Risk Management - Elements of Insurable Risk (4 of

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Elements of Insurable Risk-1

Large number of homogenous exposure units to the loss. (eg. houses, cars, people) -Allows insurer to make a reasonable prediction of the loss.

Elements of Insurable Risk-3

Loss must be fortuitous (accidental). -Accidental, unintentional and unexpected to the individual.

Elements of Insurable Risk-2

Loss must be measurable and definite. (e.g. car accidents) -Place of loss, time of loss, type of loss and financial impact of the loss must be measurable.

Elements of Insurable Risk-4

Loss must not be catastrophic to society. If loss were to occur for the entire group exposed to the risk, insurance companies would not be financially able to pay claims. (Loss due to war is not insurable).

Elements of Insurable Risk-5

The cost to insure must be affordable. Insuring high severity and high frequency events would prove to be so costly as to be prohibitive.

Elements of Insurable Risk-6

There must be an insurable interest present. A relationship where the person applying for the insurance has an expectation of benefits from the continuation of the subject of the insurance, and will incur a loss from the destruction, damage or death of the insured subject.


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