Finance Mrpl

Large number of standardised exposure units: If a very large number of standardised

exposure units are present and are increasing, it helps the insurers benefit because the actual

results (claims) are more likely to become close to expected results (claims). If we consider

the case of automobile insurance, it covers about 175 million automobiles in India, which is an

example of large number of standardised exposure units.

• Definite Loss: Definite Loss comes in cases where the event gives rise to definite loss at a

known time, known place and from a known cause. Preferably, the time, place and cause of

a loss should be clear enough that a person, with sufficient information, could, without bias,

verify all three elements. Fire accidents, automobile accidents and injuries for a worker come

under this characteristic.

• Accidental Loss: Here the event in the case of accidental loss should be casual rather

unexpected and the loss should be pure. If we consider the case of ordinary business risks, it

is not considered insurable.

• Large Loss: The size of the loss must be significant from the perspective of the insured.

The premiums need to cover the expected cost of losses, 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.

• Affordable Premium: The premium should be affordable in the sense that it should not

cause significant loss to the insurer. If the chances of an event happening are so high, the

cost of the event is huge and the resulting premium is large relative to the protection offered,

then there are fewer chances of people buying that insurance.

• Calculable Loss: The loss should be calculable. If not exactly calculable, it should at least

be estimable. Possibility of loss is generally an observed exercise, while cost has more to do

with the ability of a person who has a copy of insurance policy makes a sensibly definite and

6/29/12 IBS Case Studies

115.249.252.231/casestudies/mumbai/Mitra.asp 3/4