Chapter 1

Question 1

Risk management

Answer 1

Seeks to identify, analyse and control risks.

Question 2

Risk identification

Answer 2

Discovering the threats that may already exist or potentially threats

Question 3

Risk analysis

Answer 3

Past data

Question 4

Financial control

Answer 4

Transferring this is risk by either taking out insurance

Question 5

Detective controls

Answer 5

Detect error or irregular

Question 6

Correct control

Answer 6

Correct errors

Question 7

Preventative control

Answer 7

Keeps errors

Question 8

Peril

Answer 8

Cab be defined as that gives a rise loss

Question 9

A factory installing sprinklers is an example of what activity?

Answer 9

Risk control

Question 10

What 2 characteristics are used to assess the level of risk?

Answer 10

Frequency and severity

Question 11

Give an example of a high frequency, low severity, event

Answer 11

Broken windscreen/window, minor car accident, etc (anything that could happen often but doesn’t cause a high cost

Question 12

Give an example of a low frequency, high severity, event

Answer 12

Plane crash, earthquake, subsidence, any other natural catastrophe etc

Question 13

What is the difference between a physical and moral hazard?

Answer 13

A physical hazard relates to the physical characteristics of the risk itself. A moral hazard relates to the characteristics and behaviour of people (usually the insured)

Question 14

Give an example of a physical hazard

Answer 14

Security systems, fire alarm/sprinklers, construction of the building, location, vehicle modifications

Question 15

Give an example of a moral hazard

Answer 15

Occupation, convictions, claim history, experience, company policies and attitude towards health and safety, carelessness, dishonesty

Question 16

What two words best describe risk?

Answer 16

Uncertainty and unpredictability

Question 17

What is AIRMIC?

Answer 17

Association of Insurance and Risk Managers in Industry and Commerce

Question 18

What is a “pure” risk?

Answer 18

are those where there is the possibility of a loss but not of gain, and where the
best that we can achieve is a break-even situation

Question 19

What are “homogenous exposure

Answer 19

Given a sufficient number of exposures to similar risks, known as homogeneous
exposures, the insurer can forecast the expected frequency and likely extent of losses.

Question 20

What is “co-insurance

Answer 20

part of an insurer’s job is to manage the pool of money from which valid claims are to be paid.
Each insurer will therefore decide upon the maximum limits of acceptance for particular categories of risk

Question 21

Self insurance

Answer 21

means that an individual or company has decided not to use insurance as the risk transfer
mechanism, to carry the risk themselves. The term can also be used when referring to the part of a loss that
the insured retains

Question 22

Pecuniary insurance

Answer 22

Money

Question 23

Fundamental risk

Answer 23

is those which arise from a cause outside the control of any one individual or group of individuals and their effects are usually widespread

Question 24

Speculative referred

Answer 24

to as business risks, they also associated with gambling speculative may involve three
possible outcomes loss break=even or gain

Question 25

law of large numbers

Answer 25

This
is achieved by using the law of large numbers, a theory that determines that predictions
become more accurate as the base of data used increases in size

Question 26

fortuitous event

Answer 26

To be insurable, the occurrence must be a fortuitous event, i.e. accidental or unexpected.

Question 27

Hazard

Answer 27

an be defined as that which influences the operation or effect of the peril.

Question 28

Components of risk

Answer 28

uncertainty;
level of risk; and
peril and hazard

Question 29

What is a benefits policy

Answer 29

Important exceptions to this general rule are personal accident and sickness policies

Question 30

What is meant by “equitable premium

Answer 30

To operate a pooling system successfully, a number of pools must be set up, one for each
main group of risks.
When deciding on equitable premiums (fair contributions), insurers take into account the
different elements of risk brought to the pool by each of the policyholders