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Flashcards in chap 1 Deck (29):
1

2 fundamental principals of insurance

- law of large numbers
- insurance policy in a contract

2

5 categories of risk

1) Exogenous V endogenous
2) Objective V subjective
3) Pure V speculative
4) Dynamic V static
5) Fundamental V particular

3

Objective risk

Determined by analysing past experience and determining mean and variance

4

subjective Risk

Uncertainty is based on the person mental condition or state of mind and the resulting subjective proba is based on the indiv estimate of a chance of loss

5

Inductive reasoning

Use of past data to determine future loss

6

Deductive reasoning

Use of obvious proba from the nature of event

7

3 types of pure risk

- Property
- Personal
- Liability

8

5 types of pure risk for a business

1) Financial
2) Credit risk
3) Operational risk
4) Strategic Risk
5) Risk to reputation

9

3 types of Financial Risk (Pure business risk)

- Exchange rate risk
- Interest rate risk
- commodity price

10

Credit risk (Pure business risk)

Risk that receivable become uncollectible

11

8 types of operational risks (Pure business risk)

1) Fraud
2) Poor management
3) Technology failure
4) Error in forecasting and reporting
5) Inadequate record keeping
6) Workplace safety
7) Equipment failure
8) Product liability

12

Strategic risk (Pure business risk)

Linked to macroeconomic event

13

Dynamic Risk (V static)

Associated with a change in business and economy

14

Static Risk (V dynamic)

a form of pure risk not related to the economy

15

Fundamental risk (V particular)

Affects a large group or a population

16

Particular (V fundamental)

Affects individuals

17

Social insurance

Insurance required by the gov, both employees and employers contribute . Include EI CPP disability plan and death benefit

18

Public assistance

Paid out of general tax revenue, not tied to employment and contribution

19

Private insurance

Primarily voluntary and provided by private insurers

20

Peril

Cause of loss such as riot, fire, theft or explosion

21

Hazard

increase likelihood or severity of loss

22

4 types of hazard

- Physical hazard
- Moral hazard
- Morale hazard
- Legal hazard

23

Moral hazard

Dishonest people cause loss or increase $

24

Morale hazard

Careless or negligent increase the proba of loss

25

Legal hazard

Characteristic of the legal system that increase frequency or severity of loss

26

6 Steps in the risk management process

1) Determine the objectives
2) Identifying risk
3) Evaluate potential loss
4) consider alternative risk management
5) Implement technique
6) Evaluate and review

27

4 types of alternative risk management

1) Avoid risk
2) Control the risk
3) Retain the risk
4) Share the risk

28

2 types of ownership of insurance company

1) Stock insurance company
2) Mutual insurance company

29

3 consumer protection companies

1) Canada life and health
2) Property and casualty insurance
3) Office of superintendent of financial institutions