Insurance & Risk Management | Peril | Hazard | Dr. Sahil Roy

Insurance & Risk Management Peril Hazard Dr. Sahil Roy PERIL : A peril is a cause of risk. In other words perils are causes of losses. Fire, earthquake, flood, etc are some example of perils. individuals and organizations buys insurance policies and use other methods to protect their assets from perils. HAZARD: It is condition which increases the frequency or severity of loss. For example chances of theft are more in the absence of proper fencing or security. Similarly using spurious lubricants for a machine is a hazard. The spurious lubricant can create a condition in which the machine is subject to damage, which in turn may result in loss RISK: Risk is often thought of in terms of chances (or probability) of loss. The probability of a particular outcome can be defined as the proportion of times that such an outcome is observed to occur in an infinitely large number of independent events. NATURE OF RISK: Loss as used in insurance has a limited meaning. It is defined as an undesired unplanned reduction in economic value resulting from chance. The word risk in the Insurance world refers to a peril against which precaution is to be undertaken. DEGREE OF RISK: It refers to the intensity of objective risk, which is assed by finding the difference between the expected losses with that of the actual losses. FORMULA: Degree of risk = Diff. between Expected and Actual loss Expected loss