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06 Apr 17 19:08

Insurance
operations are guided by certain key principles. For proper underwriting of
risks, it is important to understand what risks are insurable and how insurance
can be effected. The forefathers of the industry established criteria of
deciding whether a risk is insurable or not. For a risk to be insurable it has
to fall within below criteria of risk:


1. Large number of
similar exposure units


2. Accidental and
unintentional loss


3. No catastrophic loss


4. Determinable and
measurable loss

5. Calculable chance of
loss


6. Economically feasible
premium



There
are certain principles of insurance that guide insurance operations


1. Principle of utmost
good faith


2. Principle of
insurance interest


3. Principle of
Indemnity


4. Principle of
contribution


5. Principle of
subrogation


6. Principle of loss
minimization


7. Principle of
proximate cause


Looking
through the sustainable development goals (SDG’s) and trying to match this with
insurable risks, one might legitimately consider any number of SDG’S goals as
falling outside the scope of insurance. For this risks to be insured, the
insurance industry has to rethink insurance and be innovative in approaching
this matter. Let us try looking through the principles in the eyes of the
SDG’s.


Insurable risk.

The
nature of the challenges addressed by the SDG’s are peculiar in their own way.
This challenges are global in nature are originates from man’s own activities. As an example, the Great Barrier reef in Australia is the largest living thing on Earth. As
the world's most extensive coral reef ecosystem, the World Heritage Committee considered the
state of conservation of the Great Barrier Reef World Heritage Area. It is
therefore right to say that the great barrier reef belongs to the world and
Australia is the custodian of this great ecosystem.

The Great Barrier reef marine park authority in its outlook report noted that the
reef is under pressure from
Climate change
Poor water quality from
land-based run-off

Impacts from coastal
development

Illegal fishing
These factors affecting sustainability of the ecosystem are not accidental (Risk
criteria 2) as they are as a result of man’s activities. The destruction of the
ecosystem can also be viewed as a catastrophic event with far reaching
consequences. There
is also a big problem quantifying the value and chances of loss resulting from destruction of such ecosystem.

The Sequoia &
Kings Canyon National Parks in California is home to the tallest trees. For an
insurance company to give insurance for this ecosystem, a problem would arise
in establishing the sums insured (value). Since this destruction of the
ecosystem cannot be indemnified, how would settlement value be established?
Would the sums insured be the market value of timber that can be generated from
this trees? How would you value a tree that has existed for thousands of years be established?
Would earnings from tourist visits to the ecosystem be a factor? Would the insurance
company insure each tree individually or as an ecosystem? What premiums would commensurate destruction of the
ecosystem? What perils would be covered? This are pertinent issues
that insurance need to evaluate and give solutions to.

For insurance to support developments towards sustainable insurance, the industry needs to evolve and rethink their operations. Rethink of the principles and what risks are insurable would be a good starting point. Progress into setting up underwriting guidelines, warranties and conditions applicable and through their advisory role as risk managers.


Category: Other

Location: Africa


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