Insurance Risk Types: Technical, Investment, and Non-Technical

Posted on Mar 1, 2025 in Economy

Insurance Risk Types

Risk of Diversion: Statistical deviations in risks, such as changes in mortality, morbidity, life expectancy, crime rates, wages, prices, and interest rates.
Insufficient Risk Premium: The risk that premiums are too low, potentially overlapping with the risk of diversion when premiums are inadequate despite careful appraisal.
Risk Valuation of Technical Reserves: Incorrect risk assessment leading to insufficient technical reserves to meet insurance contract obligations.
Reinsurance Risk: The risk of reinsurer bankruptcy, insolvency, or poor quality. This can also be classified as a non-technical risk.
Risk of Operating Costs: The risk that operating expenses included in the premium are insufficient to cover future costs.
Risk of Large Losses (High Risk): Primarily in non-life insurance, reflecting the potential for an insurer to face a greater number or size of risks.
Accumulation or Catastrophic Risk: The risk of accumulated losses from a single event, such as an earthquake or storm.
Growth Risk: Technical implications arising from overgrowth or uncoordinated expansion.
Settlement Risk: The risk that capital funds or the insurance company are insufficient to meet obligations, potentially leading to business termination and contract termination.

Depreciation Risk: Loss of investment value due to changes in capital markets, exchange rates (for foreign currency liabilities), or creditor bankruptcy.
Liquidity Risk: The risk that investments cannot be settled promptly, preventing the insurer from meeting financial obligations.
Mismatch and Reinvestment Risk: Occurs when the assets of an insurance company, in terms of time and interest rate, do not align with technical reserves.
Market Risk: The risk to an insurer’s financial situation due to adverse movements in market prices of asset values in the portfolio, regardless of liabilities.
Credit Risk: The risk that a counterparty to a financial transaction fails to meet their obligation to the insurer.
Valuation of Investment Risk: The risk that an investment is incorrectly valued.
Risk Sharing: The risk that insurance companies holding shares in others are affected by difficulties arising from those other insurers (contamination risk).
Risks Related to Derivative Financial Instruments: The use of derivatives is subject to market, credit, and liquidity risks.

Risk Management: Risks arising from the quality, competence, and intentions of an insurer’s managers.
Risk Associated with Guarantees to Third Parties: The risk that an insurer’s economic strength is affected if they cannot liquidate guarantees provided by third parties.
Risk of Third-Party Accounts: The risk that third parties outside the insurance institution fail to meet their obligations under reinsurance schemes or contracts with intermediaries (bad debts).
Overall Business Risk: The consequences of legal, economic, and social changes on the overall situation of the insurance institution.