the insurer to use the premiums paid by a very

large number of people, to pay the claims of a relatively

small number of people.