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What is meant when we say that insurance is a "risk transfer" mechanism?

The risk that the insured runs is transferred to the insurer for a known cost (the premium)


What are the main stages in the risk management process?

The main stages of risk management process are:

Risk identification
Risk analysis
Risk control


What are the two main elements that are involved in the measurement of risk?

Frequency (how often claims occur)

Severity (what they cost when they do occur)


What is the definition of peril?

A peril gives rise to a loss


What is the definition of a hazard?

A hazard is what influences the operation of the peril either by making a loss more likely to occur or by increasing the potential size of the loss


What is the difference between physical hazard and moral hazard?

Physical hazard relates to the actual measurable dimensions of a risk

Moral hazard is related to the attitudes and behaviour of the people closely related to the risk.


How does the common pool operate in insurance?

Contributions are collected from all those in the pool and valid claims paid out to the few who suffer a loss


What are the characteristics of co-insurance?

Co-insurance refers to risk sharing, either between insurers or between the insurer and the insured.