In our continuing series of questions to test your knowledge of insurance, Julian Hall sets some questions on miscellaneous risks

Miscellaneous risks is a term that is best used to describe certain niche insurance products that have a reasonably small market, or are very specific and/or innovative in nature.

The miscellaneous risks market is growing. It has developed in recent years as a result of customer demand and need, and can be seen to correlate with social changes such as increasing affluence, the emergence of innovative commercial activities and the growth and diversification in leisure pursuits.

The basic principles of insurance continue to apply to niche products, however, they have been developed by insurance providers to meet the needs of modern day individuals and businesses. Provided the basic requirements of insurance are satisfied, there is no end to the variety of products that can be supplied.

Accidental/fortuitous loss: this type of cover must seek to address one of the uncertainties that faces either individuals or businesses. Certain eventualities in life are inevitable, such as items wearing out or someone dying. In general these are not insurable circumstances, as we say that any loss must be accidental in nature to be covered by a policy.

Certain events in life are inevitable, but there remains the uncertainty of when they will actually happen. No one knows with any degree of certainty when they will die or when their car may break down, so such events are insurable.

Homogenous exposures: insurance works on the basic principle whereby many policyholders pay a relatively small premium into a common pool of premiums. From that fund is drawn the claim payments required by comparatively few of those policyholders.

For this to work there needs to be a relatively large number of policyholders who require insurance for the same eventualities. This ensures that there is sufficient money in that common pool to meet the claims suffered.

Particular risks: some risks can affect huge numbers of people spread over a large geographical area at any one time. If loss is so widespread, any claims arising from that event would completely wipe out the accumulated claims fund. An example of such risks would include war or widespread famine.

Governmentss usually take responsibility for these 'fundamental risks'. Therefore, any insurable risk should either affect individual or relatively small groups of individuals. These risks are known as 'particular risks'.

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