Risk Assessment

Risk assessment is the process in which the insurance companies evaluate the risk to cover any individual. In this process, various data points and possible risks to the policyholder are taken into account to determine the insurance premium. Risk assessment is done for every individual that applies for an insurance policy.

Risk assessment is used by the actuaries and underwriters in insurance. The process helps to determine the premium amount after evaluating the probability of loss. The idea of assessing the risk is to find a profitable business. Then, the insurers use risk assessment to quote the premium to the policyholders.

Insurance companies assess risk by analysing the proposal form duly filled and submitted by the proposer. The coverage, terms and conditions will be based on the risk assessment. Only after this, a premium is quoted.

One must fill in the factual information to avoid rejection of a proposal after risk assessment. Buying an insurance policy earlier in life is always beneficial as the risk associated, or probability of loss with young individuals, is less. Apart from the proposal form, under risk assessment, insurers also consider past insurance records, claim history, sum assured, etc.

Arnab, aged 40, applied for a term life insurance policy. He filled out the proposal form and mentioned the details correctly. The insurance company conducted a risk assessment before quoting. The medical test of the risk assessment concluded that Arnab has borderline diabetes and a family history of cancer. So, covering the life of Arnab has a higher risk for the insurer as compared to a healthy 25-year young guy.
Arnab had requested life insurance quotations from multiple insurance companies. The risk assessment of every insurer led to the solution that Arnab has to pay a higher premium than the ordinary case to avail of the life cover. As he was in need of a life insurance policy, he chose to pay a higher premium to get the policy from the most suitable insurance company.