Chapter 1

Question 1

Risk Management

Answer 1

The means of attempting to deal with the risks we face

Question 2

Definitions of risk (4)

Answer 2

1. Possibility of something unfortunate happening. 2. doubt concerning somethings outcome. 3. unpredictability. 4. possibility of loss.

Question 3

Risk Transfer Mechanism

Answer 3

The acceptance of an unknown future potential risk by an insurer for an agreed premium.

Question 4

Risk-Seeking

Answer 4

More inclined to take on risk

Question 5

Risk-Adverse

Answer 5

Less inclined to take on risk

Question 6

3 reasons why risk management is important

Answer 6

1. Reduces potential for loss. 2. Gives shareholders confidence. 3. Able to quantify risk for future benefit

Question 7

Risk appetite

Answer 7

How risk-seeking or risk-adverse someone is

Question 8

Level or risk is determined by…

Answer 8

…Frequency & Severity

Question 9

Elements of Risk Control (3)

Answer 9

control, reduce and/or eliminate risk

Question 10

Aspects to controlling risk (2 & e.g. for each)

Answer 10

Physical (sprinkler/alarm) - Financial (contracts are well worder)

Question 11

the concept of uncertainty

Answer 11

Implies doubt about the future, as a result of incomplete knowledge

Question 12

Frequency

Answer 12

How oftne it will happen

Question 13

Severity

Answer 13

How serious it will be if it happens

Question 14

Peril

Answer 14

That which gives rise to a loss

Question 15

Hazard

Answer 15

That which influences the effect of the peril

Question 16

Physical Hazard

Answer 16

Physical characteristics of the risk that includes measurable dimensions of the risk

Question 17

Moral Hazard

Answer 17

The attitudes and behaviour of people involved

Question 18

Examples of Moral Hazards (3)

Answer 18

Carelessness (A truck driver’s lack of care), Dishonesty, Social Attitudes (e.g. person who regards insurance fraud as acceptable

Question 19

Insurable categories of risk (3)

Answer 19

Financial, Pure, Particular

Question 20

Uninsurable categories of risk (3)

Answer 20

Non-Financial, Speculative, Fundamental

Question 21

Financial risk

Answer 21

Financially measurable

Question 22

Non-Financial risk (e.g.)

Answer 22

Sentimental value of something

Question 23

Speculative Risk

Answer 23

A possibility of gain but not of loss

Question 24

Pure Risk

Answer 24

Possibility of loss but not to gain

Question 25

Fundamental risk (e.e.g)

Answer 25

Famine, Nuclear blast

Question 26

Particular risk (+e.g.)

Answer 26

Localised in effect - car collision or factory fire

Question 27

A Fortuitous Event

Answer 27

Accidental, or unexpected and not inevitable

Question 28

Insurable Interest

Answer 28

Legally recognised financial relationship between the insured and the object or liability being insured

Question 29

Homogenous Exposures

Answer 29

the risks are similar to those seen before

Question 30

Primary functions of risk (3)

Answer 30

1. Spreading the risk 2. Providing degree of certainty/peace of mind 3. Transferring risk

Question 31

Employers’ Liability Act 1969

Answer 31

Compulsory for employers in GB to effect employers’ liability insurance

Question 32

Road Traffic Act 1988

Answer 32

Compulsory to have motor insurance (third party is granted automatically)