Rusting of a brand-new automobile in the first year of ownership does not (commonly) carry an insurable risk. Comprehensive or collision insurance covers do not include routine maintenance costs or traditional tear and wear. As rusting forms part of the regular maintenance risks, the standard auto insurance policies do not cover such costs. The insurable risks in the automobile sector are mostly unavoidable accidental damage situations. Insurance coverage does not cover mechanical failures and general car maintenance (Cather, 2010).
A farmer's crops exposed to the weather carries an insurable risk. Risk aversion in agriculture due to climatic conditions has formed an essential component of crop insurance discussions. Crop insurance thereby acts as a contingency strategy to guard farmers against lower yields and losses caused by extremities in weather conditions. Farmers are thus able to pay premiums to cover their farming practices from unavoidable weather conditions. Insurable risk, in this case, can be quantified by probabilistic calculations and comes from fortuitous causes (Shirsath et al., 2019).
In the case of an accident that leaves an individual disabled, the individual can file for a car accident compensation and personal accident claim. The aggrieved party in an accident may be compensated for the future loss of job from capacity limitation and medical expenses related to the car accident. The personal injury claim may be filed at the at-fault driver's insurance provider. At-fault driver's insurer may then negotiate a payment settlement with the victim and offer to cover the medical as well as income costs. A person being disabled in a vehicle collision is thus open to an insurable risk based on the initial insurance coverage agreement between an at-fault driver and their insurance provider (Cather, 2010).
The next insurable risk involves the death of an individual. Death of a person is an insurable risk under the life insurance claims. Insurance companies determine death as an unintended action and thereby is unexpected in both impact and timing. Death insurance thus covers the debt, mortgage payments, and other expenses that the deceased may not wish to forward to their immediate family. As an insurable risk, the death insurance cover attracts premiums that could total to 15 times the individual's income. Different cover requirements and conditions are depending on whether the death is by natural causes or by accident (Cather, 2010).
Losing money when the value of your land goes down substantially due to a bad economy is not an insurable risk under the property insurance policy provisions. The insurable value of property protection always excludes the value of land, which is often considered as a constant (and appreciating) asset. The homeowner will not take the time to insure the land as the risk of depreciation is extremely low. Vacant land insurance is the closest land insurance policy, which, instead, covers protective liability costs rather than the depreciative costs.
Insurance underwriters assist companies in analyzing and determining the risk associated with insurable assets or individuals (Gupta & Prakash, 2018). As an underwriter, the individual is charged with the responsibility of gathering actuarial and specialized probabilistic software data to determine the extent, likelihood, and magnitude of the risk. The risk evaluation should be conducted for the period during which the policy is active and during renewal.
The insurance underwriting process begins with a field analysis of the property or the insurable asset or individual to determine factors that pose risks to the carrier. Such field underwriters also analyze the various hazards that may trigger the claims of liability. For a homeowner underwriter, for instance, the hazard analysis includes factors like unprotected swimming pool areas and unsafe sidewalks that may create unprecedented risks, including slip and fall accidents. Such hazards of the assets, as well as the credit status, will then inform the underwriter of the premium pricing procedures. The underwriter may then review the lifestyle, medical history, and examination, and financial information of the applicant to further inform the company of the qualification of such applicants depending on the type of insurance cover they apply for (Gupta & Prakash, 2018).
After the primary information of the applicant is gathered by the underwriter, the next step involves the classification. Here, the underwriter categorizes the applicant into one of the following categories based on the analyzed risk level; 1). Preferred, 2). Approved standard 3). Approved substandard or rated, or 4). Declined (Gupta & Prakash, 2018). Once the underwriter completes the complex algorithmic evaluation of the risk status of the proposed insured, the company then issue a policy when the applicant's risk score looks better than average. The branch levels of companies are involved in underwriting activities that are more field-oriented and based on small risk categories. Branch underwriters then forward the analyzed claim documents to the head office for final approval. The branch underwriters also retain and store the underwriting documents at the branch level for future reference. At the head office level, he underwriters are charged with more senior roles of analyzing and evaluating higher risk insurable assets and making final approvals of the documents from the branch levels. As per the authority matrix, these underwriters process and categorize all risk levels of individuals and assets and make the final decision on the acceptance of the insurance policy and the premium rate attached to the specific policy.
Physical Hazards Attached to a Fast Food Restaurant
In insurance and risk management, a hazard is any condition that increases the possibility of a loss occurring in the insurance situation. Physical hazard refers to the physical location that increases such a likelihood of an injury. In a fast-food restaurant, various conditions and events can act as physical hazards for an insurance company's underwriter to proactively analyze while categorizing a risk situation. Such physical hazards include the following;
- The storage of hazardous materials in the restaurant kitchen or store.
- Smoking in the restaurant that may cause a fire.
- Construction materials of the restaurant – whether the materials are combustible or not.
- Faulty and unchecked electrical and electronic systems in the restaurant – the electrical systems may cause fire outbreaks.
- Poor restaurant premises maintenance and upkeep – the poor upkeep of the restaurant building and installation systems may increase its chances of destruction, fire outbreaks, etc.
- Security of the restaurant and the premises – insecure restaurant surroundings may increase its likelihood of loss by theft and robbery.
- Slippery floors and unguarded machinery may also increase accidents by slipping and machine accidents.
- Adjoining premises – the adjoining premises to a restaurant may increase the chances of a fire outbreak in case the premises use flammable materials and combustible structures.
Benefits of obtaining a Reinsurance
Reinsurance involves the sharing of risks among several insurance companies by buying other policies from other insurers and spreading the risk and minimize the total loss in case a disaster occurs. In this section, the two notable benefits of reinsurance are discussed.
Reducing the effect of a catastrophic loss
During reinsurance, the substantial initial burden presented to one insurance company by a client is spread to more than one company. This burden would otherwise be too much to handle for one company (Cummins et al., 2008). The premium paid by the client, in this case, cannot cover the loss incurred by the original company while settling the insurance claims by the client. Original companies are thereby able to transfer specific risks to other companies and save themselves from bankruptcy that may arise from the excessive claims by policyholders. Reinsurance is, as such, highly useful in high-risk policy scenarios that may include concurrent claims by the holders. An example of such high-risk policies could be a case of widespread natural disasters. Such disasters as hurricanes, wildfires, and flooding could lead to significant claims by the large numbers of policyholders and, as such, lead to the potentials of massive payouts. To minimize such huge payouts, the company should practice reinsurance and soften the loss experience.
Furthermore, the company redistributing the risk to other insurers also benefits from expertise and solvency margins. The shared expertise enhances the underwriting expertise of individual companies and thus improves their risk analysis and evaluation skills. They are thereby able to take on new clients and garner higher premiums and ratings. Such higher scores and new clients will thus assist the insurers in minimizing the instances of catastrophe and limiting the consequences of such losses (Cummins et al., 2008).
Enabling the insurer to cease operations
If a company wishes to cease operations in a particular policy domain or the entire insurance business, reinsurance may assist in spreading the risks and handing the premiums of their clients to the reinsuring companies (Cummins et al., 2008). As such, the company transfers ownership of the incentives to the new insurer and reduces the capital investment in insurance. The reinsurer might thereby increase their policyholders while taking away the costs and risks from the original insurer. As the original company eases its way out of operations, it then transfers its various expenses and risks to the reinsurer. The company is thereby protected from bankruptcy and can settle the running claims and premiums when winding down.
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