The Best Explanation of Uncertainty and Its Relationship to Risk In Insurance I Have Ever Heard

When you hear the term uncertainty, what comes to mind? Yes, everything that is not certain is always filled with doubts. This is because you can not know what will happen in the future. Surely this is contrary to what is called certainty, where the outcome is definitely known.

Previously you already know about the concept of risk. Uncertainty is a term that is always associated with risk and sometimes used interchangeably. On this occasion, you will know how the mechanism of the relationship between the two.

An Illustration Of Uncertainty and Its Relationship to Risk In Insurance

To better understand the uncertainty we do with simple illustrations. Let’s just say that you will have a management exam later this year.

You say “I will pass the management exam!”. This statement is the same as “I will positively pass the management exam”. Here you are implying a belief about your exam results.

However, uncertainty will provide doubt, an opposite mental state. When you are in doubt, you will say “I am not sure I will pass this year’s management exam”.

Uncertainty and Its Relationship to Risk In Insurance

 

What does it mean?

Here you do not know about the results you will get. Whether you graduate or not.

Uncertainty is only a psychological reaction because one does not know what will happen in the future.

When a risk is identified then there is a combination of circumstances in which the possibility of a loss on an individual creates uncertainty.

Let’s go back again to the illustration above. In the real world, a particular fact or situation may be inappropriate. When you are sure you will pass the management exam this year, in fact, you may not pass. It is the belief of a person and also the drawbacks (certainty vs. uncertainty).

An Attitude And Knowledge From Different Individuals In The Identical Condition Will Make Uncertainty Varied

So, this uncertainty will vary. It depends on the attitude and knowledge of the individual. In the real world, different attitudes to the same conditions may occur in different individuals.

Thus, there could be someone who feels the risk of losing a valuable item. In fact, there is no possibility that the object will be lost. On the other hand, a person does not feel the risk of his valuables will be lost. However, in fact, the item is lost for no apparent reason.

Again, this will be based on the attitudes and actions of the individual itself.

Surely now you understand about uncertainty and its relationship to risk in insurance. Although the existence of a risk is not recognized or you do not realize it, you cannot eliminate its existence. So, when you have a possible loss, you are at risk. Next is how you will respond. Will you protect what you have with insurance or not.

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