6: Risk Exposure And Control

Question 1

What is a single risk

Answer 1

Determines the actual insured

Defined by a limit or max capacity the uwr is willing to accept

Question 2

What is a single event

Answer 2

An event that gives rise to a loss with the potential of affecting more than one risk

Question 3

What are the two ways of determining the capacity of a risk (when it comes to property)

Answer 3

1) the full values of the sum insured e.g aggregation of different covers triggered by one loss
2) Estimated maximum loss (EML)is a % of the sum insured that they believe to be the maximum financial loss to that account
This can help an insurer to accept risks that they otherwise may not have been allowed to write

Question 4

What are the downsides of overestimating EML

Answer 4

• over estimated EML will make you believe you have more exposure than you do which would lead to:
  Inaccurate pricing
  Inaccurate purchasing of RI
  Won’t be able to accept risks you otherwise could have

Question 5

What are the downsides of underestimating EML?

Answer 5

Inaccurate reserves
Writing over allowed capacity
Profits are ultimately affected

Question 6

What is accumulation logging

Answer 6

Recoding single locations in same zones to know your maximum exposure in any one area

Question 7

What is risk zoning

Answer 7

A method to control exposures/exposures in certain areas

Question 8

What is the maximum capacity of liability referred to?

Answer 8

Limit of indemnity

Question 9

How can liability control exposure aggregation?

Answer 9

• be aware of insuring similar trades
• be aware of insuring in close proximity
• limit the monetary amount of specify terms
• purchased clash reinsurance : covers the insurer if two or more insured are affected by on event

Question 10

Benefits of cat modelling

Answer 10

Planning and forecasting
How much RI to buy
Capital assessments and allocation
Reserving