1: Fundamental Principles of Insurance Flashcards
Definition: Financial risk
A risk which has financial measurement, making it insurable.
Most general insurance is compensatory meaning value placed on a loss is not determined in advance, but you can also have pre-agreed benefit policies for accident or sickness coverage.
Financial vs non-financial risks
Definition: Hazard
Something which influences the operation or effect of a peril.
Can be physical or moral.
Definition: Particular risks
Localised or personal in their cause and effect.
Particular vs fundamental risks.
Definition: Risk
No universally recognised definition or risk.
Definition: Uncertainty
Doubt about the future as a result of incomplete ability to predict what is going to happen.
Definition: Fortuitous event
An event which is accidental or unexpected and not inevitable - and certainly not deliberate.
Definition: Homogeneous exposures
Similar risks. A large number of homogenous exposures makes a forecast easier to predict.
Definition: Peril
Something that gives rise to a loss (explosion, flood)
Definition: Risk transfer
The acceptance of an unknown future potential risk by an insurer for an agreed premium.
Definition: Frequency
How often a risk will happen.
Definition: Insurable interest
The legally recognised financial relationship between the insured and the liability that is being insured.
e.g having responsibility for someone else’s goods stored at your facility, or maintaining pavements where you have legal liability in case anyone falls.
Definition: Pooling of risk
An insurer gathers a larger number of premiums from different people to ensure there any losses (+ operational costs and profit can be met).
Premium paid by the insured is proportionate to the risk they introduce through discrimination factors to ensure a fair premium is charged.
The law of large numbers helps to predict accurate costs.
Definition: Severity
How serious a risk will be if it does happen.
Definition: Fundamental risks
A risk which occurs on such a vast scale that it is uninsurable.
Particular vs fundamental risks.
Definition: Non-financial risks
A risk which cannot be measured in financial terms (such as the sentimental value of an heirloom).
Financial vs non-financial risks.
