Example 1: When the Foleys take out insurance to protect their home they will have to be open and honest in answering all relevant questions. This will include revealing that their house does not currently have a burglar alarm.
Example 2: Motorists must reveal if they are not fully qualified and only have a Learner Permit. Similarly, a person looking for life assurance must disclose if they have a serious heart condition. Failure to do so means that the insurance contract will be declared null and void (having no legal force).
Step 3
Risk is assessed and a premium is calculated. The insurance company will calculate the premium to be paid to cover the risk. It will then issue a quotation for that amount.
Factors that influence the size of the premium include: Level of risk involved. The greater the risk, the higher the insurance premium charged. Example: It is more expensive for an 18-year-old to get car insurance than a 35-year-old, even though they may be driving identical cars. From experience, insurance companies know that younger drivers are far more likely than older drivers to drive recklessly and to be involved in an accident. Loadings are extra charges added to motor premiums to take account of the different characteristics of the applicant, e.g. age of driver, age of their car, full licence or Learner Permit, record of previous claims, etc. Value of the item being insured. A house worth €200,000 will have a higher premium than a house worth €100,000. Profit targets set by the insurance company.
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Business Careers Actuaries are the people in an insurance company who calculate the risk of something happening. They use statistics to calculate risks and insurance premiums that customers should be charged.
