INSURANCE

The Concept of Risk Management

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Risk management is the systematic identification, analysis and economic control of the risks whichthreaten the resources or earning powers of an enterprise. This definition has the main important elements. These elements are:

(i) identification

(ii) analysis

(iii) economic control

Before we can measure risks, we first have to identify it and before we can know what to do with risk, we must first assess their possible impact on the enterprise. The concept of risk management is broader than insurance.

Insurance is an aspect of risk management. It is one of the methods of managing risk. Insurance only deals with insurable risks, that is, the pure risks. If you would remember, we said in an earlier chapter that insurance only deals with pure risks. Risk management on the other hand deals with the pure risks that are not insurable.

This means that insurance only deals with the insurable risks, that is, the pure risks, while risk management deals with both insurable risks, (pure risks) and those risks, which are not insurable.

Risk management deals with all manners of risks that threaten the resources and earning powers of an organization. This simply means that insurance is a part of risk management process.

The first thing risk management does is to identify the risks that confront an enterprise, then it will evaluate the possible impact of the risk on the enterprise and finally decide on the best risk management technique to be used to control the risk.

Risk Identification: very organization is exposed to different kinds of risk that can cause financial loss. So it is necessary to identify all such risks which threaten the organization. The process of identifying these age risks is known as the process of risk identification. This process entails the use of risk identification aids to identify all those areas where company could suffer financial.

A risk manager is a specialist in detecting risk exposure areas, but he is not limited to any one particular function of the organization. That is he is also in a way a generalist. For example, a architect may detect risks in his area, an engineer may detect risks in his and a builder may detect risks in his. It is the job of the risk manager to co-ordinate all their activities.

Before deciding on the appropriate technique to use in identify risk, a risk manager must first carry out the physical inspection of the premises. This may involve taking a brief inspection walk round the factory to complement what information he may have gathered by reading the company’s publicity material, or obtained from the factory manager. This walk would familiarize him with the factory and help him identify risk.

After familiarization tour, the risk manager would decide on the appropriate risk management technique to be used. The following are some of the risk identification techniques that can be used:

(i) organizational chart

(ii) flow chart

(iii) check list

Organizational chart: Organizational chart shows the organizational structure of the enterprise or plant. It gives a graphical view of the existing relationship between and among different employees. The chart could help the risk manager to quickly identify weaknesses in the organizational structure which could cause problem. For example, the chart may show that the works manager has to follow a long and cumbersome procedure in reporting accidents. The risk manager may consider the procedure to be inefficient and ineffective. As a result of this, the risk manager may decide to streamline the system to ensure that the risk manager gets more effective information without delay.

Flow Chart : Flow chart, as a risk identification technique is more popularly used in organizations where the system of manufacture or production entails materials flowing through a process. For example, the procedure involved in the production of Bournvita. The main ingredient in the production of Bournvita are Cocoa, Sugar, in the cause of processing cocoa produces a bye product which is used for the production of cocoa butter.

For example, the risk manager would have to anticipate the possible effect of the destruction of plant 3 by fire on production process and on all the production process and on all those who transact business with the organization. For instance, how would the loss of plant 3 affect the subsidiary which supplies raw material X?, will the organization have to cancel the contract it entered with customers for the supply of raw materials “Y” and “K” will the organization be held liable for breach of contract for failure to supply products “Z” and “P” will the organization have to lay off workers pending the reactivation of plants? Will the spare parts be readily available? Will the skilled engineers required for the reactivation readily available?

Will the required finance needed for the reactivation be available. Those and many more questions will catch the mind of the risk manager and he will answer them if the organization’s risk is to be properly managed.

Check List: This is another technique used in identifying risk. This technique involves the risk manager in asking the same series questions about each item of plants in the factory. To start with, the risk manager will list the areas of activity in an organization and then ask the of some series of questions about each area. The questions would relate to the risk to which the plant could be exposed.

Risk Evaluation or Risk Analysis : After the risk manager has identified the risk, the next stage is for the risk manager to evaluate the risk, the possible impact of the risk on the enterprises. The evaluation could be carried out by a qualitative or quantitative method.

The qualitative method involves the risk manager making some qualitative evaluations of the possible effects of which specific events would have on the enterprise. The evaluations would be based on the study of the flow chart. If the enterprises has no accurate records of past experiences, the risk manager would only be able to carryout qualitative evaluations. The qualitative evaluation is based on past experience of the risk manager.

Qualitative evaluation is suitable to situation where the enterprise has reliable records of past experiences, qualitative evaluations would produce every good results. If the records are not reliable, qualitative evaluation would produce poor results. The value of quantitative evaluation lies on the accuracy.

Of the records used for the evaluations. For example, if a risk manager has kept accurate of theft losses, he would not have any problem in carrying out a quantitative evaluation, but this would be difficult to do without such records.

Risk Control: The reason why risk is identified and evaluate is to enable the risk manager decide how best to respond to it. Risk control is divided into two, these are the physical control of risk and the financial control of risk. The primary objective of the risk manager is to secure an economic control risk. For example, it would be uneconomic to spend $100.00 to prevent a loss of $50.00.

Physical Control of Risk: We live in an environment, where we face one form of risk or another. This reality has made it necessary for us to device ways of reducing and if possible prevents losses. Loss reduction is synonymous to loss prevention. The best thing, is to prevent losses from occurring. For example, if a worker is injured at work, the employer may have to pay compensation to him. In addition, the employer would have to train another person to do the work of the injured worker. There may be a loss of production at the end of the day, the employer may suffer a loss of profit. Consequent on the loss of production. Also, the society would suffer as a result of the loss in the output of the enterprise, and so on. So the injury suffered by the employee, would create a succession of losses.

If the employees’ injury had been anticipated in sufficient time and steps taken to prevent its occurrence, this subsequent chain of losses would have been prevented.

Risk Elimination: Another way to prevent loss is to eliminate it. Just as it possible to eliminate some risks, it is however very impossible to eliminate others. For example you can eliminate the risk of getting involved in a motor accident, by not travelling in motor vehicle you can eliminate the risk of getting drunk, by not taking alcohol, you can eliminate the risk of getting pregnant by not having sexual intercourse etc. On the other hand, the risk of pregnancy which women go through is very high, but we shall not say that because of this risk, woman would no longer bear children. Otherwise man would become extinct.

You may be worried by the possibility of your house being damaged by fire, but you would not consider selling the house just to eliminate the risk.

Loss Minimization: Since it is not possible to completely eliminate all risks, it becomes necessary to devise means of minimizing or reducing the effects of those risks that cannot be eliminated. Loss minimization or reduction can be effected in two ways:

-The pre-loss minimization and post loss minimization efforts.

