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Dimensions of risks you need to insure

Why narrative of children with special needs should change — YinkereBy Adebisi Ikuomola

Africa’s insurance has continued on its steady growth trajectory despite challenging economic environment. The insurance penetration is still abysmally low when compared to the emerging market.

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“By the 2017 trends, insurance penetration for the continent – GDP divided by insurance premium, stood at 3% for life and non-life, with the former accounting for 2% excluding South Africa, which represents roughly 85% of Africa’s life and 44% of non-life premiums”.

Insurance is a sub-set of risk management system providing a safety net for other businesses to thrive. Our everyday life is fraught with risks, hence it will be a wise decision for any rational risk averter to take an informed decision in the handling of risk faced by any individual or organization.

Risk is unavoidable and present in every human situation. It refers to the uncertainty that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to negatively affect the achievement of an individual or organization’s objectives.

Risk are generally divided into two classes: pure risk and speculative risk.

Pure risks involve only the chance of loss, there is never an opportunity for gain or profit. Example, injury from an accident, loss of home from earthquake. Only pure risks are insurable.

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Speculative risks involve both the chance of gain or loss. Examples, gambling at the race or investing in the real estate market. Speculative risk is not insurable.

Elements of an insurable risk

  • Loss must be unexpected or fortuitous
  • Loss produced by the risk must be definite and measurable
  • Risk must not be against public policy
  • Insurable interest must be present
  • Must be significantly large number of homogenous exposure units to make the losses reasonably predictable.

Risk can also be evaluated on an economic scale, comparing static and dynamic risks.

Examples of static risks are hurricane and other natural disasters.

Examples of dynamic risks are inflation, recession and other business cycle changes.

Risks are untoward situations that we have to face in all facet of life but insurance mechanism has always come in handy in providing succour to both individuals and organizations.

The insurance ecosystem has always been symbiotic with stakeholders performing a cohesive role towards achieving overall customer experience.

The intermediation role of brokers and other insurance agents cannot be overemphasized, from placement of insurance risks to advising clients on type of cover that will be suitable to meet the expectations and nuances of each client.

Insurance underwriters, on the other hand, are the burden bearers that pay compensation to the customers if the insured risk crystallizes though after due contract consideration is met.

Reinsurers occupy a pivotal position in providing needed reinsurance support to protect the portfolio of primary insurers from suffering any external shock due to risk accumulation. The following reasons normally inform the need for reinsurance:

  • Increased capacity
  • Confidence building to the primary insurer
  • Risk spreading
  • Catastrophe protection
  • Stabilization

There are various methods of reinsurance which will be dealt with in subsequent edition of this column. Among them are:

  • Facultative
  • Treaty
  • Insurance Pools

Nonetheless, it should be noted that insurance customers are not party to the reinsurance contract but rather it is between the insurance companies and reinsurance companies.

On a final note, insurance is a growth industry with a silver lining on the market horizon if its potential is fully tapped and maximized by the insuring public

 

             Adebisi Ikuomola is Executive Director, Technical, Anchor Insurance Company Limited

Vanguard

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