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c i i m n k l o > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is insurance generally?

A

A risk transfer mechanism

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2
Q

What is the risk transfer mechanism?

A

The insurer accepts the unknown potential risk for an agreed premium

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3
Q

If someone carries a risk themselves they are known as…

A

Risk seeking

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4
Q

If someone takes out insurance on everything they can, they are known as…

A

Risk adverse

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5
Q

Risk is defined in terms of…

A

Uncertainty and unpredictability

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6
Q

Why is risk management important?

A

It reduces the potential for loss, gives shareholders a greater degree of confidence, provides a disciplined approach to quantifying risks

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7
Q

What are the three stages of risk management?

A

1) Risk identification
2) Risk analysis
3) Risk control

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8
Q

What does risk identification do?

A

It identifies any risk that a company may face in the present or future
NB: not all risks are insurable but all risks must be managed

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9
Q

What aspects are involved in controlling risk?

A

Physical control
Financial control
Developing a risk culture

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10
Q

Give an example of physical controlling in risk control

A

Locks on doors & windows to prevent intruders

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11
Q

Give an example of a financial control in controlling risk

A

Transferring risk by taking out an insurance policy

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12
Q

What does developing a risk culture mean?

A

Creating an environment in which employees and clients know how to avoid risk

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13
Q

What are the categories of risk?

A

Financial and non-financial
Pure and speculative
Particular and fundamental

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14
Q

What is a financial risk?

A

A risk which can be quantified in money e.g. theft of car

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15
Q

What is a non-financial risk?

A

A risk which cannot be measured in financial terms e.g. choice of boyfriend

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16
Q

What is a pure risk?

A

A risk where there is a possibility of loss but not gain
E.g. damaged car in accident - reimburse for loss but doesn’t gain anything
E.g. risk of fire - could damage property & interfere with business

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17
Q

What is a speculative risk?

A

A risk where high speculate with a view of making a gain
E.g. lottery
NOT INSURABLE

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18
Q

What is a fundamental risk?

A

A risk that occurs on such a vast scale that it cannot be insured such as war, famine, economic recession or earthquake

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19
Q

What is a particular risk?

A

A risk that is localised and does not effect others
E.g. there may be a storm in a whole region but the effect is localised to one individual as big all properties will have been damaged

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20
Q

In addition to a risk being financial and our, what else does a risk need to be in order to be insurable?

A

1) Fortuitous event
2) Insurable interest
3) Insuring the risk must not be against public policy

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21
Q

What is a fortuitous event?

A

An event that is accidental or unexpected and not inevitable

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22
Q

What is Insurable Interest?

A

It is the legally recognised financial interest between the insured and the object / liability that is being insured
E.g. your u can insure against the theft of your car because you will suffer financial loss if it is stolen

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23
Q

What is Public Policy?

A

It is what society considers to be the right or moral thing to do
E.g. it would be against public policy to insure the risk of incurring a fine for a criminal offence because the fine’s purpose is to publish the individual therefore providing insurance may encourage people to break the law

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24
Q

What are homogeneous risks?

A

Homogeneous risks are risks that have similar characteristics either in the description of risk its self and in claims
E.g household insurance are considered homogeneous risks which you can assess the risk that many risk data and claims trends are available for the same risks & you’d be able to predict future losses based on historical claims data

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25
Q

What is a non-homogeneous risk?

A

A risk that is one off so does not have any historical data that you can build an assessment on

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26
Q

What are the three levels of risk?

A

1) Uncertainty
2) level or risk
3) peril and hazard

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27
Q

Risk is usually accessed in terms of…

A

Frequency and severity

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28
Q

What does frequency mean?

A

How often something is going to happen

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29
Q

What does severity mean?

A

How bad something is going to be

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30
Q

What does high frequency and low severity mean?

A

There are a large number of small losses

E.g. car crashes, falls

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31
Q

What does low frequency and high severity mean?

A

There are a small number of events that would result in high costs
E.g. cruise ships sinking, aircraft crashes, oil rig exploding

32
Q

What is the Heinrich Triangle?

A

Basically a triangle of high frequency and low severity events up to low frequency and high severity events
E.g.
1 major injury
30 minor injuries
300 non-injury accidents

33
Q

What is a peril?

A

A peril can be defined as that which gives rise to a loss

34
Q

What is a hazard?

A

A hazard can be defined as that which influences the operation or effect of a peril

35
Q

What are the two types of hazards?

A

Physical and moral

36
Q

What is the difference between a physical hazard and moral hazard?

A

Physical hazard relates to the actual measurable dimensions of a risk

Moral hazard is reacted to the attitude & behaviour of the people related to the risk

37
Q

Example of a physical hazard?

