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The Problems Associated with the Assessment of Risk in the context of Insurance.
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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THE PROBLEMS ASSOCIATED WITH THE ASSESSMENT OF RISK IN THE CONTEXT OF INSURANCE Risk assessment is used in an effort to quantify risk - the chance of negative consequence. Insurance firms or underwriters use risk assessment as the basis for their decision on whether to accept a client's risk and at what price or premium. Underwriters aim to use a method that is rational and that can subsequently be justifiedb. They construct models where they assess both the likelihood (probability) of a risk being realised and the impact (consequence) of its occurrenceb, models based on probability and consequence are not the only methods that can be used and are arguably not always the most appropriate. In this essay I focus on the problems with the probabilistic models used by underwriters; these stem from the complexities of accurately obtaining the probability of a risk being realised and its likely consequence....
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