Pre-Loss Minimization: This involves taking the necessary steps before the occurrence of adverse event to reduce their impacts on the enterprise. For example, the wearing of crash helmet by motor-cyclist or the wearing of seat belts in private cars. Another examples is the deliberate policy of a motorist to drive within the speed limit permitted by law. The effects of these would be seen in reduction of the frequency of occurrence of accidents and their services whenever they occur. It is customary for employers to guard dangerous machinery that could injure employees. This is to ensure that employees are not injured.

Post-Loss Minimization: This entails minimizing losses after an accident has occurred. This takes the form of salvage operation. For example, if a fire breaks out in a house, effort would be made to remove some of the center of the house that have not been torched by fire out into safety. This operation would help to minimize the extent of the fire loss. Also, the use of fire sprinkler is a good example of a device that can help minimize loss once fire has broken out.

The Burden of Risk

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The Burden of Risk

The presence of risks saddles on the individual and society some measure of social and economic pains. Every risk holds the prospect of actually resulting in some economic losses and in addition some social pains.

When a house is destroyed by fire, or a vehicle is ruined in a crash, or a breadwinner dies or money is stolen or you negligently injure a person or damage his property, financial losses would be involved. In addition to the financial cost of losses brought about by risk, there is the pain of fears and worries resulting from the uncertainty as to whether or not loss would occur. All these underwrite the need why a prudent individual and society should prepare for a possible occurrence of loss. The greatest burden of risk, therefore is loss.

Risk put three major burden on the society:

(i) The creation of adequate contingency

(ii) Deprivation of society of needed goods and services

(iii) The creation of perpetual state of fear and mental worry.

i. Adequate Contingency Fund

Prudent individual and business organizations would have to set up adequate contingency funds to meet emergency situations. For example, in the absence of an insurance cover if your house presently worth $500,000 and you desire to set up a contingency fund that can enable you quickly rebuild the house in the event of is destruction by fire or earthquake, you will need to set aside $500,000 or more in liquid cash or very easily realizable securities.

This would entail building up at least $170,000 savings annually for three years. For an average salary earner in Nigeria, this would be difficult to achieve, if not impossible. Even , given that it is possible to build up this fund within the first three years period, if the house is destroyed at the end of the first year, for example, the amount of money in the fund would certainly not be enough to rebuild the house. And in fact, setting aside annually, this amount of money would reduce your consumption spending and lower your standard of living.

In addition, accumulation of such large savings has its own opportunity cost. Since the money would be locked up in cash savings or in very highly liquid assets, it would not be able to earn its full economic incomes it cannot be most gainfully invested.

ii. Deprivation of Society of Needed Goods and Services

Risks may deprive society of certain goods and services. For example, in 1976 a swine Flu broke out in America, and the then American Administration passed a bill of $135 million for national vaccination programme to fight the risk of flu epidemic. Strangely enough major drug manufacturers were not enthusiastic about the production of the vaccine. Initial responses of the manufacturer were poor, they simply refused to be interested in the programme. The reason why manufacturers were not enterprising but was because of the risk of producing defective vaccine, and the consequential product liability risk.

Similarly, insurers were unwilling to provide products liability insurance cover because of the anticipated heavy liability claims against drug manufacturers by those who would have suffered adverse reaction to the vaccine. In addition there was the risk of heavy legal defense cost to be paid. Because of these potential risks, insurers were requesting government to give her guarantee and ultimate acceptance of the associated risks.

Finally, the government gave in, gave the required guarantee and accepted the ultimate associated risks. This encouraged the drug manufacturers to manufacture the vaccine. Eventually, the flu vaccine was produced and it was a big success. The vaccine would not have been produced if the government had not stepped in. An in that case, the society would have been deprived of the flu vaccine because of the great risk involved.

The society always pays more for needed goods and services than it ought ordinarily to pay. The extra payment is to take care of the risk associated with the provision of such

goods and services. For example, because of the fear of the risk of catastrophic lawsuit the premiums charged for product liability for manufacturers are high. These costs are passed on to the consumers who would eventually have to pay for the high risk associated with manufacturing.

iii. Mental Worries Aid Fears

Risk always imposes on the individuals, corporate bodies, and the society the heavy burden of mental worries and fears. The uncertainty associated with risk always produces a feeling of frustration and mental worries. For example, a graduating students, whose father has taken a loan to pay his school fees, may be gripped with a feeling of apprehension and fear, if he is having difficulty in securing employment and set his father free of the shackles of creditors. Passengers in a lorry may become nervous and fearful if the lorry driver drives dangerously and moves at extremely high speed.

Between August and November 1996, the fear of buying poisoned beans gripped people living in Lagos so much that the demand for beans fell off and beans traders suffered heavy losses. Every individual is exposed to different kinds of risk. Some of these risks are recognized, by those who are exposed to them, while others are not recognized, by those who are exposed to them, while others are not recognized. When we perceives a risk, we would develop a feeling of uncertainty. People generally hope that no misfortune would befall them and that the present state of health and economic well being would continue. While they nourish this hope, people are nevertheless worried about possible misfortune befalling them. This worry which is a burden of risk, induces a feeling of insecurity and less well being.

DETERRENT EFFECT OF RISK ON ECONOMIC GROWTH

Risk may have deterrent effect on economic growth and accumulation of capital. Economic growth and development can be made possible by availability of sufficient investible capital. However, investment of capital involves risk of failure. As a result of this, no investment would voluntarily be undertaken unless there is sufficient expectation that the return on the investment would be more than compensate for both the dynamic and static risks as to leave a margin of profit. The cost of capital is directly related to the risk, the greater would be the cost of capital and the higher the price the consumer must be prepared to pay for goods and service he wants.

This is especially true of pure risk, which holds out the prospect of loss only. The uncertainty associated with speculative risk provides a measure of tune to the gambler. The gambler for example enjoys the uncertainty associated with wagering which to him is some kind of tune and without which he may probably not gamble. The possibility of gain that exists in speculative risk provides the basis of attraction for speculative risk taken. This can be contrasted with pure risk in which only the possibility of loss exists, an outcome that makes pure risk distasteful and unwanted.

METHOD OF HANDLING RISK

We are living in a world of risk. Risk is all pervading. Risk is very distasteful. But no matter how distasteful risk is, and how much we try to run away from it, we can never succeed in our desire to avoid exposing ourselves to risks. What we may succeed in doing is to haphazardly arrange the various risks to which we desire to expose ourselves.

