Fixed and Variable divisions of the insured risk – UAE LAW What is the impact of this division on the insurance premium ? WhatsApp: +971555570005
Fixed and Variable divisions of the insured risk – UAE LAW
Fixed and Variable divisions of the insured risk
What is the impact of this division on the insurance premium?
we can divide the insured risk depending on the probability of its occurrence and its change between fixed risk and variable risk, Despite the fact that the probability of achieving the risk during the insurance term seems to be theoretical. so technically there is no risk consistent in absolute terms but the risk relatively consistent , the risk is considered consistent if the changes in the probability of its occurrence were not sufficiently significant ,or it has continued within the reasonable insurance term , and the practical reality has proved that there is no absolute consistency in the probability of verification of the risk , but he confirming the existence of changes related to natural, economic, social or technological conditions make the risk relatively variable
1- The fixed risk:
Is the risk that the probability of its occurrence is stable during the insurance term, or within measurable time unit.as For example: the fire insurance which is a fixed risk insurance, as the probability of occurrence is fixed during the insurance term, despite that the high summer temperatures contribute to occurrence of fires, but in winter the possibilities of the occurrence of the fires specially in houses increased due to the use of traditional heating means. as to autumn and spring and with moderation of the temperatures the possibilities of the occurrence of fires decreases for the lack of the previous reasons., accordingly, the risk of fire is fixed risk however relatively.
As insurance companies considered it as well and did not raise insurance premium due to these variables, because it considered it acceptable state and within the presumed presumptions in the insurance, also the insurance against theft consider from the fixed risk, as well as damage to plantations and responsibility for car accidents and others.
2- the variable risk:
Is the risk that the probability of its occurrence is variable upward and down ward during the insurance term, as it doesn’t have a fixed degree for the probability of its occurrence, as for example: the life insurance (the state of death) whereby the heirs receive the amount of the insurance in case of the death, as it is obvious that the risk of death increases with aging and with decline of the health situation and chronic illness like heart diseases , thus it consider upward variable risk , in contrary to life insurance ( the state of survival ) in which he receive the amount of insurance after survive for specific period ( which is a happy accident and it is not considered a risk expect in the insurance sense . and the occurrence of the risk here is when still alive after a certain period.
the importance of this division:
it highlights the importance of the division of the insured risk between the fixed risk and variable risk especially in its impact on the amount of the annual premium which the insured person has to pay to the insurance company , accordingly if the probability of the risk occurrence is fixed the amount will be fixed .as if the probability of the risk occurrence is fixed and does not change between one year to another , as it is obvious that the amount of this premium increase or decrease in one year to another depending on the changing of the risk upward or downward , however the insured person usually makes the insurance annual premium fixed even if the risk is variable and that for simplifying and facilitating the operations to the insured person . and the insured here has to be cautious, in case the risk increases, and to deduct from the first annual premiums and it added to the recent annual premiums, whereby each premium is appropriate to the risk in the year in which it was paid.
Attorney / Mohamed Al Marzooqi
Mohamed Al Marzooqi Advocates & Consultancy
Lawyer in Abu Dhabi, Dubai – UAE