Human activity and production processes are always associated with the possible onset of an adverse event. In order to reduce possible property losses, minimize the cost of restoring health, the company resorts to insurance. Having concluded the contract, the person or head of the corporation shifts the feeling of possible risk and related losses to a specialized company.
What is the risk?
In everyday life, you have to perform actions related to unforeseen situations that occur unexpectedly and spontaneously. So, on the way home you can break a leg. Equipment failure may occur at the factory. As a result, the production process will stop, which in the future will affect the expected profit.
Risk is a process that may or may not occur. In the understanding of people, such an event is always associated with a negative result. This applies to property, and to the state of health, and to obtain financial results. It carries with it a possible loss.
Based on the interpretations in the dictionaries, the concept of “risk” can be explained in two ways. On the one hand, it implies the expected danger and failure. On the other hand, “he who does not take risks does not drink champagne.” A person who performs such unexpected and non-trivial actions, assumes a successful resolution of the event. Thus, the risk is associated with a possible failure or a positive result in life or business.
Risk and Insurance
The possibility of receiving losses as a result of unforeseen events makes you think about the need to protect yourself. To this end, there are insurance companies that take responsibility for the compensation of damage received in the event of an event. In the financial market, risk involves obtaining a negative result, expressed in the expenses of the insured in the event of adverse circumstances, in the case of which he entered into an agreement. An insured event is an event that has already occurred and, as a result, caused a loss. Thus, insurance risk is the expected negative incident, which damages those parties to the agreement that are directly involved in it.
Features of insurance risk
The insecurity of all spheres of human life implies the possibility of a specialized organization to cover the resulting losses. Distinctive features of insurance risk are:
- isolated cases;
- insurance reserves to cover losses;
- the inability to determine in advance the place and time of the event;
- available definition of a possible loss;
- lack of illegal actions of the insured.
Hazard classification
The amount of insurance risk depends on many factors. So, if the contract is concluded for a one-time transaction or is of an individual nature, then the possibility of an unforeseen situation is extremely small. For example, insurance of some “outstanding” body parts of Jennifer Lopez was more of an advertising nature, rather than the expectation of an insurance event. At the same time, classic protection contracts carry with them a real opportunity to receive compensation in the event of an accident or unlawful actions of third parties, natural disasters.
When determining the type of risk, they should be divided into two conditional groups.The first should include the type of danger that is directly related to the actions or omissions of a person: theft, explosion, non-observance of safety rules, violation of traffic rules. The second group includes natural threats: floods, earthquakes, floods.
Evaluation Methods
There are several ways to assess the insurance risk system. The most popular among them are considered
- Percentage method. When calculating the average coefficients are taken into account, which include the granted benefits, discounts and other points that were used in insurance events. This method is used with an average probability of an event.
- Average values. All kinds of dangers are divided by insurance objects. As a result, information is accumulated on the average amount of damage, the type of event and the possibility of its occurrence.
- Individual calculations. Used in cases where the previous two cannot be applied. Such calculations of the risks of the insurance company are based on subjective information, which forms the basis for determining the possible danger. Such a system is used in space risks, when registering responsibility for grandiose objects, unique projects.
To get the result that is closest to reality, insurance companies combine valuation methods. In their activities, specialized organizations take into account the most common possible risks that can be taken on insurance.
Political risks
The likelihood of changes in the political structure of the state, a change of power or drastic changes in foreign policy is always reflected in the economic activity of enterprises. Many investors are interested in investing in the development of production or another area. However, they are stopped by the opportunity to lose their capital. In such situations, the insurance risk is the nationalization of property, its irretrievable confiscation, and sharp changes in export-import operations. To ensure the safety of their property, large international holdings prefer to conclude an insurance contract for their financial interests and shift the responsibility to the insurer for possible adverse events.
Innovative risks
The most expensive insurance contracts are those associated with research, organization and conduct of experiments and trials. The amount of the insurance amount depends on the amount of funds invested in the project, its development and implementation, the expected economic effect. Insurance risk is directly related to the final achievement of the goal, and therefore programs are developed individually for each specific insurer, the assigned task and the calculated result.
Large-scale risks
Every year, natural disasters from significant become catastrophic in size of the damage caused. Daily information is received on the debris flow, large-scale floods, destructive earthquakes, hurricanes, tsunamis. In addition to natural phenomena, insurance risk includes military operations, riots, and unrest. All such events cause damage, which amounts to hundreds of millions of dollars, euros, yen, rubles. In most insurance companies, some of the possible threats (especially political) refers to force majeure, that is, those for which the insurer is not responsible. Distinctive features of such risks are the inability to foresee them and the catastrophic size of insurance payments for those dangers for which the responsibility lies with a financial institution.
Export risks
The danger of such threats is associated with the political situation in the state. Export risk insurance contracts are in demand only by international corporations or multinational organizations.The responsibility for property objects that can be nationalized is shifted to specialized companies. Also, financial risks are insured for untimely, poor-quality or incomplete fulfillment of bank agreements and guarantees. Often, possible political changes are written in the contract, which will directly affect the fulfillment of the terms of the concluded contracts and international treaties.
Design risks
In this category, insurance risk is any unforeseen situations that are associated with the project, which is the object of insurance. Here in the contract can be written:
- financial threats - a possible loss of profit;
- property losses - equipment breakdown, failure of the design system;
- transport risks - delayed delivery or traffic accident;
- political risks.
Hazards associated with the implementation of projects are always calculated on an individual basis. Given numerous inventions, insurance contracts for such risks will always be requested by society and will be one of the most expensive in value.
Cosmic risks
At present, information about the launch of satellites, about images from Mars or experiments at stations in zero gravity is already familiar. In the space industry, insurance risk refers to possible failures at launch or during the flight of a spacecraft, damage to a carrier and loss of key components. They also conclude contracts in the event of damage to third parties during space activities. One of the points in the documents can be prescribed insurance financial risks. So, in the process of project implementation, the profit on which they were counting may not be obtained, or fines for violating some clauses of the contract will have to be worked out. Also, contracts related to space risks specify the insurer's responsibility for changes in political situations of the project member countries. There are situations when, as a result of changes in policy, states stop allocating funds for programs that have begun, terminate the contract. A detailed analysis of possible risks is necessary for the development of individual insurance programs.
Summing up, it should be noted that all areas occupied by a person for a long time, or which he is only mastering, are associated with the emergence of unpredictable and independent of him and his desires events. Therefore, the insurance contract will be able to smooth out negative emotions from unforeseen losses and will allow it to continue to work normally.