For example, if you are afraid to travel in plane because of the fear of plane crash, you may decide to travel in a car. By doing so, you have merely decided not to expose yourself to the risk of plane crash and instead choose to expose yourself to the risk of car crash. This means that, if you must travel at all, you cannot avoid exposing yourself to one type of risk or the other, but you may have the opportunity to choose the type of risks to which you wish to expose yourself.

The best way of handling risks therefore is to find out the ways of dealing with them.

Firstly, those sets of risks referred to as fundamental risks whose effects are non-discriminatory but universal and whose incidences fall on everybody alike, are better handled by the society and state collectively. This is so, because, the extent of loss which fundamental risks could bring about is enormous and maybe far beyond the means of an individual. An example of such collectivity is the relief efforts of both the society and government for victims of draught and famine or war. Notable among these efforts are the UNO relief efforts in Ethiopia, Burundi and other crisis stricken parts of the world. The American government and organizations relief efforts for floodvictims in America.

Secondly, pure and speculative risks are largely handled by individuals as their effects and incidences are localized and fall on an individual or few individuals.

The existence of risk is a source of pain, anguish and misery to people and the accompanying uncertainty causes great anxiety and mental worry.

Because risk is unpleasant distasteful and therefore undesired, the rational nature of man has led him to attempt to finding effective ways of dealing with risks. There are many techniques of dealing with, the problem of risk.

The most important methods of dealing with risk includes:

· Risk avoidance

· Risk retention

· Risk transfer

· Loss control

· Insurance

Risk Avoidance

We can avoid risk when we refuse to accept it. For example if you do not want undertake the risk of divorce, you would have to refrain from marrying, if a company wants to avoid the risk of being sued for producing a defective product, then it would not engage in producing or manufacturing any product. If you want to avoid the risk associated with owing and running a business enterprises, you would simply refuse to establish one.

The alternatives to engaging in our door activities is boring and unappealing. If you want to avoid the risk associated with owing a vehicle, do not purchase or own a vehicle. Risk avoidance is a negative method of dealing with risk because it inhibits progress. Individuals and societal’s advancement requires a measure of risk taking, but if risk avoidance as a method of dealing with risk is extensively applied individuals and societal progress would be greatly retailed.

As a result of this, risk avoidance is an unsatisfactory method of dealing with many risks. It must however be noted that it is not possible or reasonable to avoid all risks. For example, you can avoid the risk of out door activities by staying inside your house. But in reality is this practicable, desirable or feasible?

Risk Retention or Risk Assumption

Risk retention or risk assumption is the same. To assume implies that the object is taken on while retention implies that something is kept. Any distinction is a matter of semantic. Risk is retained and the loss that occurs in assumed.

Risk retention or assumption is a very common method of dealing with risk. Risk retention exists when an individuals does not take any positive action to deal with risk. Man faces avalanche of risk and in most cases, he does not do anything about them in which case, he retains them. This retention may be voluntary or involuntary.

Voluntary (Active) Risk Retention

A voluntary (Active) risk retention exists in a situation in which an individual knowingly retains risk to himself and assume the loss involved. This may be due to the fact that the individual has no alternative way of dealing with the risk. For example if you insure your car, the insurer may impose an excess for small losses. In this case, you will be responsible and keep to yourself such small losses. Excess is the amount of loss under a policy which the insured retains with himself. A company may insure its stocks with a deductible imposed.

In these examples, you and the company make deliberate decisions to retain part of the risk. We use voluntary (active) risk retention technique for the purpose of saving money. This could be accompanied by refusing to purchase insurance or by agreeing to the inclusion of excess or deductible clauses in the policies purchased. Also, if the premiums charged by insurers are inordinately high an individual may deliberately decide not to purchase a policy and instead retain risk to himself. For example, a manufacturer may find insurance premium unreasonably high and refuse to purchase product liability insurance.

An individual may also decide to retain risk if the insurance market offers no cover for the particular risk.

Involuntary (Passive) Risk Retention

Risk can be retained involuntarily (passively). This occurs when the individual exposed to the risk is not aware of the existence of the risk and unknowingly retains the risk in ignorance. Through his ignorance, laziness or sheer indifference, the individual retains the financial consequence of the possible loss. This could be very dangerous, if the risk that is retained is sufficiently high as to involve the individual in great financial loss that could possibly ruin him/her. For example, most of people in Africa are not aware of most of the risks to which they are exposed. As a result of this, they do nothing to take insurance cover and simply retain all risks to themselves. In the event of any misfortune, they suffer very heavily.

Risk retention as a technique for handling risk is suitable only to handling high frequency low severity risks where possible losses are retentively simply and very unsuitable for handling low frequency high severity risks, where potential losses are relatively high such as in product liability risks.

Risk Transfer

This is another technique for handling risk. Risk can be transferred from one person who is not willing to bear a risk to another person who is more willing and more able to bear the risk.

Risk can be transferred by different methods which include:

(i) Transfer of risk by contracts

(ii) Transfer of risk through the process of hedging

(iii) Transfer of risk through incorporation of a business firm.

Transfer of Risk by Contracts

You can transfer some unwanted risks by contract. For example you may agree with your landlord to be responsible for the cost of any repairs to the rented house or to be liable for any judgment debt against the landlord arising from the use of the house. In these cases, the landlord transfer his risks to you. If you reasonably believe that rent is likely to rise substantially in future you can transfer the risk of increase in rent to the landlord by a long term lease.

A risk can be transferred by a hold-harmless agreement. A hold harmless agreement is an agreement in which one individual assumes, the loss which another individual may possibly suffer. For example the manufacturer of ladies head drier may insert a hold-harmless clause in the contract of sale to the retailer in which case the retailer agrees to hold the manufacturer harmless in case the head drier malfunctions and injure another person. In this case, the retailer accepts liability for injury to a third party arising from deficiency inherent in the drier.

Transfer of Risk Through The Process of Hedging

Risk can be transferred through the process of hedging. Hedging is the method of transferring risk of unfavourable price fluctuations to a speculator by purchasing and selling future contracts on an organized commodity market. You could buy a hedge or sell a hedge. Buying hedge is the forward purchase in order to avoid a possible future increase in the price of the commodity, while selling hedge is the forward sales of a commodity in order to avoid a possible future fall in the price of the commodity. For example, A. a cocoa exporter receives an export order to export #100,000 worth of cocoa to an importer in harmony by delivered 90 days after receipt of the order. In this case, A runs the risk of rise in price of cocoa at the time it is to be delivered. If A perceives that the risk is higher than what he is prepared to bear he can take step to protect himself against such future rise in price. This, he can do by buying the cocoa now at a low price for delivery in 90 days time. Under this arrangement A would be able to avoid future rise in price of cocoa and still make his margin of profit by the difference between his current selling and purchase prices. As a result of this, potential losses would be avoided.

