Chapter 1 Flashcards
Risk management
Seeks to identify, analyse and control risks.
Risk identification
Discovering the threats that may already exist or potentially threats
Risk analysis
Past data
Financial control
Transferring this is risk by either taking out insurance
Detective controls
Detect error or irregular
Correct control
Correct errors
Preventative control
Keeps errors
Peril
Cab be defined as that gives a rise loss
A factory installing sprinklers is an example of what activity?
Risk control
What 2 characteristics are used to assess the level of risk?
Frequency and severity
Give an example of a high frequency, low severity, event
Broken windscreen/window, minor car accident, etc (anything that could happen often but doesn’t cause a high cost
Give an example of a low frequency, high severity, event
Plane crash, earthquake, subsidence, any other natural catastrophe etc
What is the difference between a physical and moral hazard?
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)
Give an example of a physical hazard
Security systems, fire alarm/sprinklers, construction of the building, location, vehicle modifications
Give an example of a moral hazard
Occupation, convictions, claim history, experience, company policies and attitude towards health and safety, carelessness, dishonesty
What two words best describe risk?
Uncertainty and unpredictability
What is AIRMIC?
Association of Insurance and Risk Managers in Industry and Commerce
What is a “pure” risk?
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
What are “homogenous exposure
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.
What is “co-insurance
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
Self insurance
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
Pecuniary insurance
Money
Fundamental risk
is those which arise from a cause outside the control of any one individual or group of individuals and their effects are usually widespread
Speculative referred
to as business risks, they also associated with gambling speculative may involve three
possible outcomes loss break=even or gain
law of large numbers
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
fortuitous event
To be insurable, the occurrence must be a fortuitous event, i.e. accidental or unexpected.
Hazard
an be defined as that which influences the operation or effect of the peril.
Components of risk
uncertainty;
level of risk; and
peril and hazard
What is a benefits policy
Important exceptions to this general rule are personal accident and sickness policies
What is meant by “equitable premium
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
