Ch : 01 Risk And Insurance Flashcards
In personal sense we all take decisions based upon
An assessment of risk which is carried out informally
Informality ( assessment of risk ) may be acceptable in
Low risk situations
What is risk management
Risk measurement and the means of attempting to deal with the risks we face are collectively termed as risk management
Definition of risk
1.the possibility of an unfortunate occurrence
2.doubt concerning the outcome of a situation
3.unpredictability
4.possibility of loss
5.the chance of gain ( investment strategy and gamble )
What is a means of transferring the risk
Insurance
Risk transfer mechanism means
The accepting of an unknown future potential risk by an insurer for an agreed premium
Some people are willing to carry certain risks themselves are termed as
Risk seeking
Feeling happier minimising the risk they ate exposed by taking insurance they ate called
Risk averse
Term which describes an individual who is keen to remove risk where possible
Risk -averse
AIRMIC
Association of Insurance and Risk Managers in Industry and Commerce
Which organisation has been influential is setting standards in areas of risk management
AIRMIC ( Association of Insurance and Risk Managers in Industry and Commerce)
What is the focus of good risk management
Identification and treatment of defined risks
It gives shareholders a greater degree of confidence in a cos ability to manage its risks
Commercial risk management
Reduces potential for loss and managing hazards
Commercial risk management
Commercial risk management provides
A disciplined approach to quantifying the risks
3 steps in the risk management process
Risk identification
Risk analysis and
Risk control
For which type of risks an issuer may become involved in helping to identify existing and potential risks through carrying out a physical examination or survey
Conventional risks
Which step of risk management is the most effective but may b costly or impractical
Risk control
Aspects of controlling of risks
Physical control measures
Financial control measures
Developing a good risk culture
Internal controls
Detective controls
Corrective controls
Preventative controls
Insurers often assist which type of policyholders in the area of loss prevention and control
Commercial policyholders
Who also play a role in relation to risk control when they provide reports following the survey
Insurers
Who will examine past data to evaluate or analyse the risk
Risk Managers
Under risk control which is the most effective but may be costly or impractical
Elimination
Who has been central to development of research that supports the management of cyber risks and further developing security capabilities at a national level
The National cyber security centre
FPA
Fire protection Association
Most insurers rely on which centre for testing vehicle safety and security systems and for testing seats for whiplash protection
Thatcham Research Centre
MIAFTR
Motor insurance anti fraud and theft register
Which co was formed to combat increasing no of fraudulent claims
MIAFTR was formed through the participation of Association of British Insurers (ABI) members cos
Who help the insurers to develop crime and loss control solutions
Loss prevention research Council
Components of risk
Uncertainty
Level of risk
Peril and hazard
Level of risk is assessed by insurers in terms of
Frequency and severity
E.g of high frequency and low severity
Dented bumpers, cracked windscreen
E.g low frequency and high severity
Aircraft accidents and oil spillages
High frequency / low severity claims is is based on
Law of large numbers
Relationship between frequency and severity is
Inverse
What is peril
A peril can be defined as that which gives rose to a loss
What is hazard
Which influences the operation or effect of the peril
Examples of peril
Fire, lightning , collision , dishonesty
What is physical hazard relates to
Charatecteristics of the risk
Moral hazard arises from the
Attitude and behaviour of people
Age of the proposer and type of car for motor insurance is which hazard
Physical hazard
Construction of the property falls under which hazard
Physical hazard
Eg of poor Moral hazard
Poor claim history
Serious motoring convictions
Dishonesty
Carelessness
Social attitudes
Eg.relaxed attitude to the speed limit as a driver
Factors such as poor security in place or inadequate operation controls .A lax corporate attitude to security
Insurable risks can be grouped as
Financial risks
Pure risks
Particular risks
What is benefit policies
Policies are taken out in order to provide pre agreed amounts in the event of an accident or sickness
What is pure risks
Are those where there is the possibility of a loss but not of gain and where the best cab achieve in a break even situation
Particular risks
Are localised or even personal in their cause and effect
Features of insurable risks
The event insured against mustvbe fortuitous
Insurable interest
Must not be against public policy
Non fortuitous loss
Is a policuhokder who delebrates damages their car..not all the elements of loss or damage may b fortuitous
Homogeneous exposures
Given a sufficient number of exposure to similar risks..also they use law of large numbers
Ininsurable risks
Non financial
Speculative
Fundamental
Eg of non financial risks
Choosing a new house
Deciding on a school for a child
Loss of enjoyment of a holiday
Non financial risks
Is one where the outcome is not measurable in monetary terms
Which risk is often referred as business risk