A

Security protects at a shop

The greater the security protection, the better the physical hazard level as it may prevent loss

38
Q

Example of a moral hazard?

A

Carelessness - a driver’s lack of care can increase the change of an accident happening

39
Q

How do pooling of risks work?

A 
Insurers operate different pools for each class of insurance
 Contributions are made in forms of premiums from the insureds and go into the pool. From this pool, payments are made to compensate the losses of the few
40
Q

What is the law of numbers?

A

The law states that where there are a large number of similar situations then the actual number of events occurring tends to be towards the expected number

41
Q

If there one pool of risk?

A

No, to operate successfully a number of pools must be set up e.g. one for motor, one for house etc…

42
Q

What do pools need?

A

Each person must be prepared to make an equitable (FAIR) contribution to that pool

43
Q

What is a discrimination factor?

A

The different elements of risks brought into the pool by each insured

44
Q

What are the benefits of insurance?

A

Releases capital
Businesses can expand
Employees are kept in work
Losses are reduced

45
Q

What are the two reserves?

A

Premium reserve - where the money goes from the moment the premium is paid to the moment a claim is made
Claims reserve - where the money goes from the moment the claim being paid

46
Q

What are the different types of risk sharing?

A

Co-insurance
Dual-insurance
Self-insurance

47
Q

What is co-insurance?

A

This is an agreement between 2 insurers to share the risk between them in the event of a claim

48
Q

What is dual-insurance?

A

This occurs when there are two or more policies in effect covering the same risk

49
Q

What is self-insurance?

A

Where an insured has decided not to take out insurance & rather carry the risk themselves through funding

50
Q

What is the insured retention?

A

A part of a suk that the insured has decided to maintain

51
Q

What are the different classes of insurance?

A

General, pecuniary, motor, liability, marine, aviation, health

52
Q

What is pecuniary insurance?

A

This is the insurance of intangibles such as revenue or money eg. Money insurance of business interruption

53
Q

What is liability insurance?

A

Insurance of legal liability to pay compensation and costs awarded against the insured in favour of another part
Eg.public and employers liability

54
Q

What is public liability?

A

Insurance compensates the injured for their legal liability in respect of claims from third parties for accidental bodily injury or damage to property due to the insured’s negligence or that of their employees

55
Q

What is employers liability?

A

Insurance for employers in respect of their legal liability to pay damages to any employees arising out of bodily injury, disease, illness or death received in the course of employment by the insured

56
Q

What are the main areas that Marine insurance covers?

A

Cargo, Hull, loss of income

57
Q

What are the main areas that aviation insurance covers?

A

Hull, liability

58
Q

What severity & frequency is a train derailment?

A

High severity and low frequency

59
Q

What does LPC stand for

A

Loss prevention council

60
Q

What does BRE stand for?

A

Building Research Establishment

61
Q

What does FPA stand for?

A

Fire protection association

62
Q

What does the LPC, BRE & FPA do?

A

Research new materials and construction methods
Provide guidelines and rules that set standards of construction
Report on new industrial processes and machinery
Provide rules for construction,installation and operation of fire extinguishing systems

63
Q

What is the MIAFTR?

A

Motor Insurance Anti-Fraud and Theft Register

It is a shared database of multiple claims that helps insurers detect fraud

64
Q

What is liability insurance?

A

Liability insurance provides the insured party with protection against claims resulting from injuries and damage to people and/or property.

65
Q

What types of liability insurance are there?

A

1) employers liability
2) public liability
3) products liability
4) professional indemnity
5) management liability

66
Q

Give an example of a high frequency low severity risk

A

Motor windscreen damage

67
Q

What does AIRMIC stand for?

A

Association of Insurance and Risk Managers in Industry and Commerce

68
Q

What pecuniary policy indemnifies a company if a change in political conditions or revolution cause them a loss?

A

Political risk

69
Q

What policy will pay an insured mortgage of loan repayment in the event they cannot work eg. Due to an accident or redundancy?

A

Payment protection insurance

70
Q

What is an excess?

A

A small fixed sum retained by the insured

71
Q

What is a deductible

A

A large fixed sum retained by the insured

72
Q

What policy covers the cost of replacing windows damaged in a department store?

A

Glass

73
Q

What are 3 other meanings or risk insurance?

A

1) the peril being insured e.g. fire risk
2) the thing being insured e.g. the ship
3) the thing insured and the scope of cover

74
Q

What’s the difference between a proprietary company and a mutual company in terms of ownership?

A

A proprietary company is owned by its shareholders and a mutual company is owned by its policyholders

75
Q

What is a loss adjuster?

A

A loss adjuster is an expert in process sing claims from start to finish

76
Q

What are the three essential elements of a valid contract?

A

Offer
Acceptance
Consideration

c i i m n k l o (2 decks)

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