chap 1 Flashcards
2 fundamental principals of insurance
- law of large numbers
- insurance policy in a contract
5 categories of risk
1) Exogenous V endogenous
2) Objective V subjective
3) Pure V speculative
4) Dynamic V static
5) Fundamental V particular
Objective risk
Determined by analysing past experience and determining mean and variance
subjective Risk
Uncertainty is based on the person mental condition or state of mind and the resulting subjective proba is based on the indiv estimate of a chance of loss
Inductive reasoning
Use of past data to determine future loss
Deductive reasoning
Use of obvious proba from the nature of event
3 types of pure risk
- Property
- Personal
- Liability
5 types of pure risk for a business
1) Financial
2) Credit risk
3) Operational risk
4) Strategic Risk
5) Risk to reputation
3 types of Financial Risk (Pure business risk)
- Exchange rate risk
- Interest rate risk
- commodity price
Credit risk (Pure business risk)
Risk that receivable become uncollectible
8 types of operational risks (Pure business risk)
1) Fraud
2) Poor management
3) Technology failure
4) Error in forecasting and reporting
5) Inadequate record keeping
6) Workplace safety
7) Equipment failure
8) Product liability
Strategic risk (Pure business risk)
Linked to macroeconomic event
Dynamic Risk (V static)
Associated with a change in business and economy
Static Risk (V dynamic)
a form of pure risk not related to the economy
Fundamental risk (V particular)
Affects a large group or a population
Particular (V fundamental)
Affects individuals
Social insurance
Insurance required by the gov, both employees and employers contribute . Include EI CPP disability plan and death benefit
Public assistance
Paid out of general tax revenue, not tied to employment and contribution
Private insurance
Primarily voluntary and provided by private insurers
Peril
Cause of loss such as riot, fire, theft or explosion
Hazard
increase likelihood or severity of loss
4 types of hazard
- Physical hazard
- Moral hazard
- Morale hazard
- Legal hazard
Moral hazard
Dishonest people cause loss or increase $
Morale hazard
Careless or negligent increase the proba of loss
Legal hazard
Characteristic of the legal system that increase frequency or severity of loss
6 Steps in the risk management process
1) Determine the objectives
2) Identifying risk
3) Evaluate potential loss
4) consider alternative risk management
5) Implement technique
6) Evaluate and review
4 types of alternative risk management
1) Avoid risk
2) Control the risk
3) Retain the risk
4) Share the risk
2 types of ownership of insurance company
1) Stock insurance company
2) Mutual insurance company
3 consumer protection companies
1) Canada life and health
2) Property and casualty insurance
3) Office of superintendent of financial institutions
