Risks in insurance industry are big challenges, not just to any individual but also to any body or corporation who may have already stepped into the river possibly for the protection of property and life. But it is not with free hand that the insurance industry operates its protection policies, at least not without some serious risks which may be avoided if attention is paid to the list of types of risks in insurance industry.
Risk in insurance industry or risk insurance is any probability where a person’s property or a person himself is hurt or injured. The person who has insured the insurer checks the level of the risk of injury to the person. It can also be his property. The person who suffers the loss is the policyholder, and the insurer shall pay the amount of loss that the policyholder suffered.
Many unfortunate incidences are real pointers to the numerous risks that people often face in the insurance industry. But the question is, can these risks too be insured or can one ever be immune to the dangers of these risks insurance industry? This is often called risk insurance.
What then is Risk Insurance and what is Insurance?
Risk insurance refers to the risk or chance of occurrence of something harmful or unexpected that might include loss or damage of the valuable assets of the person or injury or death of the person where the insurers assess these risks and, based on which, work out the premium that the policyholder needs to pay.
This also involves assessing the price to be paid to Insurance policyholders who have suffered from the loss that occurred to them, which is covered by the policy. It involves various types of risks such as theft, loss, or damage of property or also may involve someone being injured; there is a chance that something unexpected or harmful may happen at any point in time.
Insurance, on the other hand, is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.
Types of Risks in Insurance Industry.
The insurance industry is just like every other type of business or investment which brings some pros and cons. Be it starting your venture or investing in the stock or an already existing enterprise. We cannot plunge into the idea of risk-less opportunities. We have to pay something to earn a more significant thing. So in order to earn more significantly, we have to understand the types of risks in insurance industry:
1. Pure Risk or Absolute Risk
Pure risk refers to the situation where it is certain that the outcome will lead to loss of the person only or maximum it could lead to the condition of the break-even to the person, but it can never cause profit to the person. An example of pure risk includes the possibility of damage to the house due to natural calamity. In case any natural calamity occurs, it will damage the house of the person and its household items, or it will not affect the person’s home and household items. Still, this natural calamity will not give any profit or gain to the person. So, this will fall under the pure risk, and these risks are insurable.
2. Speculative Risk
Speculative risk refers to the situation where the direction of the outcome is not specific, i.e., it could lead to a condition of loss, profit, or break-even. These risks are generally not insurable. An example of speculative risk includes the purchase of the shares of a company by a person. Now, the prices of the shares can go in any direction, and a person can make either loss, profit, or no loss, no profit at the time of the sale of those shares. So, this will fall under the Speculative risk. This is another one of the types of risks in insurance industry.
3. Financial Risk
Financial risk refers to the danger in which the outcome of the event is measurable in terms of the money, i.e., any loss that could occur due to the risk can be measured by the concerned person in monetary value. An example of the financial risk includes a loss to the goods in the warehouse of the company due to the fire. These risks are insurable and are generally the main subjects of the insurance.
4. Non-Financial Risk
Non-Financial risk refers to the risk in which the outcome of the event is not measurable in terms of the money, i.e., any loss that could occur due to the risk cannot be measured by the concerned person in the monetary value. An example of the non-financial risk includes the risk of poor selection of the brand while purchasing mobile phones. These risks are uninsurable since they cannot be measured.
5. Particular Risk or Personal Risk
Particular risk refers to the risk which arises mainly because of the actions or the interventions of the individual or the group of some individuals. So, the origin of the particular risk by individual-level and impact of the same is felt at a localized level. An example of a specific chance includes an accident on the bus. These risks are insurable and are generally the main subjects of the insurance. This is one of the types of risks in insurance industry.
6. Fundamental Risk
Fundamental risk refers to the risk which arises due to the causes which are not under the control of any person. So, it can be said that the fundamental risk is impersonal in its origin and the consequences. The impact of these risks is essentially on the group, i.e., it affects the large population. The fundamental risk includes risks on the group by events such as natural calamity, economic slowdown, etc. These risks are insurable.
7. Static Risk
Static risk refers to the risk which remains constant over the period and is generally not affected by the business environment. These risks arise from human mistakes or actions of nature. An example of static risk includes the embezzlement of funds in a company by its employees. They are generally easily insurable as they are easy to measure.
8. Dynamic Risk
Dynamic risk refers to the risk which arises when there are any changes in the economy. These risks are generally not easy to predict. These changes might bring financial losses to the members of the economy. An example of the dynamic risk includes the changes in the income of the persons in an economy, their tastes, preferences, etc. They are generally not easily insurable.
