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Risk: Risk is created from uncertainty. It is the possibility of unfavorable deviation from expectations. Risk can be measured.

So it can be said that risk is measurable uncertainty. Generally we can define that risk is the Probability or threat of a damage, injury, liability, loss or other negative occurrence, caused by external or internal vulnerabilities and which may be neutralized through premediated action. According to John J. Hamton, Risk may be defined as the likelihood that the actual return from an investment will be less than expected return Classification of Risk The various life risks can not be treated individually. So they are put under a few broad categories based on the degree of each risk. There are two main classes of risk: a) Uninsurable Risk: If the insurance can be purchased at higher premium there should not be any uninsurable risk. Theoretically after investigating all the factors affecting a risk the life insurance company should be able to give each due consideration and determining the premium charge for the insurance. Practically however there a number of reasons why some persons are not insurable. Uninsurable risk can be classified in following types-Non-financial Risk, Speculative Risk, Fundamental Risk. Non-financial Risk:These are the risk the outcome of which can not be measured in monetary terms. For example-Choice of car, its brand, color etc., Selection of restaurant menu, Career selection,Choice of bride/groom etc. Speculative Risk: Speculative risks are those risks where there is the possibility of gain or profit. At least the intent is to make a profit and no loss. For example:Question of withdrawal quota system,The question of credit sale etc.Fundamental Risk:These are the risks mostly emanating from nature. These are the risks which arise from causes that are beyond the control of an individual. The common examples are-Flood and cyclone, subsidence and landslip,Earthquake, famine, draught.b)Insurable Risk: The insurable risks are those which after the selection process can be carried out by an insurer although there can be different terms and conditions for different policy-holders. There is a standard of risk, if the risk is not too great (i.e., uninsurable) it can be insured as sub-standard risk even if he does not meet the requirements of a standard risk. The risk of death among sub-standard lives varies but in all cases it is higher than that of standard lives.Insurable risk is divided into 6 broad cases:Standard Risk:The standard risk is related with normal life where there is no

much or no less risk. It does not refer to ideal or first class life but it is rather a mix of good and bad lives. This group does not contain only those persons who are free from all impairments nor those people who are under serious illness.Substandard Risk:Sub-standard risks are those risks which are higher though insurable than the standard risk. Thus, the sub-standard risks are above the standard risk and bellow the uninsurable risk.Super-standard Risk:The superstandard risk is present where there is lesser risk than the standard risk. Risk is also called a preferred risk. An insurer does not prefer to issue preferred risk policies because it increases the premium on other standard risk which may cause reduction in loss of business.Financial Risk:These are the risks where the outcome of an event (i.e., even giving birth to a loss) can be measured in monetary terms. Pure Risk: Pure risks are those risks where the outcome shall result into loss only or at best a breakeven situation. We can not think about a gaingain situation. Particular Risk:These are mostly man created because of their negligence. Error in judgment, carelessness disregarded for law or respect. We may call these as risk of personal nature. Risk Measurement: Risk is adjusted with men in every sphere of life. Risk and uncertainty is universal truth like as death and birth of human being. Men are always anxious about theirs coming danger and the loss arising from such risk and uncertainty. Therefore he always tries to minimize these losses. In order to minimize the losses men took many policies but they failed in most cases. So the people took a unique policy to protect the risk and uncertainty that is called insurance. The insurer makes compensate to the insured person in lieu of premium, consideration or installments.The insurer measures risk for many reasons:1)The first and foremost objective of risk measurement is to verify the acceptability of proposal.2)The second objective is to determine the premium.3)To classify the risk into various classes.4)To remove the discrimination among the shareholders because risk is fluctuate in most cases.5)To avoid all adverse risk. The risk are measured or evaluated for fixation of premium to be charged by the insurer. And it is become an important job to measure the risk. Factors that affect risk: In life insurance, the factors which may affect the risk are usually those factors which are affecting the mortality; they are also called factors affecting longevity of a

person. The mortality is not the only risk but the capacity and willingness of a person also influence the insurance decision. These factors are discussed in below: Age: The age of the life to be assured is the most important factor to affect mortality. Except for a few years of the childhood, the premium is determined at every year of the completion of the age. The corporation asks for the age nearer to birthdays. The person below six months and the person above six months older of the age will be treated of the same age. For instance, a person of 22 years 7 months and another person of 23 years 5 months will treated of the age of 23 years. Build: Build refers to physique of the proposed life and includes height, weight the distribution of weight and chest expansion. There are standards of weight according to maximum weight reveal the indication of certain hidden diseases. Therefore this sign is not favorable. The relationship between height, weight, girth and expansion of chest are the basic determinations of morality expectations. Physical Condition: The physical condition of the age life proposed as a direct bearing on the morality of the life. Insurers are, therefore, very particular about the conditions of an applicants sight, hearing, heart, arteries, lungs, tonsils, teeth, kidneys, nervous system etc. Personal History: The personal history of the life proposed would reveal the possibility of death to him. To history may be connected with the- Health record, Past habits, Previous occupation, Insurance history.Health Record:The past health record is the most important factor under personal history because it affects the longevity or morality of a person to a greater extent. It includes any operations of the life proposed. The medical examination may reveal these facts. This information is also given by the applicant.Past Habits: The insurers want to know the past habit of the life proposed for drugs or alcohol because the cure may be only temporary. History of Occupation: If the proponent was employed in hazardous or unhealthy occupation, there is a possibility that he may still remain ill-effects therefore or may revert to such occupation. Insurance History:The previous amount of insurance may disclose the degree of risk of the applicant. If he was refused insurance, it might be a suspicious factor of his insurability. If it was found that the applicant was already insured for

