Page 22 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Rupesh Roshan Singh, Lovely Professional University
Unit 2: Risk and Insurance

Unit 2: Risk and Insurance Notes

CONTENTS
Objectives
Introduction

2.1 Insurable Risks
2.2 Types of Risk
2.3 Need for Insurance

2.4 Importance of Insurance in Business
2.5 Managing Risk
2.6 Requirements of an Insurable Risk
2.7 Summary
2.8 Keywords

2.9 Review Questions
2.10 Further Readings

Objectives

After studying this unit, you will be able to:

Discuss insurable risk
Explain the various types of risk
Explain the need for insurance
Discuss the importance of insurance in business

Explain the requirements of an insurable risk

Introduction

In the previous unit, you have studied about the evolution of insurance and you have learnt to
define insurance. The unit also dealt with the meaning of insurance and mechanism of insurance
about how it works. You have learnt about the Indian insurance industry and about the role of
insurance in financial system.

In this unit, you will study about risk and insurance. You need to know that an insurable risk
refers to a potential situation in which an insurance company evaluates the risk and determines
insurability. This typically requires that the risk have a few basic elements, including the fact
that the risk must be random or due to chance and not something someone can control. The
potential loss for an insurable risk also must be something predictable and it must be measurable
so that it can be proven in a definite way. In order for a risk to be insurable, it is also important
that an insurer be able to charge enough for premiums covering it to pay for loss that may result
from a claim being filed.
Just remember that the idea of an insurable risk is the basic concept behind all of insurance.
Insurance is typically offered by a company, called the insurer, for payments of a fee called a

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