On the other hand, B, a rice merchant anticipates that price would fall in future and sells his stock of rice now at a high price and immediately enters into a purchase contract to buy rice in future at a lower price. If his judgment is correct, and price falls sufficiently well, he would have succeeded in avoiding making a loss. His profit per measure of rice would be his selling price now and his buying price in future and by this succeeds in handling the risk of potential loss by hedging.

Incorporation of a Business Firm

Establishment of a firm is a method of transferring risk from an individual or a sale proprietorship on to a corporate body. If a firm is a sole proprietor, the personal assets of the owners in addition to the assets of the firm can be attached by creditors in satisfaction of their debts. In this case the liability of the owners in unlimited. However, if the firm is incorporated, then it acquires a status of its legal personality which is distinct and separate from that of its legal personality which is distinct and separate from that of its owners. By this it can own properties, enters into contracts, sued and be sued. It becomes a separate legal entity.

In essence, when a firm is incorporated, the liability of the owners of the incorporated firm becomes limited to the amount of the value of shares that may be outstanding against them, and the risk of insufficient assets of the firm to pay business debts is transferred to the creditors.

Loss Control

Loss control consists of those activities undertaken by individuals or firms to reduce both the frequency and severity of losses. The objectives of loss control are to prevent likely occurrence of losses and to reduce the extent of losses. Loss control is an important method of handling risk.

Loss Reduction

The objective of loss reduction is to prevent loss from occurring. Loss reduction entails reducing the probability of loss in order to reducer the frequency of losses. If the likelihood of loss occurring is reduced then the frequency of its occurrence would equally be reduced.

If our medical personnel are well trained, the likelihood and frequency of death arising from incompetence would be reduced, if students study sufficiently hard the rate of failure in examination would be reduced, if drivers are well trained and drive with great caution and considerations for the lives and safety of other road users the nation would record fewer road accidents and casualties. If vehicles are inspected regularly and necessary repairs effected, fewer accidents would occur, also, a boiler explosion can be prevented by periodics inspections by qualified engineers, fires can be prevented by forbidding workers to smoke in the vicinity of highly inflammable materials.

Loss Prevention

Effective loss prevention effort would reduce the frequency of losses. However, no matter how effective the loss prevention effort is, some losses would inevitably occur. The objective of loss reduction therefore, is to reduce the severity of loss after its occurrence. For example, fire doors and walls can be constructed and used to confine fire to a particular area and prevent it from spreading, a sprinkler can be installed in a building to put out any fire promptly. Fire proof cabinet can be purchased to ensure safety of documents night security guards could be employed to deter thieves, burglary alarm installed. The examples are endless. Loss prevention is an appropriate method of handling risk for two main reasons.

Firstly, the indirect cost of losses can be very large and even large than the direct cost in some cases. For example, if an employee is injured at work, the employer would be responsible for the medical expenses and certain proportion of his earnings. These are direct costs of the loss. In addition, as a result of the accident, a machine may be damaged and needs repairs, production may be halted for some time, a new employee may have to be trained at a high cost to take the place of the disabled employee, contracts for purchases of raw materials or for sales of finished goods may be cancelled because production is halted. These are indirect costs of the loss. If the loss is prevented from occurring both these direct and indirect costs would be dominated. Loss prevention is the most appropriate method of dealing with risk.

Secondly, there is the social cost of losses. These social costs are important and must be considered. For example, if an employee dies of injuries sustained at work, the society is forever deprived of the goods and services which the employee could have produced. The family of the workers would lose their share of deceased earnings forever and the family may as a result of the death, the employee suffers some financial insecurity. Even, the employee himself may suffer great pain before he finally dies.

These social costs can be reduced by the use of effective loss control system. Another method of reducing losses is through the application of the law of large number, if wer have sufficiently large number homogenous exposure units. Through this, a reasonable estimate of the cause of the losses can be made. On the basis of estimate, an organization such as insurance company can assume the possibility of loss of each exposure, without necessarily facing the same possibility of loss itself.

Insurance

Insurance is another technique of handling risk. It is a practical method of handling risk. Commercial insurance has three main characteristics:

(i) It makes use of the device of risk transfer

(ii) It makes use of the pooling technique to spread the losses of few over the whole group so that average loss is substituted for actual loss.

(iii) It makes use of the application of the law of large numbers or reduce risk by predicting future loss experience more accurately.

TYPES OF RISK

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There are different types of risk. The most important types of risk include:

(i) Pure Risk

(ii) Speculative Risk

(iii) Particular Risk

(iv) Fundamental Risk

(v) Static Risk

(vi) Dynamic Risk.

PURE RISK

Pure risk is a situation that holds out only the possibility of loss or no loss or no loss. For example, if you buy a new textbook, you face the prospect of the book being stolen or not being stolen. The possible outcomes are loss or no loss. Also, if you leave your house in the morning and ride to school on your motorcycle you cannot be sure whether or not you will be involved in an accident, that is, you are running a risk. There is the uncertainty of loss. Your motorcycle may be damaged or you may damage another person’s property or injured another person. If you are involved in any one of these situations, you will suffer loss. But if you come back home safely without any incident, then you will suffer no loss. So in pure risk, there is only the prospect of loss or no loss. There is no prospect of gain or profit under pure risk. You derive no gain from the fact that your house is not burnt down. If there is no fire incident, the status quo would be maintained, no gain no loss, or a break-even situation. Therefore, it is only the pure risks that are insurable.

Different Types of Pure Risk

Both the individual and business firms face different types of pure risks that pose great threat to their financial securities. The different types of pure risks that we face can be classified under any one of the followings:

(i) Personal risks

(ii) Property risks

(iii) Liability risks

Personal Risks

Personal risks are those risks that directly affect an individual.

Personal risks detrimentally affect the income earning power of an individual. They involve the likelihood of sudden and complete loss of income, or financial assets sharp increase in expenses or gradual reduction of income or financial assets and steady rise in expenses. Personal risks can be classified into four main types:

(i) Risk of premature death

(ii) Risk of old age

(iii) Risk of sickness

(iv) Risk of unemployment

· Risk of Premature Death

It is generally believed that the average life span of a human being is 70 years. Therefore, anybody who dies before attaining age 70 years could be regarded as having died prematurely. Premature deaths usually bring great financial and economic insecurity to dependants. In most cases, a family breadwinner who dies prematurely has children to educate, dependants to support, mortgage loan to pay. In addition, if the family bread-winner dies after a protracted illness, then the medical cost may still be there to settle and of course the burial expenses must have to be met. By the time all these costs are settled, the savings and financial assets of the family head may have been seriously depleted or possibly completely spent or sold off and still leaving a balance of debt to be settled.

