unit 1 General Insurance Flashcards
(75 cards)
Insurance is a contract that transfers
the risk of financial loss from an individual or business to an insurer.
Risk is uncertainty about whether
a loss will occur
Speculative Risks–loss or gain can occur–like gambling
not insurable
Pure risk-only loss can occur–like car accident
loss is insurable
Loss
reduction in the value of an asset
Exposure
risks for which the insurance company would be liable
Calculation for insurance premiums
rate multiplied by number of exposure units
peril
cause of loss–death simply what caused the loss
hazard
anything that increases the chance that loss will occur
hazards do not cause the loss
it is something that becomes dangerous and can make a loss more likely to happen
three types of hazard
physical moral and morale
example of physical hazard
heart condition
example of moral hazard
dishonesty because it increases the chance that an individual might lie on an insurance application or fake a loss
morale hazard
the insured carelessly leaving the doors and windows unlocked when not at home
STARR–Methods of handling risk
Sharing Transfer Avoidance Retention Reduction
Sharing
Stockholders in a corporation share the risk of profit or loss
Transfer
what happens with insurance
Avoidance
not engaging in certain activity (like not driving to avoid accident)
Reduction
wearing seatbelts–lessening chance that loss will occur or lessening extent of a loss that does occur
Retention
individual will pay if loss occurs
CANHAM
Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable
Calculable
Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses
Affordable
The premium for transferring the risk should be affordable for the average consumer
Non-catastrophic
Insurance cannot insure events that cause widespread losses to large numbers of insureds at the same time. Ex. Peril of war is excluded
