Insurance is a risk taking business from customers to insurance companies so customers feel comfortable joining the insurance program. Insurance must be smart to control the risks so that the business is profitable so that customers also feel comfortable to join the program offered. Before further recognizing the types of risks that exist in the insurance industry, customers need to first understand the benefits of insurance itself. Here's the full review.
Understanding and Benefits of Insurance
Insurance or often referred to as coverage in the Criminal Code Article 246 is defined as an agreement on the insurer who binds himself to the insured by accepting the premium to grant him compensation due to damage or loss due to an uncertain event. So we can define insurance as a risk-averse activity from one party to another in which there are rules and principles that are obeyed by both parties.
When viewed from the economic side, the insurance can be interpreted as a fund-raising activity that will be used to compensate or cover the losses to people who experienced the event. Insurance has various benefits seen from its function. The main function of insurance is as a diversion of risk.
In addition, insurance also has a secondary function that is to provide stimulus to broad economic development, fostering interest in business and as a controlling loss. Another function of insurance, the additional function is as a means of invisible earnings and investment.
Understanding Risk and Its Relation in the World of Insurance
Most people are still confused, what is the risk in insurance and how the classification. Furthermore, there is often the question that any risks can be insured. If you are looking for understanding about these things, then you have read the right article.
Understanding the risks in insurance at least you will get an explanation of the following things:
- Know the meaning of risk in general
- Understand what risks are in general insurance
- Identify what risks can be insured through insurance
- Understand the risk management so that the purpose and function of insurance can be obtained clearly.
Especially for risk management, this is important and must be known by individuals and business actors. Because without the existence of risk management it is impossible for a person to minimize the risk itself.
In general, the insurer views risk as an uncertainty. Of the various uncertainties, of course you must know what type of risk that can be insured. This is given that the risk of becoming the object of sale of insurance companies. By knowing the types and kinds of risks you can then select where the risks are if it can or can not be insured.
General Risk Definition
More broadly the risks are defined as hazards, consequences or consequences that may occur due to ongoing processes as well as certain future events that will occur. Risk is a thing that is always faced by humans and its nature is very uncertain. Insurance therefore sees risk as uncertainty or uncertainty.
In insurance risk can be caused by personal activity (personal activity) or business activity / business (business activity). Examples of personal risks are sickness, accidents, or financial risks caused by a person's death. Examples of business risks are bankruptcy, loss or damage caused by various things such as fire, natural disasters and so forth.
Risk Classification in Insurance
In insurance risk (risk) is classified into several types, namely:
1. Pure Risk (Pure Risk)
Characteristics of pure risk is the risk if it does happen would cause losses and if it does not happen it will not cause harm or will not generate profits. This means that in the sense of pure risk, the loss must occur. Examples of these risks are fire, accident, bankruptcy and so forth.
2. Speculative Risk
Contrary to pure risk, speculative risk still contains two possibilities if the event is considered a true risk occurs. For example, when investing shares in the stock exchange, the event or the investment process will lead to speculative risks, on the one hand there is a possibility of profit financially and on the other side there is a risk of loss.
3. Specific Risk (Particular Risk)
Specific risk is a risk that impacts and causes only affect the local environment (personal) both in quantity and quality. An example is unemployment or a thief. When a person steals then the risk inflicted only affects the individual.
4. Fundamental Risk (Fundamental Risk)
Contrary to special risks, the fundamental risks will have a huge impact. This risk can be caused by factors or certain parties such as natural disasters, government policies and so forth.
5. Individual Risk
Individual risk is a variety of possibilities that occur in everyday life that can affect a person's financial capacity, wealth and risk of responsibility. Individual risk can be divided into several groups, namely personal risk, property risk and liability risk. In personal risk is often associated with the influence of a thing or possibilities that will directly affect certain individuals, such as a person's finances. Examples of personal risks are physical disability, loss of employment, death and so on.
6. Property Risk
It is a loss associated with the possession of an object due to loss, theft or damage. The risk of property can be categorized again into two types: direct losses (direct losses) and indirect (consequential) losses.
7. Risk of liability (liability risk)
It is a risk of responsibility that we must give to others. In other words, this risk to bear the loss of others due to the act or the things we cause. For example, in the event of an accident, when you hit someone else it is called a liability risk.
Risks That Get Protection from Insurance Companies
Associated with the various risks described above, then there are some frequently asked questions related to insurance. Are all of the above risks transferable to the insurance company? Then the answer is can not. Only fundamental risks and pure risks can be insured under certain conditions, as follows:
- Risk must occur by chance and unpredictable
- Risks that can be borne must be homogeneous and common
- The impact of these risks can be judged by money or financially
- There must be an insured or insured object such as property, sickness, loss and so forth.
- The insured object does not conflict with applicable rules and public interests. For example, drugs can not be used as an insurance object.
- Premiums charged should be in accordance with the level of risk insured. Although the coverage may exceed the actual price or interest, but only in certain limits (double insurance).
The Importance of Risk Management in the Insurance Industry
Once we understand the insurance along with insurable risks, then in fact the process of dealing with these risks is known as risk management (risk management). Management risks are required to classify the types of risks, the level of losses incurred and how to determine the preventive measures in overcoming those risks.
Risk management can be illustrated from the simplest to the most complex ways for large-scale preventive measures. In the simple case of everyday life, locking the car door or door of the house is one of the risk management steps that can be done by anyone. With you locking the car means you can already classify any risks that may occur when you park the car, so you take preventive steps by locking the car.
In a large risk management scheme begins with the identification of risk (risk identification) and risk evaluation (risk evaluation) to determine the frequency and level of losses that may be caused. After that done the name of risk control procedures (risk control) to find out what losses can be caused whether it is a financial loss or physical loss. After that there are many steps that can be taken such as minimizing risk, transferring risk (insurance), or eliminate the risk altogether.
Understand before Using
Understanding the types of risks and benefits involved in the insurance program will make you more careful in living life and feel comfortable joining the insurance program that suits your needs. Do not be rash and quickly lulled with the advantages and facilities of any insurance product offered, if you do not want to lose because of having an insurance product that does not fit the needs.
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