Risk Defined
Simply speaking, risk is the possibility or chance that something bad may happen. It involves the uncertainty of how a particular event will affect you regarding something that you value, such as your:
- Health
- Wealth
- Well-being
- Property
- The environment
Risk may actually have a variety of definitions and methods of analysis or measurement, depending on your particular area of interest. These may include:
- Security
- Safety
- Insurance
- Health
- Information technology
- Finance
- Environment
- Economics
- Business
Insurance Risk
Insurance risk involves the likelihood that a loss will occur regarding a covered insured event. This loss will necessitate the payment of a claim to the insured by the insurer. With life insurance, the insurance risk is that the insured will die before enough premium is collected to pay the death claim. With auto insurance, the risk is that the insured will be responsible for causing an accident or will have his vehicle otherwise damaged, destroyed, or stolen.
Auto insurance liability coverage protects the insured against libel suits as a result of having caused bodily injury or property loss to a third party. The risk to the insurer is that a covered loss will occur requiring a claims payment. The risk to the insured is that premium payments will be made but no claims ever made. A bigger risk to a driver, however, is being involved in a major loss without the protection of insurance coverage.
Premium Adjustments
Insurance risk levels must be carefully considered by an insurer in order to come up with an accurate premium rate for the amount of coverage being offered. When greater risk is determined to exist while underwriting an insurance policy, greater premium rates must be charged. Using the law of large numbers, insurance underwriters are able to estimate both the value and the frequency of future claims for an individual applying to enter a group of insureds. When figured correctly, this allows for policyholders to each pay fair and accurate premiums relative to the amount of risk they represent.
Homeowner’s Insurance Risks
As an underwriter trying to decide whether or not a specific home should be insured by your company and, if so, an accurate premium rate, you’ll want to have a good idea of exactly what risks are present. An important step in this risk-gathering process is to have a thorough home inspection conducted by a reliable and reputable company such as Insurance Risk Services.
A complete interior/exterior property inspection can uncover not only common potential risks such as the age, condition and material of the home’s roof, but also heightened risks that may be specific to an individual property such as:
- Presence and condition of a swimming pool, including safety measures in place to prevent unauthorized use and equipment available for rescue
- Presence of a trampoline and whether users are protected by a surrounding safety net
- Dog(s) of an aggressive breed on site
Risk is an important factor in insurance underwriting. Contact Insurance Risk Services for expert risk assessment service inspections.
