Materi 3 RMI Math UI

Lecture Note 3
Karakteristik Asuransi dan Risiko
Satuan Manajemen Risiko Universitas Indonesia

Gedung Pusat Administrasi Universitas (PAU) Lantai 7, Kampus Baru UI Depok, Jawa Barat 16424
Phone: +6221 7867222 | Fax: +6221 78849060
Website: www.ui.ac.id
@univ_indonesia @ui.ac.id id: univ_indonesia id: university of indonesia

Agenda
1. Karakteristik Dasar Asuransi
2. Hukum bilangan besar
3. Insurable risk dari sudut pandang insurer
4. Tipikal Insurable dan uninsurabel risk
5. Jenis-jenis utama asuransi
6. Manfaat dan biaya sosial dari asuransi
Satuan Manajemen Risiko Universitas Indonesia | Gedung Pusat Administrasi Universitas (PAU) Lantai 7 Page 2
Karakteristik dasar asuransi
• There is no single definition of insurance
• An insurance plan typically includes the
following characteristics (ARIA)
– Pooling of losses
– Payment of fortuitous losses
– Risk transfer
– Indemnification
Pooling of losses
• Pooling is the spreading of losses incurred by the
few over the entire group, so that in the process,
average loss is substituted for actual loss
• Thus, pooling implies
– The sharing of losses by the entire group and
– The prediction of future losses with some accuracy
• The primary purpose of pooling is to reduce the
variation in possible outcomes
Example Pooling of losses
• Assume that two business owners each own an identical
storage building valued at $50,000.
• Assume there is a 10 percent chance in any year that each
building will be destroyed by a peril, and that a loss to either
building is an independent event.
• Let us see the Expected loss and variance of loss for bearing
individual risk and for combined risk
Example Pooling of losses
• For combine risk
Law of large numbers
• With a pool of 100 insureds, the standard deviation
is $1,500; with a pool of 1,000 insureds, the standard
deviation is $474; and with a pool of 10,000, the
standard deviation is $150.
• If future losses can be predicted, objective risk is
reduced.
• The law of large numbers states that the greater the
number of exposures, the more closely will the
actual results approach the probable results that are
expected from an infinite number of exposures
Payment of Fortuitous Losses
• A fortuitous loss is one that is unforeseen and
unexpected by the insured and occurs as a result
of chance.
• In other words, the loss must be accidental. The
law of large numbers is based on the assumption
that losses are accidental and occur randomly.
• For example, a person may slip on an icy sidewalk
and break a leg. The loss would be fortuitous.
Risk Transfer
• Risk transfer means that a pure risk is transferred
from the insured to the insurer, who typically is in a
stronger financial position to pay the loss than the
insured.
• From the viewpoint of the individual, pure risks that
are typically transferred to insurers include the risk of
premature death, excessive longevity, poor health,
disability, destruction and theft of property, and
personal liability lawsuits.
Indemnification
• Indemnification means that the insured is restored to his or
her approximate financial position prior to the occurrence of
the loss.
• If your home burns in a fire, a homeowners policy will
indemnify you or restore you to your previous position.
• If you are sued because of the negligent operation of an
automobile, your auto liability insurance policy will pay those
sums that you are legally obligated to pay.
• Similarly, if you become seriously disabled, a disability-income
insurance policy will restore at least part of the lost wages.
Characteristics of Insurable Risk
• There must be a large number of exposure units.
• The loss must be accidental and unintentional.
• The loss must be determinable and measurable.
• The loss should not be catastrophic.
• The chance of loss must be calculable.
• The premium must be economically feasible.
Large Number of Exposure Units
• Risk Pools should contain a large number of
homogeneous exposure units
• Large number? Accuracy of predictions
• Homogeneous? Similar with respect to expected loss
• Underwriting and Risk Classification
– Designed to produce homogeneous risk pools
– Charge higher risks more
– Charge lower risks less
– Risk-based or actuarial pricing
• Problem of adverse selection otherwise
Accidental and Unintentional Loss
• Loss should be fortuitous [accidental or
unintentional]
– Loss should be beyond the control of the insured
– Problem of moral hazard might arise
– Presence of insurance changes behavior of the
insured so as to increase frequency and/or severity
of losses
• Why a problem?
Determinable and Measurable Loss
• Loss should be definite and measurable [time,
place and amount]
• Definite
– Easy to verify that a loss has in fact occurred
• Measurable
– Easy to measure or determine the amount of the
loss
No Catastrophic Loss
• No catastrophic loss possibility to the insurer –
correlated risks
• Occurrence of a single event should not cause
multiple losses
– Earthquake, flood, hurricane, terrorism
• Solved partially by geographic and financial
diversification [reinsurance]
Calculable Chance of Loss
• The insurer must be able to calculate both the
average frequency and the average severity of future
losses with some accuracy
• Certain losses, however, are difficult to insured
because the chance of loss cannot be accurately
estimated, and the potential for a catastrophic loss is
present.
– For example, floods, wars, and cyclical unemployment
occur on an irregular basis
• Need government assistance
Economically Feasible Premium
• Insuring loss must be economically feasible
– Loss should be significant to the insured
– Cost of premium [pure premium + loading] should
be small compared to the size of the potential loss
Two Applications: The Risks
of Fire and Unemployment
Two Applications: The Risks
of Fire and Unemployment
Limits to insurability
• Moral Hazard
– Behavior after a contract
• Adverse Selection
– Behavior before a contract
– The tendency of persons with a higher-than-average
chance of loss to seek insurance at standard (average)
rates, which results in higher-than-expected loss levels
– Adverse selection can be controlled by careful
underwriting
Types of Insurance
• Private insurance includes life and health
insurance as well as property and liability
insurance.
• Government insurance includes social
insurance programs and other government
insurance plans.
Thank You

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Lecture Note 3

Karakteristik Asuransi dan Risiko

Satuan Manajemen Risiko Universitas Indonesia

@univ_indonesia @ui.ac.id id: univ_indonesia id: university of indonesia

2. Hukum bilangan besar

3. Insurable risk dari sudut pandang insurer

4. Tipikal Insurable dan uninsurabel risk

5. Jenis-jenis utama asuransi

6. Manfaat dan biaya sosial dari asuransi

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