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Expected Utility Theory
This theory is used to analyze cases or situations whose outcomes are unknown. Expected utility theory helps insurance companies make decisions in conditions of uncertainty. The decision that will lead to the highest expected utility will be the priority. The decision-making is also guided by the risk aversion of the agent and other agents' utility. Expected utility theory assumes that money utility may not necessarily equate to the total value of money. It also explains why you may see it prudent to cover themselves from risks by taking insurance covers.
Quality control is a process used by insurance companies to guarantee and improve product quality. The business must create an environment where both the employees and the managers aim for perfection. Some of the methods used to ensure quality control include employee training, benchmarking for product quality, and carrying out product tests to identify variations that are statistically significant.
Value at Risk (VaR)
This is a statistical measure that is used to compute the extent of financial risk within a company over a given period. VaR is a metric popularly used by insurance companies to measure the level and occurrence frequency of potential risks and losses. It is also used to control the extent of the company’s exposure to risks. Value at Risk computations can be applied to distinct areas or entire firm risk exposure.
This type of insurance is meant to provide the insured with financial compensation against loss incurred from fire. The insurer and the insured get into a contract. The insurance company promises to pay the policyholder a particular amount to cover the goods lost through fire within a specific period. Also, the insured agrees to pay the amount of premium in the contract. Thus, fire insurance takes the insurer back to his previous status before the loss. The insured is under a contract of indemnity. He or she cannot claim more than the amount insured and the value of goods lost by fire.
Marine insurance covers companies and individuals against the perils of the sea in the course of a voyage. The insured is protected from losses incurred or damages of goods using a ship. The variance risks under marine insurance include ship accident, barratry, collision, jettison, and many more. A freight, ship, and cargo are the subject matter. The insured can choose to pay the insurer in lump-sum or periodically.