Quiz 1

Question 1

Names for Insurers/Insured

Answer 1

-Insurer: Insurance company, carrier, policy holder, insurance holder

Question 2

Burdens of Risk on Society

Answer 2

• Expenditures to reduce risk: money spent for airbags
• Lost Opportunities from avoiding risk: Lost opps from avoiding risk
• Expenditures to finance potential losses (emergency funds)
• Cost of Losses
• Insurance Induced Fraud & Risk Taking

Question 3

Risk Management Process

Answer 3

1. Identify risks
2. evaluate for potential losses
3. select appropriate risk management technique
4. Implement risk technique
5. Review and revise the plan

Question 4

Pure vs. Speculative

Answer 4

• Pure: Risks that result in only losses

- Speculative: Possibility of either gaming or losing

Question 5

Static vs. Dynamic

Answer 5

• Static: Probability of a loss doesn’t change much over time. ex: Living to 130
• Dynamic: Probability of a loss changes frequently over time. ex: Dying in an auto crash (has gotten much safer over time)

Question 6

Objective vs. Subjective

Answer 6

• Objective: Quantifiable risk that is measured. ex: chances of dying at the age of 60 can be measured.
• Subjective: Opinion based risk. ex: Fear based

Question 7

Fundamental vs. Particular

Answer 7

• Fundamental: Risks affecting large populations. ex: Warfare, Hurricanes
• Particular: Risks affecting individuals and individual orgs. ex: house destroyed by fire, company going bankrupt

Question 8

Uncertainty

Answer 8

Inability to make a defensible estimate of a future outcome. ex: estimating the price of googles stock in 5 years

Question 9

Measure of objective risk

Answer 9

• The degree of objective risk: Likely range of losses/expected losses, Greater # means greater degree of risk
• Using probabilities to measure objective risk: Taking mean or standard deviation

Question 10

4 Basic Management Techniques

Answer 10

• Avoidance
• Loss of Control
• Retention
• Risk Transfer

Question 11

Avoidance

Answer 11

Avoid the risk

Question 12

Loss Control

Answer 12

• Loss Prevention: Prior to losses occurring. ex: alarms and airbags
• Loss Reduction: After the losses have occurred. ex: Storing damaged vehicle an impound lot to protect against theft.

Question 13

Retention

Answer 13

• Planned Retention
• Unplanned Retention
• Insurance deductible, purchasing state minimum of auto insurance

Question 14

Risk Transfer

Answer 14

• Insurance: Transferred Risk over to the insurance company

- Non Insurance: Contracts, hold harmless agreements

Question 15

Enterprise Risk Management

Answer 15

• Purpose: to help ensure a uniform approach to identifying risks, measuring them, prorating them, and implementing them
• Implemented using software programs and expert consultants
• Uses Risk maps

Question 16

Law of Large Numbers

Answer 16

By insuring a large sample of risk exposures, and insurance company’s actual insurance claims rate will closely affect the rate for the entire population.

Question 17

Intentional vs. Unintentional Torts

Answer 17

• Intentional: When a defendant intends, or desires to cause harm to another individual. ex: assault, battery
• Unintentional: Negligence - The failure to exercise the standard of care required by the law.

Question 18

ORPMAN Standard

Answer 18

-Ordinary, Reasonable, Prudent man would act

Question 19

Subrogation

Answer 19

Requires Insureds to give insurers the right to sue the negligent parties or giving insurers the right to recover their payouts should the injured insured be successful in a tort civil law suit. It also allows for insureds insurance company to collect from the negligent party’s insurance company.

Question 20

Liability Damages

Answer 20

• Bodily Injuries: Can be sued for our negligence causing bodily harm
• Property Damage: Negligence might result in damages to someone else property
• Personal Injury: Damage to ones character or reputation
• Legal Expenses: Can be sued by anyone who says your negligence lead to their loss.

Question 21

Real vs. Personal Property

Answer 21

• Real: Consists of land and anything permanently attached to it
• Personal: Any other property other than real ex: Jewelry, TV

Question 22

Expenses at Death

Answer 22

• Funeral Costs
• Debts
• Probate: everything you own at your death is put into probate where you must go to court to determine who will receive the property
• Stress, Worry, Mental Anguish

Question 23

Most frequent causes of death

Answer 23

Cancer & Heart Disease

Question 24

CSO 2001 Mortality Tables

Answer 24

Summaries of death statistics gathered from a specific sample during a specific time period.
Tell us when someone will die based on sex and smoking

Question 25

Unemployment Insurance

Answer 25

- Social Insurance given by the government to those who need insurance but are unemployed - Varies per state

Question 26

Lifestyle in Retirement

Answer 26

- Upon Retirement, the amount of money necessary to prevent a decline in one's living standard is 75%-85% of the pre-retirement earnings. - People don't like cut back on their expenses and lifestyle when they retire, so financial planners put away same dollar amount for retirement.

Question 27

When does Insurance Work Best

Answer 27

A potentially Large loss with a small likelihood of occurring is exchanged for a Small loss (premium paid to insurance) with a likelihood of certain to occur.`

Question 28

Utmost Good Faith

Answer 28

- Principle that requires a higher degree of honesty and conduct from both parties to an insurance contract compared to other contracts - Party that is lied to can void contracts through misrepresentations, warranties, concealments, and mistakes.

Question 29

Indemnity

Answer 29

- Insureds may not collect more than their losses - Can only collect on the predetermined value of their property - Some indemnity classes include: Suicide clause, copays/deductibles

Question 30

Valued Policies

Answer 30

- Apply to property whose market value fluctuates, making it difficult to come up with a reasonable estimate of loss. ex: Artwork, Family Heirlooms - Submit receipts or appraisals for such items to insurance company

Question 31

Insurable Losses (Insurable Interest)

Answer 31

- Do the policyowners have an insurable interest in who and what they want to ensure to prevent moral hazards, gambling, etc. - Collect on insured loss if I have an insurable interest

Question 32

Legal Capacities to enter into Insurance Contracts

Answer 32

- Cannot enter if... - --Minors, People who are drunk or under the influence, mentally disabled people, and people acting without the authority to do so on behalf of someone else

Question 33

Aleatory Contacts

Answer 33

Contracts in which the value of consideration exchanged has the potential to be greatly unequal. ex: Most insurance contracts

Question 34

Unilateral Contracts

Answer 34

Only one of the parties to an insurance contract makes promises that are legally enforceable. That on party is the insurance company. Policyholders can cancel contract at any time.

Question 35

Common things in Business Contracts

Answer 35

1. Must be for a legal purpose 2. Both parties must have legal capacity to form contracts 3. There must be agreement - Valid offer and acceptance 4. Exchange of Consideration

Question 36

When does and insurance application become valid

Answer 36

Upon Offer and Acceptance

Question 37

Amount of paycheck that goes towards Social Security

Answer 37

7.65%

Question 38

Father of Insurance

Answer 38

Benjamin Franklin because houses were being burned down everywhere because they were made of wood