Speculative risks
Speculative risk outcomes
Loss, break -even or gain
Fundamental risks
Are those which arise from a cause outside the control of any one individual or group individuals and their effects are usually widespread
E.g of fundamental risks
Loss relates social. Economic, political and natural cause
Economic recession
War
Earthquake
Famine
Benefits of insurance
In addition to peace of mind and the enabling of risk transfer
Improved cash flow
Expansion of business
Loss control
Premium invested
Social benefits
Money is held until claims have to be paid
This creates a premium reserve
Pooling of risks
The losses of the few are met by the contributions of the many
When it enables the insurer to predict the final cost of claims in any one year
Applying law of large numbers
Equitable premium
Fair contribution to the pool
Task of an underwriter when considering individual risk
Correct assessment will ensure fair premium is charged and a fair profit can be made
A small fixed sum retained by the insured is called as
Excess
A large fixed sum tends to be called as
Deductible
2 or more policies in force which cover the same risk
Dual insurance
Self insurance
Means that an individual or Co has decided not ro use insurance as the risk transfer mechanism but to carry themselves
A co decides to self insure the first £100,000 of each property loss that it suffers .This amt is called
Retention
Types of motor insurance
Motor insurance
Motorcycle insurance
Commercial motor insurance
Motor trade insurance
Under which insurance valuables and personal effects are covered as is public liability cover
Home insurance
Pet insurance is primary designed to cover
Vet costs of a pet is ill, gets injured or has an accident
Types of heath insurance
Personal accident
Sickness
Pvt medical insurance
Short term income protection
Critical illness
What is designed to cover monthly loan and credit card payments
PPI ( payment protection insurance)
Under which insurance payment is made directly to the insured creditors rather than the insured
PPI ( payment protection insurance)
Under FCA rules, which policies cannot bow be sold as single premium contracts
PPI ( payment protection insurance )
Pecuniary insurance covers
Intangible such as income, revenue or value
Eg : FG , legal expenses, credit, business interruption,political risks and GAP ( guaranteed asset protection )
Marine insurance covers 3 main areas of risk
Physical damage to the ship or goods (cargo)
Liabilities incurred to other parties
Loss of income
Marine freight insurance covers
The sum paid for transportong goods or vessel hire
Marine Hull insurances covers
Damage to the ship. Its machinery and equipment and some limited liability insurance in case of contact with other vessels
Specialist covers are
Aviation products
Personal accident policies for aircrew
Aviation insurances covers
Damage to aircraft ( hull) and legal liability to TP and passengers (liability)
What is a specialist branch of aviation insurance
Satellite insurance
Which insurance policy is one that brings together a number of different types of cover or a range of risks/ perils under one policy
Combined or packaged policies
The policy is really a shell into which different covers may b placed
Commercial combined
For a risk to be insurable it must be
Financial , pure and particular
Homogenous exposures are
Similar risks which help to determine a pattern
Rohan is starting a mobile bicycle repair business .he is concerned about the threat of the local competition .he should be aware that this is not insurable as its a
Speculative risk
An intruder alarm in a workshop is an example of
Physical control measure
The pool of insurance premium must be large enough to meet the losses in any1 year plus the
Cost of operating the pool and element of profit
Income protection provides
Fixed benefits in the event of an accident , illness or loss of job
If a motor insurance policy requires the car to ne kept in a garage at night ..this is an example of
Control risk
Where an insurance policy is arranged on a collective basis , the insured needs to be aware of
Each insurer is separately liable to the insured fpr their proportion of any claim that become payable
The ability of underwriters to be able to quote an appropriate premium is based on the concept of
Homogeneous exposures
When insurance is written on a co insurance basis with more than one insurer ,each insurer
Will pay a proportion of any claim, usually to the lead office
A business has property insurance of 1 million .If they choose to cover the 1st 250k from.their own resources is known as the insurers retention
Insurers typically accumulate money due to the delay between premiums being collected and when claims are made .what is this knwn as
Premium reserve
List of commercial property insurance
Perils and all risks policies
Engineering/ breakdown
Glass
Livestock
Money
Examples of particular risks
A factory fire
A car collision
Theft of personal possession from a home
Examples of fundamental risks
Economic recession
War
Earthquake
Famine
Examples of peril
Explosion
Lightning
Collision
Dishonesty
Examples of financial risks
Accidentally damage to a motor car
Theft of property
Loss of business profits following a fire
Legal liability to pay compensation for personal injury to others
What is money insurance
Is on all risks basis,covering all risks of loss or destruction of or damage to money in transit on the insured premises during business hours
