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Risk Allocation for an Insurance Company - Term Paper Example
Finance & Accounting
Pages 4 (1004 words)
Risk Allocation for Insurance Company Contents Contents 2 How an insurance company can choose its assets and liability risks:- 3 Underwriting Process in Insurance:- 4 How Insurers and Banks Operate in Similar Ways in Taking Risks in Search Of Profit:- 5 Works Cited:- 7 How an insurance company can choose its assets and liability risks:- Insurance business is totally based on possibility and risk…
The level of risk of an insurance company is measured by the probability to pay out under an insurance policy that they have issued. Identification of risk factors is very important for an insurance company. Actuary studies the insurance payout history and also identifies the risk factor for each and every insurance policy due to which the insurance company has to pay out. For example: - people who are in their sixties may die in next five years than who are in their twenties (Crews, 2009). According to insurance companies, they need to bear the risk of occupancy like common hazards due to heat and power, special hazards due to flammable hazards in manufacturing industry or hazard caused by smoking habit of an individual. To protect the insured from those hazards, insurance companies provide some protections like improvement in quality of fire department in municipality to protect the interest of public. To protect any individual or any particular organization, they recommend smoke detectors, fire alarm, watchmen and automatic water sprinkler system. Insurance companies also recommend that a high hazardous business should not set up beside a lower hazardous business. Insurance companies choose their risk based on different criteria like- 1. Lifestyle 2. Behavioral Risk 3. Occupational Risk. ...
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