INSURANCE ASSIGNMENT.

1. With examples explain the following concept…

i. Risk pooling.
- This is refers to the practice that groups large numbers of people together to minimize
the cost impact of the highest risk individuals. OR by other approach, Risk pooling
refers to the spreading of financial risks among a group of insurance companies. For
instance, under this system, various insurance companies may come together to form
a pool which can provide protection to insurance companies against catastrophic risks
such as earthquakes or floods.
ii. Law of large numbers.
- In probability theory, the law of large numbers is a theorem that describes the result
of performing the same experiment a large number of times. According to this law, the
average of results obtained from a large number of trials should be close to the
expected value, and will tend to become closer as more trials are performed.
iii. Insurable Risks
- An insurable risk is the kind of risk (loss) that can be covered by an insurance company.
Also through its features we can see that the loss should be accidental/unintentional.
For example something like a car accident 96% chance of it occurring is unintentional
so through observing the risk it happens to be an insurable risk.
iv. Peril
- Peril simply refers to the situation of being in great danger OR is something that
contains, causes or presents danger. For example in insurance Peril is an event that
causes risk. Such events are likely to be accidents e.t.c
v. Premium.
- It’s the specified amount of payment required periodically by insurer to provide
coverage under a given insurance plan for a defined period of time. The premium is
paid to the insurer by the insured person for a contract of insurance.
vi. Re Insurance.
- It is also known as insurance for insurers. Re insurance is the situation whereby
multiple insurance companies share risk by purchasing insurance policies from other
insurers to limit the total loss the original insurer would experience incase of disaster.
By doing so, an individual insurance company can take on clients whose coverage would
be too great of a burden for the single insurance company to handle.