The death of family head could render some families destitute and sometimes protracted illness could so much drain the financial resources of some families and impoverish them even before the death of the family breadwinner.

When a family breadwinner dies, the human-life value of the breadwinner would be lost forever. This loss is usually very considerable and creates grate financial and economic insecurity. What is a human life value? A human life value is the present value of the share of the family in the earnings of the family head.

· Risk of Old Age

The main risk of old age is the likelihood of not getting sufficient income to meet one’s financial needs in old age after retirement. In retirement, one would not be able to earn as much as before and because of this, retired people could be faced with serious financial and economic insecurity unless they have build up sufficient savings or acquired sufficient financial assets during their active working lives from which they could start to draw in old age.

Even some of the workers who make sufficient savings for old age would still have to contend with corrosive effect of inflation on such savings. High rate of inflation can cause great financial and economic distress to retired people as it may reduce their real incomes.

· Risk of Poor Health

Everybody is facing the risk of poor health. It is only when people are healthy, that they can meaningfully engage themselves in any productive activity an earn full economic income. Poor health can bring serious financial and economic distress to an individual. For example, without good health, nobody can gainfully engage himself in any serious economic undertaking an maximized his economic income.

A sudden and unexpected illness or accident can result in high medical bills. Therefore, poor health will result in loss of earned income and high medical expenses. And unless the person has adequate personal accident and health insurance cover or has made adequate financial arrangements for income from other sources to meet these expenses, the person will be financially unsecured.

· Risk of Unemployment

The risk of unemployment is a great threat to all those who are working for other people or organizations in return for wages or salaries. The risk equally poses a great threat to all those who are still in school or undergoing courses of vocational training with the notion of taking up salaried job after the training period. Self-employed persons, whose services or products are no longer in demand, could also be faced with the problem of unemployment.

Unemployment is a situation where a person who is willing to work and is looking for work to do cannot find work to do. Unemployment always brings financial insecurity to people. This financial insecurity could come in many ways, among which are:

(i) The person would lose his or her earned income. When this happens, he will suffer some financial hardship unless he has previously built up adequate savings on which he can now start to draw.

(ii) If the person fails to secure another employment within reasonable period of time, he may fully deplete his savings and expose himself to financial insecurity.

(iii) If he secures a part-time job, the pay would obviously be smaller than the full-time pay and this entails a reduction of earned income. This would also bring financial insecurity.

SPECULATIVE RISK

Speculative risk is a situation that holds out the prospects of loss, gain, or no loss no gain (break-even situation). Speculative risks are very common in business undertakings. For example, if you establish a new business, you would make a profit if the business is successful and sustain loss if the business fails.

If you buy shares in a company you would make a gain if the price of the shares rises in the stock market, and you would sustain a loss if the price of the shares falls in the market. If the price of the shares remains unchanged, then, you would not make a profit or sustain a loss. You break-even. Gambling is a good example of speculative risk. Gambling involves deliberate creation of risk in the expectation of making a gain. There is also the possibility of sustaining a loss. A person betting $500 on the outcome of the next weekend English Premier League Match faces both the possibility of loss and of gain and of no loss, no gain. Most speculative risks one dynamic risk with the exception of gambling situations.

Other examples of speculative risk include taking parts in a football pool, exporting to a new market, betting on horse race or motor race.

Speculative risks are no subject of insurance, and then are therefore not normally insurable. They are voluntarily accepted because of their two-dimensional nature of gain or loss.

Pure Risk	Speculative Risk
1. Pure risk is a risk where there is only the possibility of a loss or you maintain a status quo. Only pure risks are insurable.	1. Speculative risk is a risk where both profit and loss are possible. Speculative risks are not normally insurable. The few exceptions of speculative risks are insurable firms that insure their institutional portfolio of investments against loss.
2. Although there are some exceptions of pure risks which are not insurable.	2. Speculative risks are not generally easily predictable. So, the law of large numbers cannot be easily applied to speculative risk. However, gambling is one exception of speculative risks to which the law of large numbers can easily be efficiently applied. Society may benefit from a speculative risk if a loss occurs. For example, a firm may develop a new invention for producing a commodity more cheaply. As a result of this, a competitor may be forced out of the market into bankruptcy. In this situation, the society will benefit since the products are produced more efficiently and at lower cost to consumers, even though competitor has been forced into bankruptcy. Speculative risks are more voluntarily accepted because of its two-dimensional nature of gain or loss.
3. Pure risk are generally easily predictable than speculative risks. So the application of the law of large numbers can be more easily applied to pure risk.
4. Society will not benefit from a pure risk if a loss occurs. For example, if a flood or earthquake devastates a region, society will not benefit from such devastation.
5. Pure risk is not voluntarily accepted.

Liability Risks

Most people in the society face liability risk. The law imposes on us a duty of care to our neighbour and to ensure that we do not inflict bodily injury on them. If anyone breaches this duty of care, the law would punish him accordingly. For example, if you injure your neighbour or damage his property, the law would impose fines on you and you may have to pay heavy damages.

Unfortunately, one can be found liable for breach of duty of care in different ways and the best security seems to be the purchase of liability insurance cover.

Liability Risks have two peculiarities:

(i) Under liability risk, the amount of loss that can be involved has no maximum upper limit.

The wrong doer can be sued for any amount. For example, while riding on your bicycle valued $500, you negligently cause serious bodily injury to another person, that person can sue you for any amount of money, say $5000, N10,000 or even more depending on the nature of the injury.

In contrast, if the bicycle value at $500 is completely damaged by another person, the maximum amount of compensation (indemnity) that would be paid to you for the loss of the bicycle is jus $500, that is, the actual value of the bicycle.

ii. Under liability risks your future income and assets may be attached to settle a high court fines if your present income and assets are inadequate to pay the judgment debt. When this happens, your financial and economic security would be greatly endangered.

Property Risks

Property owners face the risk of having their property stolen, damaged or destroyed by various causes. A property may suffer direct loss, indirect loss, losses arising from extra expenses of maintaining the property or losses brought about by natural disasters.

