Page 265 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Insurance: An instrument under which individuals, businesses, and other organizations or entities,
in exchange for payment of a sum assured are guaranteed compensation for losses resulting
from certain perils under specified conditions.
Insurable risk: A risk which can be insured by an insurer. The conditions that make a risk
insurable may be probability of occurrence of loss, loss not in control of insured, capability of
loss to be calculable etc.
Loss: The happening of the event for which insurance organization pays.
Occurrence: Happening of an accident that results in bodily injury or property damage during
the period of an insurance policy.
Particular Risk: Risk which affects a particular person or a thing.
Personal Risk: Risk to a person in form of premature death, sickness, disability etc.

Property Risk: Risk of loss or damage to property.
Pure Risk: A risk which has a prospect of loss or no loss.
Risk: A circumstance, which may cause a damage or loss.
Risk Classification: The process of differentiating people on the basis of their risk exposure. It
helps an insurer to decide premium rates for life insurance of different individuals.
Risk Control: Any voluntary action for reduction of frequency, unpredictability or severity of
accident and loss.
Risk retention: An alternative form of insurance in which members of a simple profession or
business come together to self-insure their risk.

Speculative Risk: A risk which has prospects of bringing profit or loss.
Uncertainty: A situation which cannot be accurately known or predicted.

12.19 Review Questions

1. Define risk. Explain how important it is to people?
2. What people mean to say when they use the word "risk"? Discuss the term insurance and
its nature.
3. Describe various types of risks and their affect on human society.
4. Define risk management. Explain the process of risk management in detail.
5. Discuss various ways of handling risk in detail.
6. Write short notes on the following:
(a) Risk identification

(b) Risk management
(c) Risk Manager
(d) Fundamental risk
(e) Transferring of risk
7. Differentiate between the following:
(a) Fundamental and particular risk
(b) Pure risk and speculative risk

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