REQUIREMENT OR NEEDS OF AN INSURABLE RISK

Insurance insures only pure risk. But all pure risk are not insurable. Some requirements should be completed before insurance of pure risk.
Here are some requirements or needs of an insurable risk from the view point of insurer or insurance company.

1. Large number of Exposure units

Large number of exposure units is the first requirement of an insurable risk. It may not be similar, but there should be a large group of roughly similar which are under the peril or group of perils. For example , a large number of frame dwellings in a city can be grouped together for purpose of providing property insurance on the dwellings.

2. Accidental and unintentional

Second requirement is that the loss should be accidental and unintentional . The loss should be out of control of insured and fortuitous.

3. Measurable and Determinable

The loss should be both determinable and measurable. The loss should be definite as to cause , time , place and amount. Life insurance in most cases meets this requirement easily. The cause and time of death can be readily determined in most cases , and if the person is insured , the face amount of the life insurance policy is paid.

4. Calculable chance of Loss

The fourth requirement is the chance of loss should be calculable. The insurer must be able to calculate both the average frequency and the average severity of future losses with some accuracy.

5. Economically Feasible Premium

The premium should be economically feasible. The insured must be able to pay premium. The premium paid must be substantially less than face value or amount of the insurance policy.


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