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quynhnhu84
Thành Viên Mới
9 bài gởi |
 Đã gởi - 30/11/2006 : 19:23:31
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I have seen lots of new members in this forum without the knowledge in insurance field. I, therefore, would like to mention several related concepts of risk, which is not only the most important features to understand the insurance, but also identify and explain the classes of hazards, for the new members.
The reasons for studying insurance are completely different. For some, the study is embarked on preparing for a line of business in the near future. Others study to enhance their knowledge of the subject to become more knowledgeable consumers. Moreover, in the developed countries, most individual will tend to spend a large amount of his or her disposable income on insurance over a lifetime to guarantee for their life. Consequently, one of the logical reasons for studying insurance is to learn how it can be used in personal financial planning. In Vietnam and particularly developing countries, their citizen is also aware of the important of insurance in their life in recent year. Therefore, insurance in Vietnam will develop and become the main industry in the near future. It, at present, is really lucky and essential for everyone in this forum to attain the knowledge about insurance.
Now, let me introduce several related problem of risk in insurance. After you have read these related concepts, you should be able to distinguish between pure risk and speculative risk and differentiate between fundamental and particular risk.
[b]What is the risk? [/b]
Risk is a condition in which there is an exposure to adversity from a desired and expected outcome that is hoped for.
The term risk is variously defined as
(1) the chance of loss
(2) the possibility of loss
(3) uncertainty
(4) the dispersion of actual from expected results
(5) or the probability of any outcome different from the one expected and hoped for
Classifications of risk
Risks may be categorized in many ways; however, there are certain distinctions that are particularly important for our purposes. These include the following:
Financial and nonfinancial risks: the term risk consists of all situations in which there is an uncertainty or exposure to adversity from the expected return. In some cases this unexpected return involves financial loss, while in others it does not. However, in these related concepts, I would like to introduce the risk which is concerned with a financial loss.
The second important characteristic is difference between static and dynamic risks.
Dynamic risks are an outcome from changing in the economy, which is modified in the price level, consumer tastes, income and output, and technology may cause financial loss to members of the economy. These dynamic risks normally benefit society over the long run, since they are the result of adjustments to misallocation of resources. Although these dynamic risks may affect a large number of individuals, they are generally considered less predictable than static risks, since they do not occur with any precise degree of regularity
Static risks entail those losses that would occur even if there were no changes in the economy. if we could hold consumer tastes, output and income, and the level of technology constant, some individuals would still suffer financial loss, These losses arise from causes other than the changes in the economy, such as the perils of nature and dishonesty of other individuals. Unlike dynamic risks, static risks are not a source of gain to society. Static losses involve either the destruction of the asset or a change in its possession as a result of dishonesty or human failure. Static losses tend to occur with a degree of regularity over time and , as a result, are generally predictable, Because they are predictable, static risks are more suited to treatment by insurance than are dynamic risks
Fundamental and particular risks: the difference between fundamental and particular risks is based on the distinction in the origin and consequences of the losses.
Fundamental risks involve losses that are impersonal in origin and consequence. They are group risks, caused for the most part by economic, social, and political phenomena, although they may also result from physical occurrences. They affect large segments or even all of the population.
Particular risks involve losses that arise out of individual events and are felt by individuals rather than by the entire group. They may be static or dynamic. Unemployment, war, inflation, earthquakes, and floods are all fundamental risks. The burning of a house and the robbery of a bank are particular risks.
Since fundamental risks are caused by conditions more or less beyond the control of the individuals who suffer the losses and since they are not the fault of anyone in particular, it is held that society rather than the individual has a responsibility to deal with them. Although some fundamental risks are dealt with through private insurance, usually, some form of social insurance or government transfer program is used to deal with fundamental risks. Unemployment and occupational disabilities are fundamental risks treated through social insurance, Flood damage or earthquakes make a district a disaster area eligible for federal funds.
In the final analysis, whether a risk is considered fundamental or particular depends on current public opinion concerning the responsibility for the causes and consequences of the risk. In the case of terrorist attack on the World Trade Center on Sep 11, 2001, congress and the insurance industry debated the question of whether terrorist attacks are a fundamental or particular risk, Reinsurers announced their intent to exclude acts of terrorism from the coverage they provide to other insurers. Faced with the loss of backup coverage, the insurers that deal with the public developed an endorsement for their policies excluding loss form terrorist acts, In response to these developments, congress considered several bills to create a federal terrorism reinsurance program but by March 2002 had reached an impasse regarding the form that such a program should take.
Particular risks are considered to be the individual’s own responsibility, inappropriate subjects for action by society as a whole, They are dealt with by the individual through the use of insurance, loss prevention, or some other technique.
Pure and Speculative risks
One of the most useful distinctions is that between pure risk and speculative risk. Speculative risk describes a situation in which there is a possibility of loss, but also a possibility of gain, Gambling is a good example of a speculative risk, in a gambling situation, risk is deliberately created in the hope of gain. The entrepreneur or capitalist faces speculative risk in the quest for profit. The investment made may be lost if the product is not accepted by the market at a price sufficient to cover costs, but this risk is borne in return for the possibility of profit.
On the other hand, the term pure risk is used to designate those situation that involve only the chance of loss or no loss, One of the best examples of pure risk is the possibility of loss surrounding the ownership of property. The person who buys an automobile, for example, immediately faces the possibility that something may happen to damage or destroy the automobile. The possible outcomes are loss or no loss
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Related concepts of risk
