Module 3: Introduction to the concepts of risk and insurance
Objectives
This module is designed to introduce participants to the concepts of probability, microeconomics of insurance, risk aversion, asymmetric information (adverse selection and moral hazard), and the J curve. The module presents the basic theory of risk and the elements of social risk management. It explains why insurance is required when traditional risk management mechanisms fail and briefly describes how insurance works. It also explains the role of probability in the calculation of insurance premiums. Finally, the module elucidates the challenges faced by insurance providers, such as adverse selection and moral hazard.
Key questions
1. What is risk?
2. What are the different types of risk?
3. What are the sources and consequences of risk?
4. How is risk managed?
5. Why do we need insurance?
6. How does insurance work?
7. What are the law of large numbers and the J curve in insurance?
8. How is probability used in calculating health insurance premiums?
9. What is asymmetric information?
Takeaway message
Risk is not the same as uncertainty, yet it is important to insure a person from different kinds of risks. Management of risk can be done by taking steps for its prevention, mitigating the effects of risk, and coping with the risk after it has occurred. People may fall back on family and social networks to deal with the financial consequences of risk. It is difficult for informal channels to assist in cases of covariant risk. Insurance providers have a large pool of insured people, thereby reducing individual risks to an average of all risks. Thus, the financial consequence of the expected risk for each person can be predicted.
Master module 3: Introduction to the concepts of risk and insurance
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Introduction to the concepts of risk and insurance
Myanmar - Risk and social protection
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