Basic Insurance Concepts and Principles Flashcards
(22 cards)
What is Insurance
Insurance is the transfer of Risk. Losses are transferred over to the insurer
What is a person (In the Law)
A person is a legal entity which act on its behalf - Persons include Human beings, associations, organizations, corporations, partnerships, and trusts.
What does indemnify mean
compensate (someone) for harm or loss.
What is pure Risk
Pure refers to situations that can only result in a loss or no change (There is no opportunity for financial gain).
Examples of pure risk are fires, wind damage, flooding, natural disasters
** This is the only type of insurance risk**
What is Speculative Risk
Involves opportunities for loss or gain - Example : Gambling
**NOT insurable
What is a peril
The cause of loss against in an insurance policy.
Example : Premature death would be the peril against life insurance
Sickness is the peril against health insurance
Hazards
Conditions or situations that increase the probability of an insured loss occurring
Name 4 different types of hazards
Physical - Arising from structural or operational features
Moral - Arising from lying in application or past fraudulent claims
Morale - Arising from an indifference to loss from the insured due to the Knowledge that it will be paid to replace
Legal - a set of legal or regulatory conditions that affect an insurers ability too collect premiums
Explain the law of large numbers :
state that the larger the individual with the same or similar risk the more predictable actual losses will be
What is exposure
unit of measurement used to determine rates charge for insurance coverage
What are the 3 different types of risk
Critical risk - any exposure in which possible losses would result in financial ruin to the insured or its business
Important risk- exposures that could affect the persons lifestyle or profession
Unimportant risk - exposure where loses would not affect the person greatly or cause changes to lifestyle
Explain loss cost
Rating Method : The true premium ( Base rate) - overheard head and profit are included. Only actual or expected cost to an insurer or indemnity payments.
Who develops the Loss cost
ISO
What is sharing
a method of dealing with risk for a group of individuals with the same or similar exposure to loss.
What is the most common way to transfer risk?
Buying insurance
What is a way of eliminating the exposure to loss?
Avoidance
What is risk retention
Risk retention is the practice of setting up a self-insurance reserve fund to pay for losses as they occur, rather than shifting the risk to an insurer or using hedging instruments. A business is more likely to engage in risk retention when it determines that the cost of self-insurance is lower than the insurance payments or hedging costs required to transfer the risk to a third party. A large deductible on an insurance policy is also a form of risk retention.
loss ratio formulat
(incurred losses + loss adjusting expense)/ earned premium= loss ratio
Spread risk
when poor risk are balanced with preferred risk.
Tort Law
a private, civil, non-contractual wrong for which a remedy through legal action may be sought
Intentional tort
A deliberate act that causes harm to another person regardless of whether the offending party intended to injure the aggrieved person
Unintentional tort
Unintentional Tort - the result of acting without proper case - typically negligence
