Definitions Flashcards Preview

CII IF1 > Definitions > Flashcards

Flashcards in Definitions Deck (209)
Loading flashcards...

Compensatory in nature

The value placed on the loss is not determined in advance. Exceptions are personal accident and sickness policies.


Benefit policies

Policies for which there is no way of valuing the value of a loss so the principle of indemnity does not apply e.g. of sight or of life, so pre-agreed amounts are paid in the event of accident or sickness


Pure risk

Those where there is the possibility of a loss but not of gain, e.g. risk of fire, machine breakdown


Speculative risk

Risks are speculated with a view to making some kind of gain, e.g. investing in the stock market or starting a new business


Fundamental risk

Occur on such a vast scale that they are uninsurable. They arise from social, economic, political or natural causes and are widespread in their effect. It is often a lack of willingness or capacity on the part of insurers that causes such risks to be uninsurable.


Particular risk

Localised or even personal in their cause and effect, e.g. a factory fire, car collision, theft of personal possession



The event insured must be accidental or unexpected and not inevitable, so far as the insured is concerned. Must not be deliberate on the part of the insured.


Insurable interest

The legally recognised financial relationship between the insured and the object or liability that is being insured


Objective risks

A sufficient number of exposures to similar risks, historical patterns and trends will enable an insurer to forecast the expected extent of future losses


The Law of Large Numbers

The greater the number of similar risks to insure, the closer the actual outcome will be to what was expected in terms of losses - allows the insurer to predict fairly confidently the final cost of claims in any one year



That which gives rise to a loss, e.g. fire, lightning



That which influences the operation or effect of the peril


Physical hazard

Relates to the physical characteristics of the risk and includes any measurable dimension of the risk


Moral hazard

Arises from the attitude and behaviour of people - harder for the insurer to quantify, address and correct, so pose a bigger problem than physical hazards



The losses of the few who suffer misfortune are met by the contributions of the many who are exposed to similar potential loss - insurers gather together relatively small premiums from people who want to be protected financially from similar kinds of perils


Discrimination factors

When deciding on an equitable premium, insurers take into account the different elements of risk brought into the pool by each of the insured, e.g. previous medical history and previous driving experience


Fire waste

The overall cost to the community of all damage by fire in a year


Premium reserve

There is a time delay between the receipt of premiums and the occurrence of claims, creating a premium reserve


Claims reserve

Once claims have occurred there is a further period (that can be very extensive for third-party claims involving personal injury or illness) before the claims are actually paid



1) Risk sharing between insurers - agreeing the rating and terms to be applied and issuing a collective policy

2) Used in relation to the amount of a risk that the insured may retain where an insured is responsible for a large proportion of each loss - a small fixed sum called an excess, a large fixed sum called a deductible


Leading office

The first named insurer on the policy and carries the largest share of the risk, issues the documentation (and signing slips for other insurers to indicate confirmation to changes)


Dual insurance

Two or more policies in force which cover the same risk



1) An individual or firm has decided not to use insurance as the risk transfer mechanism, but to carry the risk themselves by means of funding

2) Also used when referring to the part of a loss that the insured retains - called the retention



Relating to money


Credit insurance

Covers businesses against the risk of non-payment by buyers


Guaranteed asset protection

Originally sold to cover the gap between the amount paid out by a motor insurance policy and the amount still to be repaid on the finance that was taken out to buy the vehicle



Comparison websites


Solvency margin

Difference between a company's assets and liabilities


Proprietary company

Owned by shareholders who contribute to share capital of firm - profits therefore belong to shareholders

Limited liability companies - shareholders' liability for the company debts is limited to the nominal value of the shares they own

Registered under the Companies Act 1985


Mutual company

Owned by the policyholders, who share in the profits of the company by way of lower premiums - theoretically they are liable for any losses made by the company but in reality they are limited by guarantee, with a policyholder's maximum liability usually limited to their premium