Insurance Risk Management.
Insurance is a meas of protection from Financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent or uncertain loss. An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter.
What is Risk Management?
Risk management is the permit assessment identifying, and controlling risk arosed to an organization’s capital and earnings. … Risk management allows organizations to attempt to prepare for the unexpected by minimizing risks and extra costs before they happen.
Managing Insurable Risk
You can buy Insurance for all kinds of things: to replace lost earnings in the event of premature death (life insurance) to cover the cost of damage to your home (homeowners insurance), automobile (car insurance), or even your newly purchased television or electronics gadget (what we call gadget Insurance).
Health Insurance constitutes an important part of our insurance, but the complexity of that field procludes us from covering it here. From a Finance standpoint, the steps in managing these risks are straight;Identify the risk, Determine how much of this risk you can bear, and Insure the remainder of the risk
- Identify the risk
The trick here is to put the risk in dollars. In the case of life insurance, for instance, lay out the expected income that will be lost of the insured were to die. Rules of thumb are handy, but there is no substitute for laying out the cash flow.
- Determine how much you can bear
This step is the one that is the source of must of the mistake you spend too much money if you take too little risk, and you can lose big if you take too much risk. the market will pay you to take risk. The premium you pay for an Insurable risk has to cover not only the expected loss, but also the administrative expenses incurred by the insurance company.
Also Read: Travel Insurance
Also Read: Term Vs Whole Life Insurance
Also Read: Health Insurance
Also Read: Introduction To Insurance – Ukaabest
Over the course of your life you will be taking many risks.so as long as each of the risks is a manageable amount. i.e; no one event can “knock you out of the game” you can expect the large number of risk to average very close to the expected loss.
But accepting those risks, you will be keeping the money that would have been paid to cover the administrative costs of the insurance company.
The trick is to keep the level of each risk at the “manageable amount” if you suffer a huge loss, it is very difficult to recover. The standard that we recommend is to accept risk up to the point where it would affect your lifestyle if event go against you.
This step provides an immediate application for most individuals; don’t buy “gadget Insurance”. For most of us, our lifestyle will not be interrupted if the new electronics gadget suddenly stops working.so resist that sales pressure.
Speaking of sales pressure, you may find it useful to discuss these principles with your insurance agent. Many agents assume that their clients wish to have “everything covered” so they proceed to recommend coverage that entail almost no risk for the client.
Finally, there is usually some comfort in being “fully Insured”. similarly, there is usually some pain in paying a loss even though it doesn’t affect your immediate lifestyle and you believe that your lifestyle we will be better over the long term. This combination of comfort and potential pain may be so great that you would prefer to bear no risk in this matter.
- Insure the remainder
Buy an insurance policy, with a deductible amount, that is the amount of risk you are willing to accept.