Page 235 - RISK Management IC86 Ebook

The Insurance Times

Even perfectly solvent organizations may be embarrassed
by a liquidity crisis, and may be forced either to borrow
heavily or to realize assets at a short notice. Apart from
the fairly predictable, small, regular losses the charging
of losses to operating costs run counter to the objectives
of cash budgeting.

Organisations that suffer from large fluctuations in their
normal cash flows may be reluctant to set aside
additional liquid funds to provide for the replacement of
the damaged property or to meet payments for other
losses. Since, all risks do not have to be paid in full as
soon as they occur, some spreading of costs can be
used to ease the financial burden.

Ans.5b) Risks can be divided into two broad groups according
to the outcome of uncertain events. Pure risks are those
where the occurrence of the event results in loss, but
never has any possibility of gain. E.g, fire, storm,
accidental death or injury. Speculative risks are those
risks whose outcome may be either a loss or a profit.
E.g, business risks, gambling etc. Pure risks are mostly
insurable whereas speculative risks are not insurable

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