SUMMARY

 Insurance is a means of protection from financial loss. It is a form of risk

management, primarily used to hedge against the risk of a contingent or uncertain
loss.

 The company sells insurance which sells the insurance is called the insurer and the
person or unit buying the insurance is called insured.

 Insurable risk consists of seven common characteristics

i. Large Numbers of Exposure Units: When a large no. of standardize units

are present and are increasing, it helps the insurers benefit because the
actual results are more likely to become close to excepted claims.

ii. Define loss: This means the loss should be definite as to cause, time, place,
and amount. A second requirement is that the loss should be both
determinable and measurable. This means the loss should be definite as to
cause, time, place, and amount.

iii. Accident loss: Accidental loss should be considered as a pure loss and not
as an unexpected loss. The same is in case of ordinary business risk.

iv. Large loss: The size of the loss is significant and the premium needs to
cover the expected cost of loss, the cost of issuing and administering the
policy, adjusting losses and supplying the capital needed to practically
assure that the insurer will be able to pay claims.

v. Affordable premium: The premium should be affordable in the sense that

it should not cause significant loss to the insurer.

vi. Calculable loss: The insurer must be able to calculate both the average
frequency and the average severity of future losses with some accuracy.

vii. Limited Risk of Disastrously large loss: In case of natural calamities like
earthquakes, hurricanes, floods, etc. people will be suffering with a large
amount of losses on their head which eventually will have to be borne by
the insurer. Thus, it will cause a reduction in issuing the policies.
  There are different types of insurance like home insurance, health insurance, causality
insurance, property insurance etc.

 The actual application for benefits provided by an insurance company is called

insurance claim.

 All the policy holders must file an insurance claim before any money can be paid out.

 In general insurance claim is filled with the local agent of the insurance company who
is responsible for studying the details and negotiating the payments from the required
insurer.

 Once the insurance claim is filed with the local agent the insurance company sends an
investigator called appraiser.

 Appraiser evaluates the claim and determine whether the claim is reasonable or it’s a
fraud and if its reasonable then payments are made.

Conditional Probability

 Conditional Probability is also known as Bayes Theorem. In Conditional Probability

one outcome is already known and we have to find out the probability of other. One
condition is attached, one outcome has already occurred. The two events are not
independent.

P(A/B) =P (A and B)/P(B)

Where A is given, so the one given should be written in the denominator.