Insurance refers to all types of risks. Insurance policies can only be used to share risks with others with similar risks. While some risks can be insured (i.e., insurable), others cannot. non-insurable risks).
Insurable Risks
Insurable risks refer to the risks that the insurer covers or makes provision for. They are those risks against which it is possible collect, calculate, and estimate future losses. The statistics that have been used to estimate the premium for insurable risks are based on previous statistics. It is open to loss, but not gain. It is possible to forecast and measure the risks, e.g. motor insurance, marine insurance, life insurance etc.
This is the type of risk in which the likelihood of an occurrence can be determined from past data. Here are some examples of an insurable loss.
Example1 You can determine the probability or chance that a vehicle will be in an accident in 2011 by looking at the number of vehicles involved in accidents during the previous years (outside of the total vehicle in those years).
HTML2: The probability that a person of a particular age will die within the ensuring year is calculated by the percentage of those who died in previous years.
Non-insurable Risks
Non-insurable risk is a type of risk that the insurer cannot insure against because it is impossible to predict and calculate the future losses. It can be both a source of loss and gain. It is impossible to predict and measure the risk.
Example1 It will be hard to predict if the demand for a particular commodity will drop next year because of a change in consumer taste.
HTML2: There is a possibility that the current production method will be obsolete or out of date by next year due to technological advances.
The following are other examples of non-insurable risk:
1. All risks that are related to natural disasters are referred to as acts God, such as
A. Earthquake
b. War
Flood
An insurer cannot compensate any property, building or life that is insured and then lost due to an act of God. This non-insurability also applies to radioactive contamination.
2. Gaming: It is impossible to guarantee your loss in a gambling game.
3. You cannot guarantee your chance of winning or losing a competition.
4. Launching a new product: A manufacturer who launches a product can’t guarantee its acceptance, as it hasn’t been tested on the market.
5. Loss due to inefficient/bad management: Management success depends on many factors. Profitability and loss depend on how efficient you manage your organization. Inefficiency is not covered.
6. A poor business location: Anyone who places a business at a low-quality location should know that it is unlikely to succeed. This is how you can fool an insurance company.
7. Profit loss due to fall in demand: Product demand varies with the passage of time and other factors. A decrease in demand will not cause an insurer to insure.
8. This is an engagement in a venture that offers the potential for substantial gain, but also the possibility of losing. One example of this is the practice or action of investing in stocks or property in the hopes of making a profit from a rise in or fall in market values. However, there are also the potential for a loss. It is not covered by insurance because it is a non-insurable danger.
9. Opening a new office/shop: The opening of a shop or new office is considered an uninsurable risk. It is impossible to predict what you can expect from the operation of the new shop. Therefore, it is absurd for an insurer not to insure a new shop.
10. Fashion trends:Fashion cannot be predicted. Unexpected changes in fashion cannot be covered. Fashion houses cannot be insured as the components may change at any time.
11. Motoring offences:A policy that covers motoring offenses is not available.
It is important to note that insurable and not-insurable risks are not clearly distinguished. An insurance company should theoretically be able to insure any risk if it is paid a sufficient premium. The distinction is still useful for practical purposes.