Natural disasters such as flood, earthquake, storm, fire etc can bring about enormous property losses as well as taking several human lives. The occurrence of any of these disasters can seriously undermine the financial security of the affected individual, particularly if such properties are not unsecured.

Direct Loss

Direct loss is that loss which flows directly from the unsecured peril. For example, if you insure your house against fire, and the house is eventually destroyed by fire, then the physical damage to the property is known as direct loss.

Indirect Loss or Consequential Loss

Indirect or consequential loss is a loss that arises because of a prior occurrence of another loss. Indirect loss flows directly from an earlier loss suffered. The loss is the consequence of some other loss. It arises as an additional loss to the initial loss suffered. For example, if a factory that has a fire policy suffers a fire damage, some physical properties like building, machinery maybe destroyed. The loss of these properties flows directly from the insured peril (fire). The physical damage to the properties is known as direct fire loss.

But in addition to the physical damage to the properties, the firm may stop production for several months to allow for the rebuilding of the damaged of the premises and replacement of damaged equipment, during which no profit would be earned.

This loss of profit is a consequential loss. It Is not directly brought about by fire but flows directly from the physical damage brought about by fire and hence indirectly from the fire incident. Other examples of consequential loss are the loss of the use of the building and the loss of a market.

Extra Expenses

Alternative arrangement may have to be made to rend a temporary premises, pending the repairs or reinstatement of the damaged building, and it may also be necessary to rent, hire or lease a machine in order to keep production going so as not to disappoint customers and in the process lose market to competitors. The expenses incurred in securing the alternative premises, an renting, hiring or leasing a machine are referred to as extra expenses. These expenses may not have been insured if there has been no fire damage.

FUNDAMENTAL RISK

A fundamental risk is a risk which is non-discriminatory in its attack and effect. It is impersonal both in origin and consequence. It is essentially, a group risk caused by such phenomena like bad economy, inflation unemployment, war, political instability, changing customs, flood, draught, earthquake, weather (e.g. harmattan) typhoon, tidal waves etc. They affect large proportion of the population and in some cases they can affect the whole population e.g. weather (harmattan for example). The losses that flow from fundamental risks are usually not caused by a particular individual and the impact of their effects falls generally on a wide range of people or on everybody. Fundamental risk arise from the nature of the society we live in or from some natural occurrences which are beyond the control of man.

The striking peculiarity of fundamental risk is that is incidence is non-discriminatory and falls on everybody or most of the people. The responsibility of dealing with fundamental risk lies with the society rather than the individual. This is so because, fundamental risks are caused by conditions which are largely beyond human’s control and are not the fault of anyone in particular. The best means of handling fundamental risk is the social insurance, as private insurance is very inappropriate. Although, it is on record that some fundamental risk, like earthquake, flood are being handle by private insurance.

PARTICULARS RISKS

A particular risk is a risk that affects only an individual and not everybody in the community. The incidence of a particular risk falls on the particular individual affected. Particular risk has its origin in individual events and its impact is localized (felt locally). For example, if your textbook is stolen, the full impact of the loss of the book is felt by you alone and not by the entire members of the class. You bear the full incidence of the loss. The theft of the book therefore is a particular risk.

If your shoes are stolen, the incidence of the loss falls on you and not on any other person. Particular risks are the individual’s own responsibility, and not that of that society or community as a whole. The best way to handle particular risk by the individual is the purchase of insurance cover.

STATIC RISK

Static risks are risks that involve losses brought about by irregular action of nature or by dishonest misdeeds and mistakes of man. Static losses are present in an economy that is not changing (static economy) and as such, static risks are associated with losses that would occur in an unchanging economy. For example, if all economic variables remain constant, some people with fraudulent tendencies would still go out steal, embezzle funds and abuse their positions. So some people would still suffer financial losses. These losses are brought about by causes other than changes in the economy. Such as perils of nature, and the dishonesty of other people.

Static losses involve destruction of assets or change in their possession as a result of dishonesty. Static losses seem to appear periodically and as a result of these they are generally predictable. Because of their relative predictability, static risks are more easily taken care of, by insurance cover then are dynamic risks. Example of static risk include theft, arson assassination and bad weather. Static risks are pure risks.

DYNAMIC RISK

Dynamic risk is risks brought about by changes in the economy. Changes in price level, income, tastes of consumers, technology etc (which is examples of dynamic risk) can bring about financial losses to members of the economy. Generally dynamic risks are the result of adjustments to misallocation of resources. In the long run, dynamic risks are beneficial to the society. For example, technological change, which brings about a more efficient way of mass producing a higher quality of article at a cheaper price to consumers than was previously the case, has obviously benefited the society.

Dynamic risk normally affects a large number of individuals, but because they do not occur regularly, they are more difficult to predict than static risk.

DIFFERENCE BETWEEN DYNAMIC RISK AND STATIC RISK

Static Risk	Dynamic Risk
1. Most static risks are pure risks	1. They are mainly speculative risks.
2. They are easily predictable	2. They are not easily predictable
3. The society derives no benefit or gain from static risk. Static risks are always harmful.	3. The society derives some benefits from dynamic risk.
4. Static risks are present in an unchanging economy.	4. Dynamic risks are only present in a changing economy
5. Static risks affect only individuals or very few individuals.	5. Dynamic risk affect large number of Individuals.

Morale Hazard

2011-12-08T01:45:00.001-08:00

From our previous discussion, i will like to complete the type of hazard that we have.

Morale Hazard

Morale hazard is the carelessness or indifference attitude to loss on the part of the insured, because of the existence of insurance. The insured may have no deliberate intention to bring about a loss as is the case in the moral hazard, but he is simply careless to prevent a loss. His carelessness thereby increases the chance of loss.

For example, many people, who insured their vehicles, may decide not to show sufficient concern for the safety of their vehicles as a result of which they could park the vehicles carelessly anywhere without locking them. This attitude would increase the chance of loss through theft. On the other hand, as a sort of reaction to an unfriendly environment, a person may deliberately allow things to go bad. For example, a frustrated worker receiving very small salary may decide not to show sufficient care to ensure the safety of the machinery he is using at his place of work e.g. government drivers etc. Morale hazard may be associated with employees and the society.

· Employees

If the relationship between management and employees is poor, or if the worker’s salary is poor, employees may decide not to show much concern for the safety of their equipment. And in some extreme cases they may damage their equipment.

· Society

The general attitudes of the society may influence the level of risk and the incidence of claims. For example, in the course of public demonstration, the demonstrators can destroy properties or set them ablaze. The action of the demonstrators is not motivated by consideration of financial benefits, but simply to register their anger on the system. Their action can therefore be classified as morale hazard.

