Risk That Can Be Covered By Insurance (Insurable Risk)

The purpose of having insurance is indeed to bear financial losses for various kinds of risks (uncertainties) that have potential to occur. However, not all risks of causing loss can be covered by insurance even though the risk is included in the risks listed in the insurance policy.

Maybe some of you have experience when filing vehicle insurance claims. Usually the insurance will ask for a chronology of events that causes your car to be damaged. This procedure is carried out to ensure that the damage incurred is not the result of intentionality with a profit-seeking motive, but purely a pure accident event.  Essentially, every claim submitted will be researched and analyzed first by the insurance company to determine whether it belongs to the category worthy of the claim or not.

          In principle, the insurance company as a risk insurer will not provide insurance protection against all high-risk events. Thus, insurance companies set restrictions on insurable risks.  In the context of these insurable risks, insurance companies have important criteria that you need to know when you want to buy insurance products.

1. Risk Can Be Assessed by Money (Financial Value)

Every risk that occurs must result in a loss that can be measured by money or financial.  Why financial value? The company will provide a certain amount of money that will be paid to the insured when the risk occurs.  So, the risk of discomfort or feeling threatened is uninsurable risk because it cannot be measured by money.  All risks that are sentimental must be expressed in value for money in order to be covered by insurance. An example is the risk of death expressed in money based on the insured's ability to pay premiums.

2. The Same Risks (Homogeneous Exposure)

The next risk that falls into the category of insurable risks is the risk that causes losses must be the same or homogeneous and in large amounts (homogeneous exposure). This is important so that insurance companies can measure risk based on probabilities and statistics of past experience. For example, if the same risk only amounts to below 5 then the contribution or premium becomes large, while if the exposure is more and more then the contribution becomes smaller. This is related to the insurance doctrine of the law of large numbers or the Law of the Large Number.

For example, the risk of damage or loss of Monalisa's original painting. Because the number of original paintings of Monalisa is only one on the face of this earth, it belongs to the category of risk that is uninsurable risks.  The reason is, with the number of only one, there is no benchmark for insurers in measuring the value or price and the value of losses.  So the keyword in this homogeneous exposure is the risk that will be accounted for must be general.

3. Risk Must Be Pure Risk (Pure Risks)

Pure Risks are risks that are completely purely cause losses when they occur and will not cause losses if they do not occur.  For example, the risk of accidents, floods, fires, landslides, and so on.  However, these pure risks must also be free from deliberate motives in order to seek profit from the insured side.  An example is the risk of fire that could be caused by deliberate factors in order to get funds or compensation from insurance claims.

Other risks of a speculative nature that contain the possibility of obtaining profits (gain or profit) in general are also uninsurable, including the risk of defeat in gambling is uninsurable risks.

This pure risk has two categories, namely individual risk (personal) and property risk (property). Individual risk is a risk that occurs to each individual that affects the individual's ability to earn income. For example, accidents, prolonged illness, and death. Meanwhile, property risk is the risk of loss that occurs on objects or assets belonging to someone (insured) who has suffered damage or theft.

4. Special and Fundamental Risks

Special risks (particular risks) are risks that if they occur will cause measurable and controlled losses. Examples are collisions, ship accidents, turbine explosions, and so on. Pada generally all specific risks can be insured, but not on fundamental risks (fundamental risks).

Fundamental risk is a risk that if it occurs can cause losses beyond the human ability to control it with very widespread consequences aka catastrophic. Risks that belong to the category of fundamental risks are changes in habits / social, wars, inflation, storms, earthquakes. To be insured, fundamental risks will go through a process of balance and careful assessment from the insurer.

5. Sudden and Unexpected Risk (Fortuitous)

 Fortuitous is a risko that if it occurs to cause sudden and unexpected loss or damage (fortuitous) from the accountability party. The risk of dying dunia (death) is one example of this risk. Death is indeed an event that is inevitably experienced by every human being, but when it will occur is an event that can come suddenly and unexpectedly. Therefore, the risk of death is included in the insurable risks covered in the life insurance business.

6. Insurance Interest Risk (Insurable Interest)

Insurable interest risk is a risk that if it occurs resulting in financial losses for the insured party. In other words, people who want to insure the risk must have an insurable interest in the risk. So risiko losses for fires that occur only apply to houses owned by the insured so that it does not include the neighbor's house even though the impact of the fire caused damage to the neighbor's house from the insured.

7. Not Contrary to Public Order (Not Againt Public Policy).

All forms of losses that occur due to risks that are contrary to public order (not againt public policy) are automatically uninsurable or uninsurable risks. For example, the risk of financial loss due to being ticketed by the police cannot be paid with insurance. Including items obtained from the proceeds of theft are also included in the category of uninsurable risks. In essence, all insurance contracts must not conflict with the provisions of applicable law.

8. Premium Must Be Reasonable (Reasonable Premium).