1A Flashcards
Risk
chance or uncertainty of loss
Exposure
term used to identify risk
ie. someone’s poor driving habits, Acts of God, wind, lightning
Pure Risk
provides the potential for loss only. Only PURE RISK can be insured
Speculative Risk
may involve the potential for gain as well as loss, i.e. insuring against gambling or business profits
Indemnification
to restore to the same financial condition after a loss
Elements of an Insurable Risk
- must be nexpected and unintended
- definite as to time and place (to prevent fraud)
- calculable
- create financial hardship
- cost of insurance must be affordable
Methods of handling risk
- avoidance (don’t ride in vehicle)
- retention (deductible)
- sharing (health insurance)
- reduction (healthy lifestyle)
- transfer (insurance policy)
Law of Large Numbers
the larger the group in the study, the more accurate the prediction of future losses
Actuary
perform statistical analysis of historical data
Homogenous
like in nature, similar exposure to los
Insurance
is a social device for spreading the chance for financial loss among large groups
Peril
cause of a loss (ie. fire and lighting)
Hazard
hazards increase the likelihood that a peril will occur (driving recklessly, skydiving)
3 Types of Hazards
Physical
Morale
Moral
Physical Hazard
exists bc of your relationship w an object (loose stair rail, untied shoelace)
Morale Hazard
individual’s indifference or carelessness (more-ale = stupidity)
Moral Hazard
deliberately causing a loss to collect (character flaw, knowlingly)
Adverse Selection
tendency of more poor risks to seek insurance than good risks resulting in higher claims experience
Property Insurance
covers the risk of loss to property, real and personal
Casualty Insurance
protection against liability claims (auto, general liability, crime)
Domicile
state under the laws of which the insurer was formed
Domestic
in the state
Foreign
another state
Alien
another country
Insurance Producer
licensed to negotiate, sell or solicit insurance
Insurance Producer License
owned by the state
Reinsurance
ceding insurer (originating insurer) procures insurance for itself from another insurer, called the “assuming”
Limited Class Insurance
credit, mortgage, auto dealer physical damage (ie. car rental, trip cancellation)
