1 - Fundamental Principles of Insurance Flashcards
What is the best definition of Insurance being a risk transfer mechanism?
Moving the financial impact of a loss to insurers.
What is the name for someone who removes risk where possible?
Risk-Averse
What is the name for someone who feels happier maximising their risk?
Risk-Seeking
Give three reasons why Risk Management is important:
- Reduces potential for loss
- Shareholder confidence regarding business management
- Disciplined approach to quantifying risk
What is the definition of risk management?
The identification, analysis and economic control of those risks which can threaten the assets or earning capacity of an enterprise.
What are the three stages of risk management?
Identification
Analysis
Control
Why is elimination of risk difficult?
Whilst effective, it can be expensive and impracticable.
A factory installing sprinklers into its premises is an example of?
Risk Control
What is the pattern of losses for the aviation industry?
Low Frequency, High Severity
What is a pure risk?
Where there is a possibility of a loss, but no chance of gain.
What is a speculative risk?
Where there is a chance of making a gain, as well as a loss.
Why is the chance of winning the lottery uninsurable?
You cannot insure risks where there is a chance of making a gain.
What is a fundamental risk?
A risk that occurs on such a vast scale that they are uninsurable.
What is a particular risk?
Localised or personal events you can acquire insurance for.
Which three types of risk are uninsurable?
Non Financial, Speculative & Fundamental.
Which key insurance term is used to define something which is neither expected nor intended?
Fortuitous event.
What does the term ‘homogeneous exposures’ mean?
The risks are similar to those seen before.
What is the pooling of risk?
The basic concept of insurance - the losses of the few are met by the contributions of the many.
What is the definition of Peril?
That which gives rise to a loss.
What is the definition of Hazard
That which influences the operation or effect of the peril.
What is a physical hazard?
The physical characteristics of the risk, including any measurable dimension of the risk.
What is a moral hazard?
The attitude and behaviour of people bringing about risk.
What are the primary reasons for insurance?
- Spreading risk
- Providing a degree of certainty
- Transferring Risk
How would you best describe the loss of something that has sentimental value?
A non-financial Loss
What best describes the difference between peril and hazard?
Peril causes the loss and hazard can possibly make it worse.
How does a speculative risk differ from a pure risk?
A pure risk is one where there is no possibility of a positive outcome.
How do insurers charge clients fair premiums?
By pooling risks.
Which insurance is compulsory in the UK?
- Third party motor
- Public liability for riding establishments
- liability insurance for dangerous animals
- PI Insurance
