Insurance

Commercially insurable risks generally share common characteristics in September. [1]

1. A large number of homogeneous units of exposure. The vast majority of insurance policies are provided for individual members of very large classes. Car insurance, for example, covered about 175 million cars in the USA in 2004. [2] The existence of a large number of homogeneous units exhibition enables insurers to benefit from the so-called "law of large numbers", which, in fact, said that the number of units of exposure increases, actual results are increasingly likely to bring the desired results. There are exceptions to this criterion. Lloyd's of London is famous for the life or health of actors, actresses and athletes. Satellite Launch insurance covers events that are infrequent. Commerciaux large property policies May ensure exceptional properties for which there is "consistent" exposure. Despite failing on this criterion, many exhibitions like these are generally considered insurable.
2. Loss final. The event that gives rise to the loss which is subject to insurance should, at least in principle, take place at a time known in a familiar place, and a known cause. The classic example is the death of an insured on a life insurance policy. Fire, automobile accidents, injuries and workers May easily meet this criterion. Other types of losses May be defined only in theory. Occupational diseases, for example, involve May prolonged exposure to harmful conditions where no time, place or cause is identified. Ideally, time, place and cause of the loss must be sufficiently clear that a reasonable person, sufficient information, could objectively verify all three elements.
3. The accidental loss. The event is the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss must be "pure" in the sense that it resulted from an incident for which he is the only possibility for the costs. The events that contain speculative elements, such as ordinary commercial risks, are generally not considered insurable.
4. Large loss. The size of the loss must be meaningful from the standpoint of the insured. Insurance premiums needed to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and provide the capital necessary to reasonably ensure that the insurer will be able to pay claims. For small losses of these costs last May to be several times the size of the cost of losses. There is no need to pay these costs unless the protection afforded a real value to a buyer.
5. Affordable Premium. If the probability of an accident is so high, or the cost of the event so important that the premium income is high compared to the amount of protection offered, it is unlikely that someone buy insurance, even if the offer. In addition, as the accounting profession officially recognized in the financial accounting standards, the premium may not be important if there is not a reasonable chance of a major loss for the insurer. If the absence of such a loss of chance, the operation May in the form of insurance, but not the substance. (See U.S. Financial Accounting Standards Board standard number 113)
6. Loss calculable. There are two elements which must be at least estimable, if not formally to calculate the probability of loss, as well as costs. Probability of loss is generally an empirical exercise, while the cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and proof of loss to a request made under This policy of making a reasonably accurate and objective assessment of the loss amount recoverable as a result of the claim.
7. Risk limited major catastrophic losses. The main risk is often aggregation. If the same event can cause losses to many policyholders the same insurer, the ability of the insurer to issue policies becomes limited, not by factors surrounding the characteristics of a police, but by factors surrounding the sum of all insured so exposed. Typically, insurers prefer to limit their exposure to a loss of one event for a small portion of their capital base, on the order of 5 per cent. If losses can be aggregated, or an individual policy could produce exceptionally large claims, the capital will be forced to restrict an appetite for insurance policyholders. The classic example is the earthquake insurance, where the capacity of an underwriter to issue a new policy based on the number and size of the policies he has already exercised. Wind insurance in the hurricane zones, particularly along the coast, is another example of this phenomenon. In extreme cases, aggregation may affect the whole sector, since the combined capital of insurers and reinsurers may be low compared to the needs of potential policyholders in areas prone to risk aggregation. In commercial fire insurance, it is possible to isolate properties whose total value is exposed beyond any individual insurer's capital constraint. These properties are generally shared among several insurers or which are provided by a single insurer that unions risk in the reinsurance market.