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Property and Casualty Insurance > Introduction to Insurance - Unit One > Flashcards

Introduction to Insurance - Unit One Flashcards

1
Q

What is Insurance?

A

The transfer of risk from a person or business to an insurer.

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2
Q

What are the two types of risk?

A

Speculative and Pure.

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3
Q

What is speculative risk?

A

Chance of loss or gain; not insurable.

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4
Q

What is pure risk?

A

Chance of loss only.

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5
Q

What is risk?

A

Uncertainty, possibility of loss.

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6
Q

What is exposure?

A

Risks for which the insurer would be liable.

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7
Q

What is a peril?

A

The cause of a loss.

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8
Q

What is a loss?

A

The unintended, unforeseen damage to property or injury.

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9
Q

What are the two types of loss?

A

Direct and Indirect.

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10
Q

What is a direct loss?

A

Physical loss.

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11
Q

What is an indirect loss?

A

Consequence of physical loss.

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12
Q

What is a hazard?

A

Anything that increases the chance that a loss will occur.

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13
Q

What are the three types of hazards?

A

Physical, Moral, and Morale.

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14
Q

What is a physical hazard?

A

One that can be seen.

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15
Q

What is a moral hazard?

A

One that arises from an individuals character.

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16
Q

What is a morale hazard?

A

One that arises from a state of mind or careless attitude.

17
Q

What are the methods of handling risk?

A 
STARR
Sharing
Transfer
Avoidance
Retention
Reduction
18
Q

What is risk sharing?

A

Two or more individuals or businesses agree to pay a portion of any loss incurred.

19
Q

What is risk transfer?

A

The insurer agrees to pay if an insured has a loss; the insured no longer bears that risk.

20
Q

What is risk avoidance?

A

Eliminating a particular risk by not engaging in a certain activity.

21
Q

What is risk retention?

A

The individual or business will pay for the loss if it occurs, or a portion of the loss via a deductible.

22
Q

What is risk reduction?

A

Lessening the chance that a loss will occur, or lessening the extent of a loss if it occurs.

23
Q

How many parties are there in an insurance contract?

A

Two.
1st party - Insured.
2nd party - Insurer.

24
Q

What is the law of large numbers?

A

The larger the group, the more accurately losses can be predicted.

25
Q

What are the elements of insurable risk?

A 
CANHAM
Calculable
Affordable
Non-catastrophic
Homogeneous 
Accidental
Measurable
26
Q

Elements of Insurable Risk - Calculable

A

The insurer must be able to calculate both the average frequency and the average severity of future losses with some accuracy.

27
Q

Elements of Insurable Risk - Affordable

A

The average consumer must be able to afford the premium.

28
Q

Elements of Insurable Risk - Non-Catastrophic

A

A large proportion of exposure units should not incur losses at the same time.

29
Q

Elements of Insurable Risk - Homogeneous

A

The risk should be similar in nature so that the same factors affect the chance of loss.

30
Q

Elements of Insurable Risk - Accidental

A

The loss must have been caused due to chance.

31
Q

Elements of Insurable Risk - Measurable

A

The loss should be both determinable and measurable. This means the loss should be definite as to the cause, time, place and amount.

32
Q

What is adverse selection?

A

The tendency for high-risk individuals to get and keep insurance as compared to individuals that represent an average level of risk. It is also the reasons insurers go through the underwriting process.

33
Q

What is reinsurance?

A

An insurance company’s insurance company. Helps insurers spread their risk.

34
Q

What is a stock insurer?

A

A business formed as a corporation and owned by it’s stockholders.

35
Q

What is a mutual insurer?

A

It does not have stock or stockholders. It is owned by its policyholders.

Property and Casualty Insurance (1 decks)

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