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C11 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Insurance is based of what

A

the existence of risk

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2
Q

What is Speculative Risk:

A

there is a chance of loss and there is a chance of profit

Typical business operations. The business ability of the owner and economic conditions in general will determine whether there is a profit or loss

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3
Q

What is Pure Risk

A

entails a chance of loss but no chance of profit

Own a car> financial loss arising out of a crash constitutes a pure risk> suffer injuries, medical costs> unable to work> lost wages> car is damaged or destroyed. The owner cannot benefit or profit from this accident unless they do some illegal things

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4
Q

What kind of risk is insurance concerned with

A

Pure risk

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5
Q

What kind of risk is uninsurable

A

Speculative risk

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6
Q

How to test if something is not insurable

A

Chance of loss?
Chance of profit?
Chance of loss; yes & Chance of profit no = may not be insurable

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7
Q

What are the types of insurable risk

A

Personal
Property
Liability

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8
Q

What is personal insurance

A

The chance of loss arising from a person’s own bodily injury, loss of life, or loss of income b/c of the following
Death, physical disability (resulting from accident or sickness), old age, unemployment

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9
Q

What is property insurance

A

The chance of loss arising from the destruction of or damage to property, two types

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10
Q

What are the two types of damages that can happen to a property

A

Direct Loss
Indirect Loss

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11
Q

In property insurance what is direct loss

A

Cost of repairing a collision damaged automobile
Cost of replacing a stolen gaming console
Cost of rebuilding a house if it burns down

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12
Q

In property insurance what is indirect loss

A

occurs b/c of direct losses

Is you rent the basement of your house and your house burns down, you will lose rental income from your tenants

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13
Q

What is liability insurance

A

The chance of loss arising from an individual’s legal obligation to pay damages b/c of the injury or death of another or damage to another’s property.

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14
Q

Liability insurance obligation based on the individuals negligent act or legal liability in relation to

A

Their conduct
Operations of a vehicle
Ownership or occupation or both of property
Manufacture of products
Rendering of professional services

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15
Q

What are the two categories of insurance

A

General
life

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16
Q

What does General insurance include

A

property insurance and casualty insurance.

Casualty insurance is a blanket term used to describe insurance for subjects other than life, fire, or vehicle

General insurance license

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17
Q

What does life insurance need to practise

A

Require special license

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18
Q

What are three general insurance for general insurance

A

Personal Lines
Commercial Lines
Special risk

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19
Q

What is commercial lines insurance

A

Commercial operations, stores, offices, trucking operations, construction vehicles and contractors

20
Q

What does special risk include

A

Marine, aviation, high risk industrial operations

21
Q

What is a peril

A

An event that may cause a loss

22
Q

What is burglary

A

unlawful removal of property from premises involving visible forceable entry

23
Q

What is robbery

A

taking another person’s property, in the person’s presences, by violence or threat of violence

24
Q

What is theft

A

wrongful taking of property of another. Broad term includes larceny, pilfering, holdup, robbery, and pickpocketing

25
Q

What is negligence

A

doing something a reasonable person would not do, or not something a reasonable person would do - is the peril insured in liability insurance

26
Q

What is Hazard

A

Is a condition that may cause a peril to occur or make the loss more severe.

27
Q

What are the two major divisions of hazard

A

physical
moral

28
Q

What is physical hazard

A

Subject matter of insurance and concerns those facts that can be ascertained by inspection of the risk, such as
Construction of property, manufacturing process, age of a vehicle, location in relation to water supplies for firefighting

Slippery floors, loose tiles, debris piled in basement or stairwells, poorly maintained heating and air conditioning units

29
Q

What is moral hazard

A

Human element of risk
Steams from mental attitudes and depends on the character of the insured and the insured’s employee
Dishonesty, carelessness, and poor management

30
Q

What are the two categories of moral hazard

A

Characteristics of the insured that increase the probability or severity of loss

A particular attitude on the part of the insured

31
Q

What is morale hazard

A

Does not relate to dishonesty but to a particular attitude on part of the insured
Typically about care and maintenance
Example:
Upkeep of your property

32
Q

What is proximate cause

A

When a loss occurs, the peril that was the proximate cause of the loss must be one of the perils insured
Proximate cause is the immediate and effective cause of the loss
Not always the last event to occur

Clare has a building and it collapses after being damaged and weakened by a raging fire in another building. Although the building collapsed, the fire next door directly precipitated the collapse and qualifies as the proximate cause of the loss

33
Q

What is a remote cause

A

A cause that is not proximate

Example
Clare’s building is not damaged by fire but when Clare’s neighbour hires a contractor to repair the other building, the contractor negligently causes Clare’s building to collapse. The fire is the remote cause and the proximate cause if the action of the contractor

34
Q

What is an immediate cause

A

The last link in the chain to the events

35
Q

What is the risk management process used for

A

Determine the exposures clients need to make

Provide a plan of action manage those risk

Recommend insurance coverage for those risk best served by insurance cover

36
Q

Pre loss objectives - those to be met before a loss occurs: SPEC

A

Social responsibility
Peace of mind (tolerance level of uncertainty)
Externally imposed obligations
Cost of risk

37
Q

Post loss objectives - those to be met after a loss occurs: SSOSS

A

Social responsibility
Survival
Operational continuity
Stable earnings
Sustained growth

38
Q

What is the risk management process

A

Step 1: identifying and analyzing exposures
Step 2: Formulating options
Step 3: Selecting the best techniques
Step 4: Implementing the risk management plan
Step 5: Monitoring the results and modifying the plan

39
Q

Step 1: identifying and analyzing exposures

A

To treat loss exposure, it must first be identified.
Insurance professionals have a broader perspective of the risks organizations are exposed to
Outside resources may be accessed; ex. fire department
Methods to identify loss exposures: Surveys, Flow Charts, Financial Statements & Inspections

40
Q

Three distinct elements to loss exposure

A

Asset subject to loss
Potential cause of loss (peril)
Financial consequences of the occurrence

41
Q

What is asset subject to loss

A

Physical, tangible property

Loss of use, physical asset damaged/destroyed

Legal liability, duty of care issues; slipping on an icy sidewalk in front of a business

Intangible assets, not physical; patent expiring causing financial loss

Human, employees; owner of business dies

42
Q

What are the three general categories of perils cause loss

A

Humans - perils caused by human behaviour, such as arson, theft
Natural - perils caused by natural forces in the weather and the earth, such as earthquakes, floods
Economic - such events as changes in consumer tastes, currency fluctuations, crock market declines

43
Q

Step 2: Formulating options

A

to formulate the nest technique or combo of techniques for dealing with each exposure

44
Q

Two major categories used to classify techniques from dealing with each exposure

A

Loss control techniques to control exposure to prevent losses or reduce their severity

Loss financing techniques to pay for losses that occur

45
Q

What are some Loss financing techniques to pay for losses that occur

A

Retention
Transfer

46
Q

What are Loss control techniques to control exposure to prevent losses or reduce their severity

A

Avoidance
loss prevention
loss reduction
non insurance risk transfer
separation or diversification

C11 (9 decks)

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