Moral hazard is different from Morale hazard. Moral hazard is motivated by selfish financial interest on the part of the insured. It is a product of immoral behaviour. Morale hazard is not motivated by any selfish immoral consideration. It is just a careless or indifferent attitude of the insured to loss.

Uncertainty

A sense of uncertainty surrounds every human undertaking. As students, we do not know whether we shall pass our examinations and get qualified, we do not know if we shall be lucky enough to secure the job that we desired, we do not know if our marriage would be successful.

If a businessman buys a new machinery, he cannot know whether the machine will produce the expected output, he will not know whether the employees will be prepared to work with the machine, he will not know whether he will be able to get the necessary spare parts for the machine, he will not know whether there will be market for the increased output of the business, he cannot know whether the employees will not go on strike, he cannot know whether thieves will steal his products, he cannot know whether the whole factory will burn down. From the above, it will be seen that a businessman operates in an uncertain environment.

However, in a few cases, the businessman knows with certainty what will happen in future. For example, he knows that if he increases the number of employees, the salary bill will rise. Generally, businessman operates in an uncertain environment.

Moral Hazard

2011-12-02T01:21:00.000-08:00

Moral hazard is concerned with the attitude and behavior of people. Moral hazard refers to deliberate human failing which increases the chance of loss. It is the dishonest instinct in the individual which may impel him to commit fraud or any illegal act. It is largely, the state of working of human mind. For example, a man who insures his vehicle may sell the same vehicle secretly and thereafter, lie to his insurers that the vehicle has been stolen in order to collect indemnity from the insurers. Also, a dishonest business man who insures his stock to another location and turn round to deliberately set the building ablaze in order to collect indemnity from his insurers. Technically, this amount to stealing from the insurer.

Moral hazard unlike physical hazard is very difficult to control since it is the product of the state of working of human mind which cannot be easily controlled.

Moral hazard exists in all branches of insurance and this factor is one of the considerations which insurers take into account when deciding whether or not to provide insurance cover and on the amount of premium to charge. Moral hazard has a general tendency of pushing up premium for both honest and dishonest insured.

An insured may consider it immoral to steal a neighbour’s property, but he may think differently when he decides to steal from an insurance company. Dishonest insured may affect their decisions to steal from their insurers by failing losses or inflating the amount of legitimate claims and justifies their actions on the grounds that the insurers are rich.

This is a completely wrong notion.

However, insurers have been attempting to control moral hazard through skillful underwriting practices and inclusion of certain provisions in the policy, such as excess, franchise, deductibles, exclusions etc.

The Nature of Moral Hazard

A moral hazard is where one party is responsible for the interests of another, but has an incentive to put his or her own interests first: the standard example is a worker with an incentive to shirk on the job. Financial examples include the following:

I might sell you a financial product (e.g., a mortgage) knowing that it is not in your interests to buy it.
I might pay myself excessive bonuses out of funds that I am managing on your behalf; or
I might take risks that you then have to bear.

Moral hazards such as these are a pervasive and inevitable feature of the financial system and of the economy more generally. Dealing with them—by which I mean, keeping them under reasonable control—is one of the principal tasks of institutional design. In fact, it is no exaggeration to say that the fundamental institutional structure of the economy—the types of contracts we use, and the ways that firms and markets are organized—has developed to be the way it is in no small part in response to these pervasive moral hazards.

For more info on Moral Hazard click here : http://www.ft.com/cms/s/0/5ffd2606-69e8-11dc-a571-0000779fd2ac.html

Physical Hazard

2011-11-29T23:44:00.000-08:00

Physical hazard is the condition of any property, which increases the chance of loss. For example, if you buy an old grass thatched wooden house, the wooden walls and the grass roofing are physical hazards that increase the chance of fire.

If the braking system in your car is defected and a result of this, you fail to bring, the vehicle to a halt, and collide with another car, the defective brake is a physical hazard while the collision is the peril or cause of loss.

Physical hazard can be controlled by eliminating those physical properties that can increase the chance of loss.

Examples of physical hazard can be: Fire , Explosion, Chemical Radioactivity

TYPES OF HAZARD

2011-11-29T07:59:00.000-08:00

Let's talk about different types of Hazards. There are different types of hazard. The 3 most important types are:

·         Physical Hazard
·         Moral hazard
·         Morale Hazard

The Definition

2011-11-29T07:53:00.000-08:00

PERIL

Peril is the thing that causes loss. So peril is the cause of a loss. For example, if your book is stolen, then we say that the peril or cause of the loss of the book is theft. The peril here is the theft. If a severe draught brings about agricultural failure, then we can say that the peril or cause of scarcity of food is the draught. The peril here is the draught. If your house is destroyed by fire, then we say that the cause of the loss of the house is fire. If you car is destroyed in an accident, then we say that the cause of the loss of the car is accident.

HAZARD

Hazard is the condition that created or increases the chance of loss arising from a given peril. For example, storing petroleum in the kitchen is a hazard, which increases the chance of loss from the peril of premature death.

PERIL AND HAZARD

2011-11-29T07:38:00.005-08:00

Peril is different from the term Hazard. Also, the two terms are different from the term risk. They are not the same things as risk. However, the terms peril and hazard are very often used interchangeably with each other and with risk.

PERIL AND HAZARD

2011-11-29T07:38:00.003-08:00

OFF BEAT: Man says Playboy mansion favors women, files class action lawsuit

2011-11-29T01:24:00.000-08:00

Is the Playboy Mansion unfair to men? That’s the assertion in a class action lawsuit filed against the Playboy facility in the Holmby Hills area of Los Angeles, according to news reports.

Steve Frye is unhappy because at the annual Leather Meets Lace function, he says women were not required to pay the $1,000 price of admission.

He is claiming sex discrimination and has filed a lawsuit seeking class action status on behalf of the men who paid the large admittance price.

In fact, according to a news report, female guests who were not deemed up to Playboy beauty standards also were charged the $1,000.

Playboy Enterprises International Inc., which owns the grounds, claims it did not set the admission price, and only rents out the mansion to others. The party, which took place Oct. 1, was a charity event benefiting ex-playmate Jenny McCarthy’s Generation Rescue for Autism Awareness, according to another news report.

The lawsuit states that the preferential treatment “promotes harmful, negative stereotypes.”

That’s pretty egalitarian language from someone who shelled out $1,000 to see half-dressed women. Of course, if Mr. Frye had shown up for the event wearing bunny ears and a tail, maybe he wouldn’t have had to pay admission.

