Definition Of Risk
The definition of risk that can facilitate the analysis of risk in insurance, risk is the uncertainty about the losses. This definition contains two concepts, namely the uncertainty and loss. Although both of these concepts are important in insurance, but that risk is uncertainty rather than losses. The cause of the loss or likely loss. The function of insurance is addressing the risks, and if the risk already we deduce so then it is possible we consider effective insurance question how about to deal with the risks of speculation. From the point of view of the insured risk it can only result in losses (pure risk). The risk of speculation can also give rise to profit.
Say chance of loss due to fire against a certain type of store is 1 in 100. If a has a store alone, he will not be able to foresee the disadvantage, whether his shop will burn or not. He refuses to have the basis for forecasting. He is not at all sure even though the possibility of a loss (chance of loss) was low. However, suppose he has 100 same-store fruit. The risk will be reduced. He now can predict that at – the lack of one shop will burn, because the chance of losses is 1 in 100. But in this case he did not doubt that the real loss would be the same with that on. The risk is still there. If two shops on fire, then his estimate misses 100%, but in only 1% of the possibility of such damages.
Now let's say he has a 1000 fruit store. He can estimate the 10 shops burned.
If the store is right – actually burned one more/less than that on then
the calculations only misses 10% or 0.01 cent of possibility
(exposure). The more the number of stores then increasingly more losses be foreseen, that is, drop him a likely margin of error in forecasting results – results. So with 100,000 fruit store, the level of risk is greatly reduced but the chance of loss remain 1 in 1000. However, the risk does not at all be abolished because there is always the possibility of losses – losses didn't happen as predicted.
Level Of Risk
Accuracy of forecasting the occurrence of loss is a measure of the level of risk. Level of risk measured by calculating the difference between the likelihood of actual experience with the experience. Increasing small difference or a difference in the percentages of these possibilities increase the small risks. This percentage difference decreases with increasing amount of 30 minutes (possibly affected) mathematician suggested this idea by saying: with increasing the number of 30, then chances are the real experience with a difference experience which is expected to also grow, but only the root of the rank of additional amount of 30 minutes. This means if we add to the 30, then we add the number of cases that are different from those predicted; but lowering the percentage difference. Perhaps an example will be able to explain this.
Suppose
the mean – median 1 of 1000 truck damaged due to impingement every
know. If 10000 thousand trucks are insured, then the estimated damage to
the truck in any given year is 100 pieces. However, the real damage in any given year may not be exactly 100, maybe more maybe less.
Say according to the years of experience of the previous years loss
indeed hover around 80 – 120 trucks, so that the standard error of the
estimate is 20 trucks so with 10000 truck, uncertainty region was 20/100
or 20%
Now
suppose that the number of trucks – trucks that at insure that riding
the 100-fold from 10000 to one million. loss estimates the damage now is
10000 truck. However, the addition of the estimates does not rise 100 times but only 10 times, so the standard
error
(standard of error) now is 200 trucks, in other words, the real losses
now estimated to range in the immediate vicinity of 9800 to 10200 truck.
With the uncertainty now is 200/10000 or only 2% and not 20% as before.
In the course of events in the future can be predicted fully, then there is no risk. If we know for sure that something will happen or won't happen, then there is no certainty, and therefore there is no risk. The inability to predict the course of events in the future that's what gave birth to the risk. And if events – events more be foreseen, then any risk is reduced.
The risk of making the insurance it desired and possible. If in a particular case would have incurred losses, then the insurance will not be obtained. No insurance company wants on commercial rates are possible. Conversely, if the loss was certainly not going to happen, then no one will want to insure him. Thus, the owner of a House into a river where flood damage occurred 3 years in 4 years will want to buy "insurance swamped" if offered. Instead, homeowners near the top of the Hill would not be interested in buying insurance that never flooded the place was flooded. Insurance was born because people do not know what will happen with her or with his earnings in the future. They chose a small loss or cost of the specific responsibilities they can afford (insurance premium) of the loss which has not been certainly but perhaps not large powerless to their responsibilities (actual losses up to the nominal limit policy).
