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Risk Selection and Classification in Insurance

Chapter 8 discusses the selection of risk in insurance, focusing on the process of evaluating applicants to determine appropriate premiums or potential rejection. It outlines the purpose of risk selection, factors affecting risk, sources of risk information, and methods of risk classification. The chapter emphasizes the importance of avoiding adverse selection and ensuring fair treatment of applicants.

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10 views17 pages

Risk Selection and Classification in Insurance

Chapter 8 discusses the selection of risk in insurance, focusing on the process of evaluating applicants to determine appropriate premiums or potential rejection. It outlines the purpose of risk selection, factors affecting risk, sources of risk information, and methods of risk classification. The chapter emphasizes the importance of avoiding adverse selection and ensuring fair treatment of applicants.

Uploaded by

mdahanafabidudoy2003
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd

Chapter 8

Selection of Risk
Selection of Risk

 Selection of a risk is a process whereby inferior lives are


“weeded out”.

The function of the selection process is to determine whether the


degree of risk presented by applicant for insurance is
commensurate with the premium established for persons in his
category or some additional premium should be charged or the
applicant should be rejected the insurance.
Purpose of Selections

i. To determine whether the proposal should be accepted or not.


ii. To determine the rate of premium to be charged from assured.
iii. To classify the risk and to determine premiums accordingly.
iv. To avoid any discrimination on the part of the lives assured.
v. To avoid adverse selection which means selections of persons for
insurance who are not insurable and charging of lesser premium for
those who are to be charged higher premium.
Factors Affecting Risk
i. Age
ii. Build (height, weight, chest expansion of proposed life)
iii. Physical Condition (Sight, hearing, heart, lungs, kidneys etc.)
iv. Personal History (health record, past habit, previous occupation, insurance history)
v. Family History
vi. Occupation
vii. Residence
viii. Present Habits
ix. Morals
x. Race and Nationality
xi. Sex
xii. Economic status
xiii. Defence services
xiv. Plan of Insurance
Sources of Risk Information

i. The proposal form


ii. Medical examiner’s report
iii. Agent’s report
iv. The inspection report
v. Private friends report
vi. Attending physician
vii. Medical information bureau
viii. Neighbors and business associates
ix. Commercial credit investigation bureau
Methods of Risk Classification

i. The Judgment Method


ii. Numerical Rating System

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