How risk is handled?
How risk is handled? An individual is always Concerned because of the uncertainties of life. He does not know whether or not a given loss will occur to him individually. For an individual, the risk is very large. This is simply because an individual can not obtain a sufficient number of exposures to have an accurate predictions as to occurrence of losses. It is not the probability of loss which causes difficulty, but rather the uncertainty as to whether an individual will be among those who are expected to suffer loss. Had the loss been certain, one could perhaps prepare himself for it
in advance. Since thi is not the case, one should try to reduce risk through insurance and other means.
One can handle risk by assuming it. Most of the people do it knowingly and unknowingly. In many cases we pass through life by way of accepting or assuming many small risks. However in many occasions one is to accept it simply because one can not afford to pay for it’s reduction or transfer, If one can afford to pay the price of risk transfer, the insurance company or some organization will bear the risk. In that case insurance company will bear the risk for a price. But how the
insurance company will bear the risk ? The insurance company handles risk by utilising the combination method as the basis of their insuring -operation. The method of combination is the system of handling risk that usually involves the use of the low of large numbers. The insurance companies persuade a large number of individuals, known as insured to pool their individual risks in a large group. When Sufficiently large numbers are grouped the actual loss experience over a period of time will closely approximate the probable loss experience. The insurance company has little or no risk at all if this method is used properly. When all of the individual objects are pooled into one group, the risk is no longer present, if the requisites of insurable risks are met with.