Sometimes the word “risk” is assigned to a person rather than to an event potentially caused by this person. A heavy drinker, for example, would represent a risk to an automobile insurance underwriter and be referred to as a risk or even a high risk. A heavy smoker is a risk when looked at for a health insurance policy.
While doing a residential property inspection, an inspector may notice that the homeowner has allowed his property to fall into a state of disrepair and doesn’t exhibit what’s termed as “pride of ownership.” The inspector may make note that this person represents a certain risk to a potential insurer. It may not be the person, per se, that is considered a risk by the insurer, but if old newspapers and magazines are stacked up in the home or a large crack in the front walk has gone unrepaired due to negligence, these are definite potential liabilities that will require being addressed. They represent insurable risk.
In order for an insurance company to remain profitable it must be able to accurately predict potential losses. This requires the accurate understanding of the risks involved with any policy. Two things are needed for an insurer to remain profitable:
- Risks it chooses to cover must have a predictable claims payout
- Premiums charged must be affordable, otherwise few people would purchase the coverage
The amount of money taken in through policyholder premiums minus the amount paid out in policyholder claims, added to the amount earned through the investment of premium dollars, must be sufficient to pay company operating costs and still produce a reasonable profit for an insurer to remain viable.
Know the Risks
Insurance Risk Services has been helping our clients uncover and accurately calculate insurance risk for more than 35 years with our quality residential and commercial property inspections and other field underwriting support services. We understand the importance of knowing the effects of risk on a proper underwriting process. Let us help you, too. Contact us for more information about what we can do for you.