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Chapter 1 Risk and insurance 1/7 Chapter

In contrast to fundamental risks, particular risks are localised or even personal in their cause and effect. 1
Sometimes the cause may be more widespread (a storm over a whole region), but the effect is localised
or even related to an individual.
Again, to help us understand let us look at some examples of particular risks:
• A factory fire: this would cause localised damage to the factory and possibly to its surroundings, but
would not affect the whole community.
• A car collision: damage to the vehicles and any third-party liability are localised events affecting
relatively few individuals.
• Theft of personal possessions from a home: an event that only affects an individual or family.
We have established that only certain classifications of risk are insurable: those that are financial, pure
and particular. There are certain other things that need to be in place for a risk to be insurable and we
will look at these next.

D Insurable risks

It is important that you understand that not every risk is insurable. For a risk to be insurable, in addition
Not every risk is
to being financial, pure and, generally speaking, particular, the following features must also apply: insurable
• The event insured against must be fortuitous or unforeseen.
• There must be insurable interest.
• Insuring the risk must not be against public policy.

D1 A fortuitous event

To be insurable, the happening of the event must be fortuitous. In other words, it must be accidental or
unexpected and not inevitable or deliberate. An example of a non-fortuitous loss is a policyholder who
deliberately damages their car. Not all elements of loss or damage may be fortuitous; for example, a
theft may have required careful planning by the thieves but still be unexpected as far as the policyholder Reference copy for CII Face to Face Training
is concerned.

D2 Insurable interest

Insurable interest is the legally recognised financial relationship between the owner of the policy and the
object or liability that is being insured. For example, you can insure against the theft of your own car,
because you will suffer financial loss if it is stolen. Other financial interests are also recognised, as we
shall see when we deal with this subject more fully in chapter 4.

D3 Public policy

It is commonly recognised in law that contracts must not be against public policy or go against what
society considers to be the right or moral thing to do. Insurers should not, therefore, cover risks that are
against public policy. For example, it would be against public policy to insure the risk of incurring a fine
for a criminal offence. The risk may appear to have all the features of an insurable risk, as the event may
be considered fortuitous (accidental) and there is insurable interest, since the person would suffer
financial loss. However, it is clearly unacceptable to be able to insure against paying a fine because the
purpose of that fine is to punish the individual.

Question 1.1
Think of another risk which would be against public policy. What would be the effect on an insurer’s professional
reputation if it were to insure such risks?

There is one other aspect of a risk that insurers will examine when deciding whether it is insurable: the
presence of homogeneous exposures.