Chapter 1 Flashcards

1
Q

Risk Transfer

A

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

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2
Q

Risk Seeking

A

Willing to carry out risky activities

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3
Q

Risk Averse

A

Looking to minimise risk

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4
Q

Risk Management

A

Developing a formal strategy of managing various risks which can impact a business. Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC) have published a widely adopted Risk Management Standard.

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5
Q

FPA

A

Fire Protection Association

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6
Q

Thatcham Research Centre

A

Motor insurers rely on them for testing vehicle safety

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7
Q

MIAFTR

A

Motor Insurance Anti-Fraud and Theft Register. The register records all details of vehicles and motorcycles that become total losses arising from any cause, including third party and theft.

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8
Q

Components of Risk

A

Uncertainty
Level of Risk
Peril and Hazard

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9
Q

Level of Risk

A

High Frequency and Low Severity
Low Severity and High Frequency

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10
Q

Peril

A

That which causes a loss

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11
Q

Hazard

A

That which impacts the likelihood of a peril

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12
Q

Physical Hazard

A

Physical characteristics of a risk e.g. Standard of building construction

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13
Q

Moral Hazard

A

In insurance, usually the conduct of the insured. e.g. their attitudes and behaviours.

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14
Q

Categories of Risk

A

Financial & Non-Financial
Pure and Speculative Risks
Particular and Fundamental Risks

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15
Q

Financial & Non-Financial Risks

A

A risk must have the potential for financial loss to be insurable

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16
Q

Pure Risks

A

Possibility of loss and no gain

17
Q

Speculative Risks

A

May involve three possible outcomes: Loss, break-even or gain

18
Q

Particular Risk

A

Effect of a loss is localised to one individual or business. E.g. a fire within a factory

19
Q

Features of an insurable risk

A

Fortuitous Event
Insurable Interest
Not against public policy e.g. insuring against the cost of a fine

20
Q

Fundamental Risk

A

Cause of loss is outside the control of any one individual or a group and effects are widespread. E.g. Financial Recession

21
Q

Homogeneous Exposures

A

A sufficient number of exposures to similar risks. E.g. Earthquakes in Japan

22
Q

Law of Large Number

A

Theory which determines that predictions become more accurate as the base of data used increases in size. Enables the insurer to predict the final cost of claims in any one year.

23
Q

Pooling of Risk

A

An insurance company gathers together relatively small sums of money from people who want to be protected from a similar type of peril. A common pool is set up and the insured pays out claims to compensate the losses of the few.

24
Q

Equitable Premiums

A

The insured are expected to make a fair contribution to pooling system. E.g. someone with a larger house will be expected to pay more for buildings insurance, a it would cost more to rebuild than a smaller property.

25
Q

EU Gender Directive

A

Insurers can no longer use gender as a criteria for rating a customer. This impacts Life, Motor, Income protections.

26
Q

Co-Insurance

A

Sharing the risk with others. This can be another insurer or the insured.

27
Q

Self Insurance

A

Individual or company have decided not to use insurance and carry the risk themselves