Cost of Solvency 2 rules for SA life insurers ‘a shock’

2011-11-29T01:11:00.000-08:00

THE cost of Solvency 2, the new regulatory framework for life insurers in Europe and the UK — which will be implemented in SA by 2014 — has come as a shock to company boards.

This was according to Deloitte vice-chairman and partner Louis Jordan, who was on a visit this week to brief the accounting firm’s South African life insurance clients about the effect of Solvency 2 so far in Europe, prior to its implementation by end-2012.

London-based Old Mutual indicated earlier this year it would be allocating about £100m towards the implementation of Solvency 2, which Jordan said was similar to that of other insurers.

Historically, SA’s life insurers have been early adopters of regulatory change emanating from the UK and Europe. They will represent a “second wave” of firms to adopt Solvency 2. SA’s Financial Services Board has already set up working groups to establish the regulations for implementation in 2014.

The overhaul is well under way in Europe. Existing solvency rules for life, non-life and reinsurers will be significantly upgraded, and the overhaul will also be seen in insurers applying capital in different ways.

Like the Basel 2 proposals on banking regulations, Solvency 2 has come about because of a need for greater transparency in the life insurance industry, and also for improved consumer protection and improved risk management in the wake of the financial crisis.

Jordan said experience in Europe had shown that boards and nonexecutive directors had been shocked by the total cost of the implementation of Solvency 2. Most insurers in SA had Solvency 2 programmes in place , but these were at a very early stage.

He said the price of actuaries working on contract had “gone through the roof” in Europe, because more were essential for Solvency 2 implementation . There may be a shortage of actuaries in SA once insurers start working on the programme in earnest.

Jordan said the project was made particularly difficult by the complexity of life insurance businesses, where clients need to have access to information and services from insurers and on their products for up to 25 years or more.

Actuaries typically spend many years at one insurer simply because that is how long it takes them to master the systems and books of the company.

So overhauling the systems, products and data of insurers, and increased reporting requirements such as having to provide documentary evidence to regulators for all business decisions, was not a matter of “just parachuting in a few actuaries”, said Jordan.

In addition, many insurers have products, and hardware and software supporting those products from many years before, and typically, only a few people in a company still knew how to operate or change these. Hardware and software companies have also disappeared over time, so back-up support is often not available.

Experience in Europe showed that life insurance companies were not used to implementing projects on the scale of Solvency 2, as opposed to banks that periodically implemented large capital expenditure programmes.

Courtesy:http://www.businessday.co.za

WHAT IS RISK?

2011-11-24T06:31:00.000-08:00

Risk can be defined in different ways. This is also because every human activity is associated with risk and everyone defines risk in the light of his own peculiar experience. A definition of risk, which is acceptable to one class of people, may not be acceptable to another class of people. So there is no single universally accepted definition of risk.

For example, risk has been variously defined of risk.

1 Risk is the chance of loss

2 Risk is the ability of loss

3 Risk is the deviation of actual result from the expected

4 Risk is the ability of any outcome being deferent from the expected out come

5 Risk is the condition in which a possibility of loss is exists

6 Risk is the uncertainty of loss

For our purpose, we can define risk as uncertainty of loss. That is risk is the uncertainty of loss. This is a simple definition of risk

CONCEPT OF RISK

2011-11-24T04:36:00.000-08:00

Risk is the fundamental problem which insurance deals with. We are all living in a world of risk. Everything around us confronts us with its own measure of risk. Every activity we mentally or physically engaged ourselves in – has its own inherent measure of risk; every scientific or technological invention creates its own peculiar type of risk.

For example, any one who is travelling in a motor vehicle is exposed to the risk off motor accident. Anybody who indulges in reckless sexual relationship, with an opposite partner runs the grave risk of contracting AIDS and in addition the girls/women runs the of unwanted pregnancy. Anyone who builds a house runs the risk of the house being burnt down by fire of illness and possible loss of income. Everyone runs the damaging property belonging to other people or even injuring other people.

If any of these events occurs, we shall suffer great pain, possible loss of materials. Therefore, these risks threaten our real existence and financial wellbeing. They are largely beyond our control.

Their presence constitutes obstacle to our economic security. The only happy things is that, there is a mechanism that when any of these event occur. This mechanism is Insurance

Purpose of Insurance

2011-11-17T04:08:00.001-08:00

The primary purpose of insurance is to spread the financial losses of insured members over the whole of the insuring community be compensating the unfortunate few from the fund contributed by all members. It is important to know that while insurance exists to fight or combat risk, there are some commercial, legal and moral issues to consider which may make it almost impossible to insure every risk. To contract insurance, therefore, you must ensure that the following essential elements exist:

§ Insurable Interest

§ Financial value (not sentimental Value)

§ Large number of similar risks

§ Must know the mathematical value of risk or loss

§ Loss must not be catastrophic

§ Loss must be reasonable expected

§ Loss must be accidental or Fortuitous in nature

§ Loss must be consistence with public policy

The Concept of Insurance

2011-11-14T08:57:00.000-08:00

The concept of insurance is simple, to protect oneself or another person against the loss money, life, goods, etc. It’s in an agreement or contract to pay money especially in case of misfortune such as accident, illness or death, examples, in motor and life insurance business and also in ordinary commercial contracts.

Many eminent insurance scholars have defined insurance in different ways which are too numerous, though there is no consensus definition to date

One interesting definition however, is the one which states that Insurance is the business which exists for the survival of other businesses. Insurance therefore is defined as a contract whereby one person, called the insurer, undertakes, in return for the agreed consideration, called the premium to pay another person, the insured, a sum of money or its equivalent, on the happening of a specified event.

Simply stated, this is the thing or liability of the property which the customers insures or wishes to insure, example in fire insurance, the subject matter is the building

Marine Insurance – Hull, Cargo, and Freight/Life Assurance – Life Assured/Motor Insurance-the vehicle or car injured/Health Insurance/Accident, sickness and unemployment insurance

Why Insurance

2011-11-14T08:49:00.001-08:00

All of us have been through difficult times before. Take a moment and look at the people in your life such as: family, friends, classmates and colleagues. With each, you must have shared good times as well as bad times. In good times we usually feel like stopping the hands of time so that such moments of our lives could continue forever.

In bad times, however, we are easily raffled and shaken by the hardships and hard times associated with it. Man, therefore, aware of his endowments and limitations has always been eager to discover methods and ways of helping himself live a more successful and happy life, since he cannot run away from the hardships and problems of existence.

It isn’t that we are looking for a hard life. But when difficulties come despite our best efforts, it could be an indication to look on the other end of the scale, hence Insurance.