(a) Explain uninsurable risks and list two types of such risks (b) Write short notes on the following: (i) Hull surance (ii) Fidelity guarantee insurance (i...

Answer Details

(a) Uninsurable risks

Uninsurable risks are risks whose occurrence and financial loss cannot be predicted or measured with reasonable accuracy, and which therefore no insurance company is willing to cover. They usually affect many people at once and cannot be pooled, and often no insurable interest or measurable premium can be fixed for them.

Two types of uninsurable risks:

1. Loss arising from changes in fashion or taste.
2. Loss from a fall in demand or from bad business decisions (speculative/trade risks).

(Others acceptable: loss from war, inflation, gambling losses.)

(b) Short notes

• (i) Hull insurance: a branch of marine insurance that covers the ship (the vessel itself) against loss or damage arising from the perils of the sea, such as collision, sinking or fire.
• (ii) Fidelity guarantee insurance: insurance taken by an employer to cover loss caused by the dishonesty, fraud or embezzlement of employees who handle cash or goods.
• (iii) Underwriter: a person or firm that agrees to bear an insurance risk in return for a premium, and who assesses risks and fixes the premium to be paid; the term is common in marine insurance and at Lloyd's.
• (iv) Insurance premium: the sum of money paid by the insured to the insurer, usually periodically, as the consideration for which the insurer undertakes to cover the risk.