Chapter 6: Fundamentals of Insurance Flashcards
Insurance (Financial Definition)
transfer of risk of incurred loss to a risk pool administered by insurer and insurer redistributes cost of such loss across all pool members
Premium
Price of insurance based on expected cost of incurred loses
Premium Equation
= Insured loss claims + loading expense - investment income + fair rate return
Insurance (legal definition)
contract in which insurer agrees to compensate insured for loses covered by contract
Insurer
covers loss, provides insurance
insured
policyholder, incurs loss, buys insurance
Policy
insurance contract
Exposure to loss
insured probability of loss
Insurance Contract
Contract where insured pays premium to insurer in exchange for financial losses suffered by insured to be covered by the insurer outlined in insurance policy
Insurable Loss
Unplanned reduction of economic value
Expense
Planned loss
Chance of loss and expressed as
probability of suffering loss expressed as a function
Priori
expected loss/ total loss
Ex Post
Actual loss / total exposures
Peril
cause of loss
Specified Peril
policies identify/ list covered perils
Open peril
insurer agrees to cover all losses except perils specifically excluded
Proximate cause
first peril in chain of events that result in loss
Hazard
increase severity/chance of risk or loss
Physical Hazard
related to the physical environment that increase likelihood of loss
Moral Hazard
Behavioural attitude that increases severity or frequency of loss claims AFTER insurance is bought, etc speeding
Insurance Fraud
Loss is exaggerated or intentionally caused to obtain insurance
Social Insurance
funded by government, financed in premiums and taxes
Private insurance
offered by nongovernment body, contracts and financed by insured. Premiums
