CHAPTER 4 TUTORIAL 

Question 1

There are five characteristics of insurable risk. First, fortuitous. Fortuitous is the
happening of the event must be entirely accidental. It is no possible to insure against
an event which will definitely occur, since it involves no uncertainty of loss and
therefore no transfer of risk would be taking place.
Second, homogeneous exposures. This is to enjoy the benefits of the Law of Large
Numbers. It given a sufficient number of exposures to similar risks, the insurer can
forecast the expected extent of their loss.
Then, pure risk. Only pure risk can be insurable but no speculative risk. A pure risk
exists when there is a chance of loss but no chance of gain. Next, particular risk.
Particular risk are much more personal both in their cause and effect. These risk
arise from individuals in their consequences.
Lastly, public policy. It is the common principle of law stated that contracts must not
be contrary to what society would consider to be the right and moral thing to do. It is
not acceptable to insure against the risk of criminal venture.

Question 2

There are some benefits of having insurance protection. First, peace of mind. The
knowledge of insurance exists to meet the financial consequences of certain risks,
provide a peace of mind. Insurance also helps to remove fear and worry for losses of
individual and business executives.
Besides, social benefits also be the part of benefits in having insurance protection.
Compensation paid to insured which reduced the cost of social services. Workers of
factory destroyed by the fire might have to fact unemployment had the factory being
insured.
Next, loss control. Insurance primarily concern of controlling consequential of losses.
In practical, buyers of insurance will normally being offered a loss control services by
insurer.
Moreover,investment funds. Insurers accumulate large fund which they hold as
custodians and out of which claims are meet. These fund are usually invested to earn
interest or income in the public and private sector.
Lastly, invisible earning. Insurance can contribute to the country’s balance of
payments as invisible export or import. If we are consuming product that is not a
Malaysian based product, it is meaning that we are consuming to the international
product and importing the service from outside of our country.
Question 3

The primary functions of insurance is to act as risk transfer mechanism. Insurance

provide some form of financial security and it will not prevent any of the risks from
occurring. The owner can transfer the financial consequences of the risk to the
insurer in return for paying a premium.