Beruflich Dokumente
Kultur Dokumente
ILO, 2013
Key questions
What is risk?
What are the different types of risk?
What are the sources and consequences of risk?
How is risk managed?
Why do we need insurance?
How does insurance work?
What is the law of large numbers?
What is the J curve in insurance?
How is probability used in calculating insurance premiums?
What is asymmetric information?
What is risk?
Risk is an uncertain event which leads to some monetary loss
Risk is not uncertainty; we know the possible outcomes but
not which one will take place
E.g. Max and Chris are two brothers, who could be either
sick or healthy. Thus, there are four possibilities:
Max Chris
X
X
X X
Will it happen?
Prevention Mitigation
Occurrence of
the risk
Precaution Risk Coping
Ex ante Ex post
strategy: strategy:
protection repair
Adapted from R. Holzmann and S. Jrgensen: Social risk management: A new conceptual framework for social protection and beyond, in International Tax and
Public Finance (2001), Vol. 8, No. 4, August, pp. 529-556.
Risk management strategies
Prevention Precaution Mitigation Coping
aim to reduce aim to limit aim to reduce aim to relieve
the chances of exposure to risk the potential the impact of the
the risk are introduced impact of the risk after it
occurring, in before the risk risk, in advance occurs
advance occurs are introduced are introduced
are introduced before the risk after the risk
before the risk occurs occurs
occurs
e.g. immunization e.g. settling in e.g. building up e.g. visiting
areas less prone to assets and savings traditional healers
floods to save money,
working longer to
earn money
Risk management strategies
Choosing a risk management strategy depends on various
factors:
past exposure to risks
persons capacity for action
cost-effectiveness and impact of the strategy
characteristics of the risk e.g. whether the risk be prevented
or mitigated
context and characteristics of the target group e.g. economic
status, size, geographic distribution
Risk management strategies
Ex ante strategies should be favoured over ex post strategies:
ex ante strategies are more cost-effective and reduce
insecurity and vulnerability
ex post strategies cause greater stress when a risk occurs,
especially on women who may have to work more
households may cope by borrowing money or through child
labour, resulting in indebtedness and jeopardizing economic
and human development prospects
Need for insurance
Risk management can be done at:
individual level
family level
community
level
Not all insured persons claim their benefits at the same time
Contributions paid by all insured members are used to
compensate for the financial consequences of the few
persons who experience the risk
Law of large numbers
Based on the Law of large numbers, it translates each
individual risk into an average of all risks
Health risk
of different
45 year olds
Average risk
of all 45 year
olds
Age
J curve in insurance
Per capita health expenditure in Thailand in 2010
35,000
30,000
25,000
20,000 CSMBS
15,000
UCS
SSS
10,000
5,000
0
1
4
7
28
49
94
10
13
16
19
22
25
31
34
37
40
43
46
52
55
58
61
64
67
70
73
76
79
82
85
88
91
97
100
Source: Estimates based on the database of the CSMBS, the SSS, and the UCS (Bangkok, HISRO, 2011).
Calculating insurance premiums
Example 1:
Kate was born with a rare disease and has a 40% chance of
relapse in a year. If relapse occurs, she has to visit a doctor for
consultation once every 3 months. Each consultation costs
30$. Calculate the health insurance premium.