1273566 madhu kumari>ques 2 Comment on Standardization to reduce claims loss in Non-Life Insurance

ques 1> 1273566- madhu kumari F1> Rajat kumar >F2 http://youtu.be/1_p4LPfSoA8

ques 2> Comment on Standardization to reduce claims loss in Non-Life Insurance ?

INTRODUCTION

insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

According to study texts of The Chartered Insurance Institute, there are the following categories of risk^.

1. Financial risks which means that the risk must have financial measurement.
2. Pure risks which means that the risk must be real and not related to gambling
3. Particular risks which means that these risks are not widespread in their effect, for example such as earthquake risk for the region prone to it.

Discussion 

The non-life insurance industry is poised to register a net loss in the fourth quarter, due to the anticipated deluge of claims in the aftermath of “Supertyphoon Yolanda.”

The Insurance Commission said the total insurance coverage in areas hardest hit by Supertyphoon Yolanda was estimated at P70 billion, the bulk of which was accounted for by the non-life insurance sector.

“The non-life insurance industry posted a significant increase in net income in the first three quarters of the year. Unfortunately, that net income may be wiped out in the fourth quarter,” Insurance Commissioner Emmanuel Dooc said in a briefing Wednesday.

He said the expected loss of non-life insurance firms in the last quarter of 2013 would be due to claims related to Yolanda and the recent earthquake. 

Conclusion

The qualitative answer that the optimal capital rule(s) should satisfy two general principles.

First, the additional capital required for firms believed to be inadequately capitalized should be

less than the amount that would be required if they were known with certainty to be inadequately

capitalized. With imperfect risk assessment (classification), capital requirements for firms that

appear weak should be tempered: they should be lower than the optimal amounts with perfect

risk assessment. The intuition is straightforward. Because higher capital requirements distort

some sound firms’ decisions (and fail to constrain some weak firms), tempering of the

requirements reduces those costs and minimizes total costs. While tempering sacrifices benefits

for correctly classified weak firms, it reduces costs for sound firms that are mistakenly constrained by the rule The second general principle deals with the relationship between capital requirement

stringency (the efficient level of tempering) and the extent of market discipline. As market

discipline increases, fewer firms will hold too little capital in relation to risk without capital

regulation. For a given Type 1 error rate (proportion of sound firms forced to hold more capital),

higher market discipline therefore implies that decisions of a greater number of sound firms’ will

be inefficiently distorted. Moreover, for a given level of power to identify weak firms correctly