chap 1

Question 1

2 fundamental principals of insurance

Answer 1

• law of large numbers

- insurance policy in a contract

Question 2

5 categories of risk

Answer 2

1) Exogenous V endogenous
2) Objective V subjective
3) Pure V speculative
4) Dynamic V static
5) Fundamental V particular

Question 3

Objective risk

Answer 3

Determined by analysing past experience and determining mean and variance

Question 4

subjective Risk

Answer 4

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

Question 5

Inductive reasoning

Answer 5

Use of past data to determine future loss

Question 6

Deductive reasoning

Answer 6

Use of obvious proba from the nature of event

Question 7

3 types of pure risk

Answer 7

• Property
• Personal
• Liability

Question 8

5 types of pure risk for a business

Answer 8

1) Financial
2) Credit risk
3) Operational risk
4) Strategic Risk
5) Risk to reputation

Question 9

3 types of Financial Risk (Pure business risk)

Answer 9

• Exchange rate risk
• Interest rate risk
• commodity price

Question 10

Credit risk (Pure business risk)

Answer 10

Risk that receivable become uncollectible

Question 11

8 types of operational risks (Pure business risk)

Answer 11

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

Question 12

Strategic risk (Pure business risk)

Answer 12

Linked to macroeconomic event

Question 13

Dynamic Risk (V static)

Answer 13

Associated with a change in business and economy

Question 14

Static Risk (V dynamic)

Answer 14

a form of pure risk not related to the economy

Question 15

Fundamental risk (V particular)

Answer 15

Affects a large group or a population

Question 16

Particular (V fundamental)

Answer 16

Affects individuals

Question 17

Social insurance

Answer 17

Insurance required by the gov, both employees and employers contribute . Include EI CPP disability plan and death benefit

Question 18

Public assistance

Answer 18

Paid out of general tax revenue, not tied to employment and contribution

Question 19

Private insurance

Answer 19

Primarily voluntary and provided by private insurers

Question 20

Peril

Answer 20

Cause of loss such as riot, fire, theft or explosion

Question 21

Hazard

Answer 21

increase likelihood or severity of loss

Question 22

4 types of hazard

Answer 22

• Physical hazard
• Moral hazard
• Morale hazard
• Legal hazard

Question 23

Moral hazard

Answer 23

Dishonest people cause loss or increase $

Question 24

Morale hazard

Answer 24

Careless or negligent increase the proba of loss

Question 25

Legal hazard

Answer 25

Characteristic of the legal system that increase frequency or severity of loss

Question 26

6 Steps in the risk management process

Answer 26

1) Determine the objectives
2) Identifying risk
3) Evaluate potential loss
4) consider alternative risk management
5) Implement technique
6) Evaluate and review

Question 27

4 types of alternative risk management

Answer 27

1) Avoid risk
2) Control the risk
3) Retain the risk
4) Share the risk

Question 28

2 types of ownership of insurance company

Answer 28

1) Stock insurance company

2) Mutual insurance company

Question 29

3 consumer protection companies

Answer 29

1) Canada life and health
2) Property and casualty insurance
3) Office of superintendent of financial institutions