No one is exempt from risk; although the
degree of risk exposure varies according to factors such as occupation,
physical condition, geographical situation and attitude towards risks.
Thus it is the fear of the consequences of risks and the awareness about
the uncertainty of the future that has fuelled the fundamental human
need for security and it is this desire for security that has prompted
us to continually find ways of handling risk.
Although a great deal of study has been
carried out by scholars on the definition of risk, there is no agreement
as to the exact definition of risk. In our context we shall define risk
as the UNCERTAINTY ABOUT LOSS. Loss, in turn, is the reduction or
disappearance of value. Uncertainty over loss of life and limb,
investment losses, theft of valuables, and losses due to motor accidents
are only a few examples of such loss exposures.
One of the methods of handling risks is
by TRANSFERRING THE RISK - eg. INSURANCE.
Insurance is a mechanism whereby a large
number of individuals group together and agree to contribute a certain
fixed sum of money (called Premium) to a common fund. The money from the
common fund is then used to pay for the losses that a few of the
individuals may incur.