Chapter 1: Core Principles of Insurance Flashcards
Define ‘risk’.
- The ‘peril’ or contingency that is insured.
- The thing of liability actually insured.
Define ‘risk-averse’.
Someone who seeks to mitigate risk insofar as possible. These people are more likely to seek insurance to offset their risk.
Define ‘risk-seeking’.
Someone who bears all responsibility for the risks to which they are exposed. For instance, a company which is self-insured.
What is the Airmic?
Association of Insurance and Risk Managers in Industry and Commerce.
A professional body of risk managers designed to promote practices of managing risk.
What is risk control?
Taking action to prevent a risk which is determined to be a likelihood.
What is risk identification?
Discovering threats that may already exist or which may exist in the future.
What is risk analysis?
Predicting the nature of claims in the future. E.g. the idea that younger drivers are more prone to accidents.
Usually determined by a risk manager.
What are the three types of controls implemented internally?
- Detective controls
- Corrective controls
- Preventative controls
What is a physical control against a risk?
Give and example.
Installing tangible measures to prevent the risk happening.
E.g. locks on a shed door to prevent against burglary.
What is a financial control?
Give an example.
Ensuring sufficient capital reserves to offset the cost of any risk.
Insurance is a financial control.
What are the three categories of risk?
- Financial and non-financial
- Pure and speculative
- Particular and fundamental
What is the difference between financial and non financial risks?
Those that cannot be attributed any financial value e.g. the choice of marriage partner or enjoyment of a holiday.
What is the difference between pure and speculative risks?
Speculative risks may incur a gain, where as pure risks have no possibility of such outcome. Think gambling as opposed to a fire.
What is the difference between a particular and fundamental risk?
Particular risks are localised or personal in their cause or effect whereas fundamental risks are outside the individuals control e.g. war or natural disaster.
What are the features of insurable risks?
- Must be fortuitous (i.e. unexpected)
- Must have insurable interest
- Must be in line with public policy
- Must have homogenous exposures (i.e. similar claims have happened in the past)
