28. Accepting risk [3+4]

Question 1

Mitigating risk of product designer not clearly understanding customers’ needs

Answer 1

• Small scale product trials
• Market research
• Focus groups

Question 2

Insurable risk

Answer 2

• Policyholder must have interest in risk being insured
• Risk must be financially and reasonable quantifiable
• Claim amount payable must bear some relationship to financial loss incurred

Question 3

Risk events must meet the following criteria to be pooled:

Answer 3

• Individual risk events must be independent
• Probability of event is relatively small so that event that is nearly certain to occur is not conducive to insurance
• Large numbers of similar risks must be pooled to reduce variance
• Must be an ultimate limit on liability undertaken by insurer
• Moral hazards must be eliminated as far as possible because they are difficult to quantify
• Must be enough existing statistical data to allow insurer to estimate extent of risk and its likelihood of occurrence