In: Accounting
Do you think there are situations when insurances companies should not spread the risk of loss?
Answers |
Insurance companies mostly cover pure risk. Pure risk means any situation or risk where the opportunity for gain is not present and loss can be identified. |
insurance companies should not spread the risk of loss to a risk where the core elements of insurability are not present and it can never be inured. These elements are "due to chance," definiteness and measurability, statistical predictability, lack of catastrophic exposure, random selection and large loss exposure. Insurance companies should not insure speculative risk as the result or outcome of it is not predictable |
Risk is insurable when the risk is calculable, so an insurable risk is one in which there is either data which feeds statistics, or a known quantity that feeds probability. Some risks are clearly uninsurable because of the law, such as coverage for criminal fines and penalties. The law actually forbids such coverage. Part of the job of corporate risk managers is to identify their organizational exposures as best they can and then work to manage or eliminate those risks. While some coverage is available in some situations, there are five types of threats, which are mostly uninsurable: risk to reputation, regulatory risk, trade secret risk, political risk and pandemic risk. |
Thus companies should not spread the risk to uninsurable risk |