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Homogeneity of risks

Homogeneity of risks image

Homogeneity of risks

Provided that there are a sufficient number of exposed to the same "risk" objects, the insurer can suggest the expected amount of losses for a certain period. In the absence of a large number of similar, equally at risk sites, the task is much more difficult and the calculation of the required premiums becomes more subjective. Insurers may or may not be accurate in determining the premium, but will inevitably want to protect themselves by collecting a premium that should cover even the worst case.

The presence of a large number of sites exposed to a similar risk is usually considered a characteristic of insured risk. However, it is possible to give examples in which the situation was not like that, but insurance is still provided. Occasionally there are reports of unusual new risks for which insurance is taken out. More and more space satellites are launched every year, but they are still relatively rare and have definitely not existed long enough for insurers to create a statistical base for thousands of homogeneous risks.

According to most regulatory systems, the insured must have a financial interest related to the loss and it must be accidental if an insurance claim is filed against it. This excludes the possibility of insuring other people's property or intentionally causing damage or loss in order to benefit from the insurance policy.

Public policy

It is generally accepted legal practice that contracts do not contradict what society would consider right and moral to do. Contracts for the killing of a person are unacceptable, as are those aimed at causing property damage or stealing. The same principle applies to insurance contracts. It would not be acceptable to take out insurance against the risk of failure of a criminal enterprise. For example, society could not accept the idea of ​​thieves taking out an insurance policy to receive the expected profit from a theft if they were caught by the police and therefore failed to commit the act. This may seem a little too much, but what about the risk of incurring a fine? A person may be caught speeding or, worse, charged with dangerous driving or drunk driving. The risk that is taken is related to the possibility of imposing a huge fine. The person definitely has a financial connection to the loss and it could be argued that it is accidental as far as he is concerned. However, society would not consider it acceptable for a person to be able to avoid the penalty hidden in the fine simply by taking out insurance. A British company did, at some point, offer a policy to cover the driver in the event that the driver was charged with breaking the law for drunk driving and had his driver's license revoked. This insurance policy was withdrawn from the market for the reasons discussed above.


Source: David E. Bland "Insurance: Principles and Practice"