Module 2 Flashcards
(24 cards)
Uncertainty of the
actual number
and value of
claims a benefits
plan with incur
Risk
The cause of a
loss, such as a
fire or car
accident
Peril
A condition or
action that
increases the
probability that
a peril will occur
Hazard
Behavior such as
failure to replace
the machine guards
on manufacturing
equipment is this
type of hazard
Physical hazard
A person who
shops multiple
doctors to get
more opioids
prescribed is this
type of hazard
Moral Hazard
The act of not
flossing one’s teeth
regularly after
getting dental
insurance is this
type of hazard
Morale Hazard
The type of risk
with only 2
alternatives:
financial loss or
no financial loss
Pure risks
The type of risk
that can have
3 outcomes:
loss, no loss, or
gain
Speculative Risks
A risk handling
technique
where the risk
is not assumed
Avoidance
A risk handling
technique that
involves an action or
mechanism to
reduce the
probability or
severity of a loss
Control
A.R.T.I.C.
Avoidance
Retention
Transfer
Insurance
Control
A risk handing
technique where
risk is assumed and
paid for by the
person suffering
the loss
Retention
A risk handling
technique
where one shifts
the potential for
financial harm
to another party
Transfer
A risk handling
technique where
the potential for
financial loss is
shifted to an
insurer
Insurance
A mechanism
where the
employee or
employer pays
money into a fund
to cover any
incurrence of loss
Insurance
Process in
insurance that
works to make
the victim of a
loss whole
again
Indemnification
Administrative
overhead costs such
as office costs,
commission, taxes,
licensing taxes, and
load adjustments
Loading
The greater the
number of
exposures, the
more closely the
actual results will
approach the
probable results.
Law of large numbers
With a large number
of homogenous
units, losses can be
verified and
measured. Losses
should not be
catastrophic.
Insurable risk
The risk-handling
alternative that is
mutually exclusive
from other risk handling techniques
Avoidance
When an
organization
retains the risks
related to providing
employee benefits
as opposed to an
insurance company
taking on the risks
Self-funding or self insurance
approach
When individuals with
higher-than-average risks
join a group or may
comprise a larger
percentage of a group
than anticipated
because they will need
and use the benefit
Adverse selection
A technique in employee
benefits that will mitigate
the impact of adverse
selection if participants
were allowed to enroll as
individuals
Group insurance technique
This is reduced by
characteristics of group
technique (group
eligibility, a steady flow of
lives, a minimum # of
persons, minimum portion
participating, eligibility
requirements, max
benefit limits, etc.)
The risk of adverse selection
