C1 Flashcards
Define risk
Possibility that something unfortunate may occur that may result in a loss
What is insurance
The transfer of risk through the payment of a premium
What is the common pool
Collected premiums of many. Each insured makes a proportionate contribution to the size of risk they bring on. This allows insurers to pay the claim to those who experience a loss
Where do insurers get income from x2
Premiums and investments
What are the two types of attitudes to risk
Risk seeking and risk adverse
3 stages of risk management
Identification
Analysis
Control
What are the two types of controls in risk management
Physical (alarms) and financial (insurance)
What are the components of risk
Uncertainty
Frequency and severity(high/low plane crash)
Peril and hazard
Define peril
That which gives rise to a loss (fire)
Define hazard
Determines how a peril develops (sprinklers) can be good or bad
What are the two types of hazards
Moral and physical (location)
Define a moral hazard in insurance
The characteristics behaviour or attitude of the insured
What are the categories of risk and define them
Financial - of financial value
Non financial - no value/sentimental
Pure - loss and no gains
Speculative- potential for a loss or gain
Particular- localised in effect
Fundamental - vast in effect (war)
What types of risks are insurable
Financial
Pure
Particular
What makes a risk insurable
Fortuitous - unforeseen
Insurable interest - legally recognised financial relationship
Public policy - lawful
Homogeneous event - pooling of risk/ occurs multiple times
What is the law of large numbers
Predicted data close to expected as risk trends can be collected from there being more data. Allows for more accurate pricing
Primary functions of insurance
Spread of risk between insures
Provide a degree of certainty
Transfer of risk
Secondary functions of insurance
-Companies don’t need to set aside alot of safety funds
-companies have confidence to expand business
-jobs are protected
-losses are reduced as risk management increases
-firms invest more in the economy so it grows
-increases invisible exports
What does compulsory insurance ensure
Compensation
Address National concerns
Maintains reputation of certain professions
Ensures funds are available for compensation
Employers liability insurance
Minimum £5m of indemnity
Employers liability tracing office
Must show proof of this insurance
Motor insurance
Road traffic act 1988
Third party injury or death and third party property damage
Public liability insurance
Riding establishment act 1979
Dangerous wild animals and/or dangerous dogs
Professional indemnity insurance
For solicitors and others e.g accountants and insurance intermediaries authorised by the FCA. For falling below the standards expected (negligence)
How can AI assist underwriting
Help with risk and pricing
Reduce human error
Create individualised policies
Automate underwriting processes
Analyse data
Support décision making
How is AI being used in the Lloyds market
To offer an automatic following line based on the same terms as the lead on the risk
How is AI used in claims
Automation and efficiency for
- data entry
-Document verification
-Fraud detection
-claims assessment
Mobile apps can speed up the notifications of claims
Analysing previous claims history, policy info and external data like weather
Detection of of suspicious claims for human review
How can AI help the insured
Flag losses and potential losses
Chat it’s to assist claims process
Image and damage analysis through photo and estimate repair costs
Personalise claims experiences
FCA and PRA AI principles
Saftey and security
Transparency and explainability
Fairness
Accountability and governance
Contestability and regress
What does ESG stand for and what does it mean
Environmental, Social and Governance and is a framework used by companies to evaluate and integrate sustainability and responsible business practice into their operations
FCA ESG strategy
-Promotion of global standards for sustainability reporting
-Improved transparency of performance on diversity and inclusion matters
-integration of ESG into financial market decision making
AIRMIC
Association of Insurance and risk managers in industry and commerce
FPA
Fire protection Association
- share info to insures about building materials hazards etc
-gets better historic data and improve policies
BRE
Buildings research establishment
- aids in loss prevention by sharing info with insurers
Equitable premium
Premium is proportionate to the risk added to the pool
What is risk management
Risk management involves identifying, analysing, and controlling risks that could threaten an organisation’s assets or earning capacity.
What is the pooling of risk
Pooling of risk refers to collecting premiums from many insureds to cover the losses of a few. This concept is fundamental to the operation of insurance and relies on the law of large numbers.
What role does the claims handling process play in insurance?
The claims handling process is crucial as it determines how efficiently and fairly claims are processed, impacting customer satisfaction.
