Ch 2 Nature of Insurance Flashcards

1
Q

Adverse Selection

A

Adverse selection is broadly defined as selection against the company. It includes the tendency of people with higher risks to seek or continue insurance to a greater extent than those with little or less risk. Adverse selection also includes the tendency of policyowners to take advantage of favorable options in insurance contracts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Hazard

A

A hazard is any factor, condition, or situation that creates an increased possibility that a peril (a cause of a loss) will actually occur.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Homogeneous Exposure Units

A

Homogeneous exposure units are similar objects of insurance that
are exposed to the same group of perils.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Indemnity contract

A

Contracts of indemnity attempt to return the insured to their original financial position.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Law of Large Numbers

A

The law of large numbers is a fundamental principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Loss

A

Loss is the unintentional decrease in the value of an asset due to a peril.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Loss Exposure

A

Loss exposure is the risk of a possible loss.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Moral Hazard

A

Moral hazard is a hazard brought on by the effect of personal reputation, character, associates, personal living habits, financial responsibility, and environment, as distinguished from physical health, upon an individual’s general insurability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Morale Hazard

A

Morale hazard is a hazard arising from indifference to loss because of the existence of insurance. Morale hazards are often associated with having a careless attitude.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Peril

A

Peril is the immediate, specific event causing loss and giving rise to risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Physical Hazard

A

Physical hazards are physical or tangible conditions existing in a manner that makes a loss more likely to occur.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Pure risk

A

Pure risk is a type of risk that involves the chance of loss only; there is no opportunity for gain; it is insurable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Reinsurance

A

Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Risk

A

Risk is the uncertainty regarding loss, the probability of a loss occurring for an insured or prospect.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Risk Avoidance

A

Risk avoidance occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Risk Management

A

Risk management is the process of analyzing exposures that create risk and designing programs to handle them is called risk management.

17
Q

Risk Pooling/Loss sharing

A

Risk pooling and loss sharing spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an ndividual to a group.

18
Q

Risk Reduction

A

Risk reduction takes place when the chances of a loss are lessened, or the severity of a potential loss is minimized.

19
Q

Risk Retention

A

Risk retention is the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. Risk retention is often associated with self-insurance.

20
Q

Risk Transfer

A

Risk transfer is the act of shifting the responsibility of risk to another in the form of an insurance contract.

21
Q

Speculative Risk

A

Speculative risk is a type of risk that involves the chance of both loss and gain; it is not insurable.