Insurance and commercial risk
Explain the purpose and limits of insurance, distinguish common business risks and work through a simple premium calculation.
Exam scope and assessment notes
This original lesson maps Cambridge IGCSE Commerce 0715 for exams in 2028 and 2029. Examples, businesses, figures and practice questions are original StudyForA material, not Cambridge questions, mark schemes or endorsements. Practice supports the knowledge, application, data interpretation, analysis and evaluation skills in the syllabus; it is self-checked and does not produce an official Cambridge grade. Full timed papers, examination-centre entry advice and review by a qualified Commerce teacher remain outside this pathway.
Before you begin
- No prior Commerce study is assumed. Work from the facts in each scenario and show calculations before making a commercial judgement.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which document sets the terms and conditions of the insurance contract?
What you will learn
- Explain how insurance can reduce the financial effect of risk and support business confidence or investment.
- Identify consequential-loss, employer's-liability, fire, motor, premises, public-liability and theft risks.
- Explain risk pooling, calculate a premium from supplied figures and describe proposal forms, cover notes, policies and insurance brokers.
Insurance transfers specified financial risk
Insurance can provide compensation for a covered loss, protect finances and support confidence to operate or invest. A policy covers stated events and conditions; exclusions, excesses, limits and truthful disclosure matter. Insurance does not prevent the event or guarantee every loss will be paid.
Examples include consequential-loss cover after a covered interruption, employer's liability, fire, motor, premises, public liability and theft. The appropriate type depends on the enterprise's exposures and the policy wording.
Premiums fund a pooled arrangement
An insurer pools contributions from many policyholders to pay eligible claims and meet costs. Premiums depend on assessed risk and the cover requested. A simple question may provide a rate or formula; use only that information, show units and avoid inventing an actuarial method.
An enterprise may complete a proposal form to disclose information. A cover note can provide temporary evidence of cover; the policy sets the contract terms. An insurance broker can advise or arrange cover for clients, subject to the broker's role and applicable rules.
Sources for this lesson
Pause and explain
A customer visits a store and is injured because of an alleged hazard. Which risk type may be relevant?
Worked example
A policy charges $18 per $1000 of insured value. Calculate the premium for $20,000 of cover using the supplied rate.
Show the worked solution
- Find the number of $1000 units: 20,000 ÷ 1,000 = 20.
- Multiply 20 units by $18.
- State the premium from the given rate, before any taxes or extra charges not shown.
Answer The premium is 20 × $18 = $360, before any other charges not included in the question. Actual premiums depend on the policy and insurer's risk assessment.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
An insured machine causes a fire, and the business loses stock and trading time. Distinguish the property damage from a possible follow-on loss.
Give me a hint
Separate damage to premises or equipment from financial consequences of interruption.
Compare my reasoning
- Fire cover may apply to insured physical damage, subject to the policy.
- Consequential-loss cover may address specified financial effects of an insured interruption.
- Check the policy, exclusions, evidence and claim conditions before estimating payment.
Fire insurance may cover specified physical damage, while consequential-loss cover may address defined income or operating losses after a covered event. The policy controls what is payable; neither cover should be assumed without checking terms.
Look for these in your work
- Two loss types distinguished
- Policy conditions noted
- No blanket claim
A business's annual premium is calculated at $12 per $1000 of a $75,000 insured value. Calculate the premium and state one reason the actual premium could differ.
Give me a hint
Convert the insured value into $1000 units before multiplying.
Compare my reasoning
- 75,000 ÷ 1,000 = 75 units.
- 75 × $12 = $900.
- Other policy features, risk factors, taxes or fees may affect the actual amount.
The indicated premium is $900 from the supplied rate. An insurer may quote a different amount based on risk assessment, cover limits, excess, exclusions or additional charges.
Look for these in your work
- Units converted correctly
- Calculation correct
- Recognises actual policy factors
A shop has motor vehicles, employees, customer premises, stock and possible trading interruption. Explain how to prioritise insurance review without assuming it can insure every risk fully.
Give me a hint
Identify exposures, policy limits and prevention; compare likely loss with cost and exclusions.
Compare my reasoning
- List potential exposures: motor, employee liability, premises/public liability, theft or fire and consequential loss.
- Estimate severity and likelihood, and check existing cover, exclusions, limits, excesses and legal requirements.
- Combine appropriate insurance with prevention, staff procedures and continuity planning.
The shop should map its exposure and legal obligations, then compare likely losses with policy terms and affordability. Cover might include relevant vehicle, employer-liability, premises or public-liability and property or interruption policies. Prevention and continuity planning remain necessary because cover is limited and some risks may be excluded.
Look for these in your work
- Relevant risks considered
- Terms and affordability included
- Non-insurance controls included
Common mistakes
- Assuming insurance prevents an accident
- Treating a cover note as the full policy wording
- Ignoring exclusions or excesses
- Confusing a premium with a claim payment
What can you explain now?
What does risk pooling allow an insurer to do?
Compare with the explanation
Combine many policyholders' premiums to meet eligible claims and costs.
Pooling spreads the financial effect of uncertain claims across a group, subject to policy terms.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name two business insurance risks and explain why a premium does not guarantee that every loss is covered.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.