AI Chapter 1 Flashcards
What is risk management?
Risk measurement and how we deal with risks
Define risk.
Possibility of an unfortunate occurrence
What does risk transfer involve?
PH pays premium to insurer in return for insurer accepting unknown cost of the insured risk
What does risk acceptance mean in insurance?
Acceptance of an unknown risk for an agreed premium
What is a peril in insurance terms?
Contingency that is insured, such as fire risk or theft
What is the role of an underwriter?
Quotes for a ‘risk’ implying a wider definition including both the thing insured and the scope of cover
What is the difference between risk-seeking and risk-averse attitudes?
Risk-seeking carries risk themselves; risk-averse minimizes risk by transferring it
What organization sets standards for risk management?
Airmic
What is risk identification?
Discovering the threats that exist and potential threats in the future
What is the purpose of risk analysis?
Examining data to evaluate risk patterns for accurate rating
What does risk control aim to achieve?
Elimination or reduction of risk
List the elements of controls.
- Detective controls
- Corrective controls
- Preventive controls
What is uncertainty in the context of risk?
About the future is the centre of risks
How is risk assessed by insurers?
In terms of frequency and severity
Define peril and hazard.
- Peril: that which gives rise to a loss
- Hazard: influences the operation or effect of the peril
What are physical and moral hazards?
- Physical hazards: relate to measurable dimensions of the risk
- Moral hazards: arise from attitude and behaviour of people
What are the two categories of risk?
- Financial risks
- Non-financial risks
What distinguishes pure risks from speculative risks?
- Pure risks: possibility of loss but not gain
- Speculative risks: loss, break-even, or gain
What are particular and fundamental risks?
- Particular risks: localized in cause and effect
- Fundamental risks: arise from causes outside control, effects are widespread
List features of insurable risks.
- Event must be fortuitous
- Insurable interest must be present
- Not against public policy
What does ‘fortuitous event’ mean?
Accidental or unexpected event
Define insurable interest.
Legally recognized financial relationship between insured and the object they are insuring
What is the law of large numbers in insurance?
Allows insurers to predict the final cost of claims based on data from similar risks
What is co-insurance?
Sharing risk between insurers and risk sharing with the insured
What is reinsurance?
Insurers form a common pool to jointly underwrite particular risks
What is dual insurance?
Two or more policies in force covering the same risk
What is self-insurance?
Deciding to carry the risk themselves instead of using insurance
List reasons for buying insurance.
- Enables risk of financial loss to be transferred
- Improved cash flow
- Expansion of business
- Loss control
- Premiums invested
- Social benefits
