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LM1 > chapter 1 > Flashcards

chapter 1 Flashcards

1
Q

what is risk management?

A

risk measurement + attempting to deal with the risks we face

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2
Q

definition of risk…

A

possibility of something unfortunate happening
possibility of a loss
unpredictability
chance there might be a gain

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3
Q

insurance is…

A

a risk transfer mechanism
acceptance of an unknown future risk by an insurer for an agreed premium

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4
Q

3 other ways “risk” is used in the market place

A
  • peril being insured
  • subject matter of insurance eg. the factory/ship
  • the thing insured eg. the property
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5
Q

2 attitudes to risk

A

risk adverse & risk seeking

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6
Q

why is risk management important?

A
  • reduces the potential for loss
  • gives confidence to shareholders
  • provides disciplined approach to quantifying risks
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7
Q

what is the function of risk management?

A
  • identification (carry out physical examination or survey)
  • analysis (examine past data to predict likely future losses)
  • control (reduce or eliminate)
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8
Q

2 aspects to controlling risks:

A

physical: eg installing sprinkler systems or alarms
financial: well worded contracts

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9
Q

organisations involved in loss prevention

A

building research establishment (BRE) & Fire Protection Association (FPA)

  • provide construction guidelines
  • research new construction methods
  • provide new reports
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10
Q

components of risk

A
  • uncertainty
  • levels of risk
  • peril and hazard
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11
Q

perils and hazards

A

Perils - gives rise to a loss eg fire or flood

hazard - influences the effect on the peril eg. no having sprinkler systems or fire alarms

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12
Q

physical and moral hazards

A

physical = physical characteristics eg. measurable dimensions of risks

moral hazard - attitude and behaviour of people

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13
Q

categories of risk

A

financial - non financial
pure - speculative
particular - fundamental

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14
Q

financial & non financial

A

financial - must have a cost

non financial - might place value on heirloom which has an intrinsic value but not high market value

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15
Q

pure & speculative

A

pure - possibility of a loss but not of a gain, best you can achieve is a break even

speculative - cant aim to make a gain eg. cant insure against a business failing because of local competition.

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16
Q

particular & fundamental

A

particular - localized (individual/region)

fundamental - affects to large of a group that it is uninsurable. widespread in effect eg. famine in a whole country

17
Q

features of insurable risks:

A

fortuitous event - accidental or unexpected

insurable interest - must have a financial relationship between you and the object being insured

public policy - cant be insured against getting a fine or breaking the law

homogeneous exposure - historical patterns forecast the expected extent of future losses

18
Q

pooling of risks:

A

losses of the few are met by the contributions of the many

different pools for different classes of business

premium must be proportionate to the risks which they are introducing to the pool

19
Q

law of large numbers

A

large number of similar situations, the actual number of events occurring tends towards the expected number

10000 coin flip > 10 coin flip

20
Q

equitable premiums

A

for a pooling system to be successful - a number of pools must be set up

one for each main group of risks being underwritten

everyone being insured must be willing to make a fair contribution to the pool

cost covering & profit making

21
Q

reasons why people buy insurance

A
  • attitude to their potential risks
  • gives peace of mind
  • the extent to which they feel they have a choice about insuring the risk
22
Q

primary functions of insurance

A
  • spreading the risk
  • providing a degree of certainty
  • transferring the risks
23
Q

secondary functions of insurance

A
  • companies do not have to set aside safety nets
  • companies can expand their businesses
  • jobs are protected
  • losses are reduced in number and size
  • benefit the economy
  • invisible exports
24
Q

compulsory insurance for private individuals

A

motor insurance

public liability insurance

ownership of dangerous or wild animals

25
Q

compulsory insurance for professions and businesses

A

motor insurance

employers liability insurance

26
Q

employers liability insurance

A

Employers’ Liability (Compulsory Insurance) Act 1969

insures employers against their liability to pay compensation to employees who sustain bodily injury or disease, arising out of and in the course of their employment.

minimum required limit of 5 million but 10 million is standard

Employers’ Liability Tracing Office (ELTO) database - contains all claims after 2011 - mechanism for tracing potential insurance cover

27
Q

motor insurance

A

Road Traffic Act 1988

it is illegal to cause or permit the
use of a vehicle on a public road
unless an insurance policy is in force, covering third party property damage and third party bodily injury or death.

28
Q

public liability insurance

A

riding establishments

covers arising claims from using the insured horses - person riding the horse, members of public

also covers claims against the person riding the horse against injury to members of the public

29
Q

liability insurance

A

Dangerous Wild Animals Act 1976 or the Dangerous Dogs Act 1991

the local authority must be satisfied with the adequacy of insurance

can be extension to another insurance policy held by the insured/owner. eg. household policy

30
Q

professional indemnity insurance

A

Solicitors Act 1974 - insurance must
indemnify the solicitor against claims for financial loss suffered by clients as a result of the
solicitor’s professional negligence.

Insurance intermediaries - authorised by FCA

31
Q

claims handling process

A

insurer ‘experience’ is generally centred on claims handling

principles set by the FCA reflect the professional and ethical standards that should guide those who work in insurance

32
Q

CII code of ethics

A

members are required to:

‘treat people fairly regardless of: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion and belief, sex and sexual orientation’.

33
Q

role of claims personnel

A
  • deal with claims efficiently and fairly
  • identify claims which are not valid
  • calculate funds to be set aside for claims
  • instruct necessary experts
  • settle claims cost effectively
  • liaise with colleagues to provide them with data

LM1 (9 decks)

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