INSURABLE AND NON-INSURABLE RISKS

1. Insurers (i.e. insurance companies and insurance underwriters) will only undertake to cover anyone against insurable risks.

2. Insurable risks are those whose chances of occurring can be mathematically calculated by statisticians and actuaries from available statistical records.

3. The calculated risk is then used as a basis for computing the premium to be charged. This must be high enough to ensure that the insurance company will not run at a loss in the long run, in order to meet the various claims from the central pool.

4. The insurer is able to cover such a risk because:

(a) a large number of people who are subjected to the risk, are willing to pool their risks, by contributing premiums to a central fund

(b) only a small number actually suffers loss

(c) claims in the long run are less than the funds available to meet them

5. Examples of insurable risks are perils at sea, fire, burglary, personal liability, motor accident and flood.

6. Some risks are non-insurable because it is not possible to calculate the chances of their occurring as no statistical records of their occurrence are available. Hence, no insurer can calculate the premium.

7. Examples of non-insurable risks are war and trade risks like business losses due to bad management, failure of demand, rise in costs, changes in fashion and bad debt.

8. Examples of some risks involved in dispatch of goods by the foreign traders through airways and seaways, risks involved with cargo can assist foreign traders.