adequate amount this request for more insurance is regarded with suspicious. Family History:Like the personal history, family history also requires information of habit, health, occupation and insurance of other family members, particularly of the parents, brother and sisters. The childrens history is also required.Occupation: Occupation is an important factor to affect risk. It affects the occupation is various ways. Firstly, the nature of the work may be hazardous because he may suffer an accident at any time while at work. Secondly, the morale of the workers may go down. Thirdly, the chemical effect may be poisonous. Fourthly, the dusty or unventilated house, unhealthy or insanitary environments may deteriorate the health of the workers. Fifthly, in certain occupation, the occupational diseases are common. Sixthly, excessive mental and nervous strain may cause financial worries. Lastly, the lesser income may affect the health of the worker. Residence:The residence also affects the risk. The risk will be lesser in a good climate area and more in a bad climate although the difference is narrowed down because of better medical and sanitary facilities. Information about the previous residence is equally important. Present Habits:The general mode of living of the proposer affects the risk. Drunkards and non-temperate persons cause increase in morality. Similarly, temperate habits tend to increase longevity of a person. Excessive and careless smoking tends to shorten the life due to development of nicotine poisoning. The past habits are also considered important. Morals:It has been observed that the departure from the commonly accepted standards of ethical and moral conduct involve extra morality. Infidelity and departure from the code of sex behavior are seriously regarded because these may affect the health. Unethical conduct is considered to be another form of moral hazard. Race and Nationality: The morality rate differs from race to race and nation to nation. In Bangladesh person of high, race or caste are expected to live longer than the scheduled castes or tribes. Similarly countries near to equator have more mortality. The climate and way of life of a country affect the health conditions of the people. Sex:Mortality among female sex is, generally, higher than that of male sex because the physical hazard of mortality is present in the former case. Moreover the ladies are physically more

handicapped. The lesser education, conservatism and non-employment of the ladies also affect the mortality. The absence of proper examination of the ladies also counts more hazards. Economic Status:It is essential to examine that the family and business circumstances of the proponents are such as to justify the amount of insurance applied for. This investigation also reveals whether the income of the applicants bear a reasonable relationship to the amount of the insurer which he proposes to carry. The higher economic status generally provides a better field for insurance due to various reasons. Defense Service:Though there has been much improvement in defense technology, yet flying or gliding etc. is still considered hazardous one. Sometimes certain restrictive clauses are imposed for insuring persons engaged in such services. Plan of Insurance:Certain plans involve more responsibility to the insurer at the death and so these plans are restricted to only first class lives. Similarly, some plans have lesser risk and therefore can be issued without any extra investigations. Sources of risk information: Information on the factors affecting risk is collected before it can be evaluated to determine the degree of risk. It is collected from various sources because it is not possible to get all information from one source. Moreover, information from various sources on a particular item will provide an effective check.Some important sources of risk information are discussed below: The Proposal Form:The first and the important source of risk information is application form. The proposer is required to disclose all the material facts truly and fully. If any information is not asked by the insurer, the proponent should reveal the information if he thinks it to be material. Usually, the agent asks all the questions which are written in the proposal form.The proposal form is divided into two parts:-Application form; and Personal Statement. Medical Examiners Report:The medical examiner has to identify the applicant to avoid the case of impersonation. The knowledge of medical examiner to the assured is also required. General appearance is an important question where proposals apparent age, general health, habit, vaccination and deformity are asked. Agents Report:Although agents has to pursue or canvass a lot for getting proposal, yet he is required to state

whether the life to be assured, is insurable or not. He has o furnish information of sum assured, name, acquaintances with proposer, time and place of first introduction, identity of the life, medical examiner, name and address, monthly income and occupation of the proposer, general state of health, relationship with agent, etc. The Inspection Report:The insurers generally verify the information obtained by an independent agency. Sometimes this investigation is conducted without the knowledge of the applicant. Today, the insurers have their own inspection staff who are generally known as inspectors or field officers or development officers. Private friends Reports:The information from private friends is not generally required. But for some checking purposes, confidential reports of the friends of the proposer are considered. They are requested to reply those questions which are generally asked in agents report. Attending Physicians:The attending physicians can give better records of health, history of the proposed life and his family. Medical Information Bureau:The organization commonly known as MIB is an effective bureau for furnishing confidential medical reports. This bureau is common in U.S.A, but in Bangladesh such bureau has not started. Neighbors and Business Associates:Confidential reports about the applicant can be easily obtained from the neighbors and business associates although it may be prejudice to the extent of friendship or enemity with the proposer. The obtained information can be tailed with other information. Commercial Credit Investigation Bureau:The bureau assembles financial and social information of businessmen. The credit worthless is decided by the Bureau. The information given by the Bureau is treated confidential. These reports are expected to be correct and fair to a greater extent. Methods of risk classification: The Judgment Method:The judgment method is generally used where a single factor is to be considered or where the decision for acceptance or rejection is to be taken. The second use of this method is that where numerical rating fails to decide, this method comes to much assistance because the merit of each and every factor is personally considered.

Numerical Rating System:This system is based upon the principal that a large number of factors enter into the composition of a risk and that the impact of each of these factors on the longevity of the risk can be determined by a statistical study of lives possessing that factor.