1. What is defined risk insurance?

When we talk about defined risk insurance, it is a transaction between the insurance company and the insured in which the insured pays premiums to create a fund for the insurance company to use to pay settlement of losses and accordingly the risks of possible losses are not transferred from the insured to the insurance company. In cases where we see losses that are lower than the premium, the insurance company must return most or all of the premium to the insured. If the loss exceeds the premium, the insured must pay an additional premium to the insurance company.

2. Limits and deductions:

Thus, we see that in contrast to defined risk insurance, the insured in standard insurance contracts transfers the responsibility related to a specific risk to the insurance company, in return, the insurance company insurance charges a premium for which the insurance company maintains a loss reserve and can use this for investment, retaining all of the income generated. Thus, we see that defined risk insurance is an alternative risk transfer insurance product with features of both excess insurance and self-insurance, defined risk insurance allows the insured spreads the premium payments over time, while retaining the possibility of a partial or full refund of the premium and investment income if the loss is less than initially expected.

Limits and deductibles in defined risk insurance:

For this situation when issuing a defined risk insurance contract, the insurance company issues a standard insurance contract and modifies the limits and deductibles in a specific way as follows and with the insurance company Insurance calculates the total premium by the expected losses, discounted for investment income. Usually we see them separating insurance premiums and net investment profits into an account specifically for the insured and with the interest accrual account belonging to the insured, the amount in this account is premium plus net profit from investment of the premium.

+ If at the end of the policy period funds remain in the accumulation account, the insured can request a withdrawal.

+ If at any time during the policy term the account is fully paid, the insured will pay an additional premium or the contract will terminate.

Reasons for using Risk Insurance determine:

The reason comes from the fact that insurance companies often engage in defined risk insurance to offset long-term contractual liabilities and accordingly the insurance company can save money by self-insurance. for indemnity risks in long-term contracts, in fact if no event occurs that causes loss, because the risk insurance contract determines the transfer of risk from the insured to insurance company, the insurance company's benefit will be less than the insured's.

+ Insurers also enter into limited insurance agreements to cover excess losses on other insurance contracts.

+ Companies use defined risk insurance to insure product commitments, environmental risks or pollution risks and intellectual property risks.

3. Types of risks in insurance:

In reality, we see that in addition to identifying the losses and consequences that the risk will bring, you need to know what types of risks insurance will compensate for when they occur and we understand this issue. You will choose the insurance package that best suits you. So what types of risks are there today?

3.1 Financial risks and non-financial risks

Financial risks lead to financial losses. Accordingly, we see that these types of risks will be measured in cash. Specifically, financial risks will cause financial losses, such as costs to restore and repair costs. Repair or replacement of assets and financial risks do not only refer to property damage but the risks of human health loss can also be assessed in money based on previously negotiated terms. That is the cost of treatment and reduced income due to itloss of ability to work v.v…

So in this case, we see that non-financial risks are risks that cannot be measured in cash. This is the type of risk that does not cause financial damage but it affects your emotions and it has can make you feel dissatisfied and unhappy. This type of risk is often encountered in life, but the level of damage cannot be measured financially.

3.2 Pure risk and speculative risk

With this type of rudder, we see that most pure risks will cause more or less damage to us and if we are lucky, this damage will not have a big impact or can be overcome before the risk occurs. Called initial breakeven with this type of risk, there is no intention or no internal profit factor. For example, motorbike accidents, work accidents, etc.

As we know, speculative risk is a type of risk that has a purpose, or it can be understood that this is the type of risk that will have a profit factor inside. This is the type of risk that occurs during the process of investing and doing business. . For example, investing in stocks, investing in business, etc. This investment can make profit or loss or break even, but its ultimate purpose is to make a profit.

3.3 Risks that can be insured:

For this type of risk, we need to understand that with insurance activities, what you want most is to be insured when the risk occurs, but you must know that not all risks are insured. and for the reason that there are types of risks that insurance businesses cannot shoulder. Or there are types of risks that are intentional or due to participants taking advantage of loopholes in the indemnity clause to benefit from insurance, and therefore, depending on each case, that risk can benefit from insurance. dangerous or not.

For a risk to be included in the types of risks in insurance, that risk needs to meet specific conditions for the losses that the risk brings must be of a random nature, the risk that can be insured must be carried. objective nature, not due to the insurer's intention. If risks are not random, there will certainly be many people who will intentionally harm themselves or others to benefit from insurance, violating ethical and moral standards. Even the highest risk insurance and these types of risks will certainly come sooner or later, but the time of death must also be unexpected.

3.4 Risks covered:

When talking about insured risks, we must clearly distinguish between insured risks and insurable risks. Insurable risks are a necessary condition for risks to be insured, and the types of risks that are insured are risks of natural disasters, accidents, and unexpected incidents that are accepted by the insurance company to overcome the consequences. consequences for the insured when the risk occurs and insured risks can include financial risks, pure risks, and personal risks. So we see that normally non-financial risks, speculative risks and general risks are excluded and do not belong to insurance risks.