Risk Classifications In Insurance.

Property and casualty insurers face many types of risks, known as exposures. Exposures exist for all types of insurance that is provided by a specific type of insurance company.

The most common types of risks include paying claims for automobile accidents and storm damage to a dwelling or property. Insurance companies can manage the risks that are insured by excluding certain types of coverage from a policy.

Claims

Insurance companies' primary objective is to pay claims and to earn a profit. This can be accomplished by accepting only certain types of business that have a low-to-medium chance of experiencing a loss that will result in a claim. The most common types of policies property and casualty insurers issue are automobile and homeowners policies. Insurance companies will pay for valid claims that have not been excluded on the policy.

Peril

Insurance companies that provide policy coverage for an individual's automobile, home, life or health insure against losses that are known as perils. A peril is considered an event or action that has the potential to cause loss. Perils exist for all types of policies. Perils for an automobile policy include theft and vandalism. Homeowners policies provide insurance against perils such as fire, wind or storms. Health insurance provides protection from health-related perils such as a heart attack.

Hazard

Insurance companies are also concerned with hazards that exist which can increase the chance of a loss occurring or cause more damage than expected. Insurance companies take hazards into consideration when determining cost and eligibility for a policy. Hazards can include the type of wiring used in a house when determining risk of loss due to fire. Smoking is also a hazard when determining losses for a health insurance or life insurance policy.

Distribution of Loss

Insurance companies that calculate the amount and type of risk to insure must understand the distribution of possible losses. The quantity of losses within a specific period is known as the frequency of loss. In addition to loss frequency, insurance companies are also concerned with the severity of losses. Loss severity is typically the amount that an insurer pays out for a benefit or a claim.

Exclusions

Insurance companies have various methods to balance or manage their amount of risk while providing insurance coverage. The most common way insurance companies manage risk is to exclude specific types of coverage from a policy. Exclusions are made for risks that an insurance company does not want to cover. These can include heath conditions or actions of an insured, such as negligence.