Flashcards in Chapter 1 - Risk and Insurance Deck (36)
Risk is defined in terms of?
Uncertainty and unpredictability
What is insurance essentially?
A risk transfer mechanism
If someone carries a risk themselves they are known as?
If someone takes out insurance on everything they can, they are known as?
What does AIRMIC stand for?
Association of Insurance and Risk Managers in industry and commerce.
Why is risk management important?
It reduces the potential for loss, gives shareholders a greater degree of confidence, provides a disciplined approach to quantifying risks.
What are the 3 stages of risk management?
Risk Identification, analysis and control
What is a physical control method?
Locks on doors etc.
What is a Financial control method?
Transferring risk by taking out insurance or by contract.
who are the ABI?
Association of British Insurers
what are the different types of risks?
Financial, Non-financial, pure, speculative,particular,fundamental
What is a fundamental risk?
A risk that occurs on such a vast scale that it cannot be insured such as war, famine or economic recession.
What is a pure risk?
A risk with the possibility of loss but no gain, where the best that can be achieved is a break-even situation. E.G travelling in a car is a pure risk as there is a chance you could crash.
What is a speculative risk?
A risk where there is a potential for gain, insurance does not apply to speculative risks. E.G. The lottery, Stock trading.
What is a particular risk?
A risk that is localized or even personal in their cause and effect E.G. Factory fire, car crash Etc..
What are the main 4 things insurers will examine when deciding on a risk?
Fortuitous event, Insurable interest, Public policy and Homogeneous exposure
What are to components of a risk?
Uncertainty, Level of risk , peril and hazard
Define a peril?
That which gives rise to a loss
Define a Hazard?
That which influences the operation or effect of the peril
Define a moral hazard?
That which is caused by the attitude and behavior of people E.G. Carelessness or Dishonesty.
What is risk pooling?
This is a collection of the many (premiums) to pay for the few (losses), they must provide and element of profit for the insurer.
What is the law of large numbers?
Enables the insurer to predict the final cost of claims for one year.
What is an equitable premium?
This means that for a person to join the specified pool they must pair a equitable (fair) premium based on the risk they bring to the pool.
What is the different types of risk sharing?
Co-insurance, Dual insurance, Self-insurance
What is co-insurance?
This is an agreement between 2 insurers to proportionally share the risk between them in the event of a claim. The first insurer (leading office) has the largest share generally.
What is an Excess?
A small fixed sum retained by the insured
What is a deductible?
A large fixed sum retained by the insured
What is dual-insurance?
This occurs when there are 2 or more policies in effect covering the same risk.
What is self-insurance?
Where an insured has decided not to take out insurance and rather carry the risk themselves through funding.
What is the insured retention?
A part of a sum that the insured has decided to maintain, usually on substantial sums.
What are the different types of insurance?
General, Pecuniary, Motor, Liability, Marine & Aviation, Health.
What is pecuniary insurance?
This is the insurance of intangibles such as revenue or value E.G. Money insurance or business interruption.
What is Liability insurance?
The insurance of legal liability to pay compensation and costs awarded against the insured in favor of another part. E.G. Public and employers liability.
What are the main areas Marine insurance covers?
Cargo, Hull and Loss of income
What are the main areas Aviation insurance covers?