Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

LM1 DB > Chapter 1 - Fundamental principles of insurance > Flashcards

Chapter 1 - Fundamental principles of insurance Flashcards

1
Q

What is the definition of risk?

A

Uncertainty

Unpredictability

Danger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a risk transfer mechanism?

A

Owner pays premium to insurer

Insurer covers future unknown cost of the risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is risk seeking?

A

Willing to carry the risk themselves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is risk adverse?

A

Minimising the risk they are exposed to

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What do risk managers do?

A

Take control and develop a formal strategy

Manage risks that affect business’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the body for risk managers?

A

Association of insurance risk managers

AIRMIC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are 3 benefits of risk management?

A

Reduces potential for loss

Increases shareholder confidence

Disciplined approach to quantify risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Is transferring risk the first or last stage in the risk management process?

A

Last

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Who usually does financial planning for an individual?

A

Financial advisor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Examples of general insurance that are compulsory?

A

Third party motor

Homeowners mortgage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why do people not take up insurance?

A

Individuals risk appetite

Inability to afford insurance protection

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the definition of risk management?

A

Identification, analysis and economic control of risks that can threaten the assets or earning capacity of an enterprise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is good risk management?

A

Identification and treatment of defined risks

Continuous and developing process embedded in a firms strategy

Covers the firms current, past and further activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is identification in risk management?

A

Discovering existing and future threats

Not all insurable but must be managed

Can benefit from insurers advice without coverage e.g., physical examination survey

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is analysis in risk management?

A

Using past data to evaluate/analyse the risk

Insurers using same elements when considering the rating of a risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is risk control in risk management?

A

Course of action in place to control, reduce or eliminate the risk

Elimination is the most effective but costly and impractical

Subjective - is it reasonable compared to the cost of the risk happening

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the two aspects to control a risk?

A

Physical controls e.g., alarm

Financial controls e.g., well-worded contracts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Can insurers impose requirements and recommendations designed to improve a risk after a survey?

A

Yes

Improves risk to acceptable standard

Offers premium reduction as an incentive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What organisations do insurers work with to research areas of loss prevention and control?

A

Building research establishment (BRE)

Fire protection association (FPA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What type of work do the BRE and FPA undertake?

A

GUIDELINES - providing construction guidelines

MODELS - researching new construction models

PROCESSES - provide reports on new industrial processes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Do insurers have to stay up to date with knowledge of potential clients businesses?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the three components of risk?

A

Uncertainty - unable to predict

Level of risk

Peril and hazard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How is risk usually assessed?

A

Frequency - how often

Severity - how serious if it does happen

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Why is the frequency/severity profile important to underwriters?

A

Smooth trends support insurers

Forward plan for infrequent large catastrophe-type claims

25
Example of high frequency and low severity
Private motor insurance Many losses for damage of vehicles at low cost
26
Example of low frequency and high severity
Aircraft accident Few losses but high cost damage
27
What is the definition of a peril?
Gives risk to a loss e.g., fire, flood, explosion, lightning, collision, dishonesty
28
What is the definition of a hazard?
Influences the effect of a peril
29
What are the two types of hazard?
Physical hazard Moral hazard
30
What is a physical hazard?
Includes any measurable dimension of the risk e.g., security protection at a shop, construction of a property, age and type of a car
31
What is a moral hazard?
Attitude and behaviour of people Can be from the insurer themselves
32
Is a financial risk insurable?
Yes
33
Is a non-financial risk insurable?
No
34
What is a pure risk and is it insurable?
Possibility of a loss but not a gain Insurable Break-even is the best case scenario e.g., travelling in an aircraft
35
What is a speculative risk and is it insurable?
Aim to gain but could break-even or fail Not insurable e.g., lottery
36
What is a particular risk and is it insurable?
Localised or personal in cause and effect Insurable e.g., storm over a region - not all properties are damaged
37
What is a fundamental risk and is it insurable?
Vast scale risks that arise from social, economic, political or natural causes Uninsurable as lack of appetite from UWs e.g., risk of war
38
What features must apply for a risk to be insurable?
Fortuitous event - accidental or unexpected and not inevitable Insurable interest - legally recognised financial relationship between the insured and object Not against public policy - not against what society thinks is the right or moral thing to do Homogenous exposure - similar risks, historical patterns and trends to forecast future losses aka 'objective risks'
39
What is pooling of risk?
Insurer groups together small risks Premiums from many insureds -> POOL -> payments to compensate losses of the few Separate pools for each class of business
40
What is needed for pools to work for an insurer?
Premiums must be large enough, in total, to meet the losses in any one year Cover the operating costs Profit for the insurer
41
What is the law of large numbers?
More insurers in the pool = higher chance of expected outcome Works for premiums vs claims
42
What is an equitable premium?
Fair premiums paid to the pool by insureds Different elements of risk to calculate equitable premium
43
What are the reasons for buying insurance?
Attitude to the potential risk What price they are prepared to pay Choice of insuring the risk
44
What are the primary functions of insurance?
Spreading the risk Providing a degree of certainty Transferring risk
45
What are the secondary functions of insurance?
Companies do not have to set aside large sums of money Companies can be confident to expand business Jobs protected Losses reduced - size and number Benefits economy - insurers invest in funds 'Invisible' exports - money into the UK via London market
46
What act made it compulsory for employers in GB to employers liability insurance?
Employers' Liability (Compulsory Insurance) Act 1969
47
Why are some forms on insurance compulsory?
Provide funds for compensation In response to national concerns Reputation
48
What does the Employers' Liability (Compulsory Insurance) Act 1969 cover?
Pay employees who are injured, diseased etc during their employment
49
What is the minimum required limit of indemnity for employers liability insurance?
>£5m is minimum >£10m is standard in London Market
50
Is there a requirement for employers to display their employers liability certificates?
Yes
51
What database contains all new and renewed employers liability policies?
Employers' Liability Tracing Office (ELTO)
52
What is the act that made motor insurance compulsory?
Road Traffic Act 1988
53
What act made it compulsory for riding establishments to have public liability insurance?
Riding Establishments Act 1970
54
What act made it compulsory for individuals to own wild animals or dangerous dogs?
Dangerous Wild Animals Act 1976 Dangerous Dogs Act 1991
55
What act made it compulsory for solicitors to have professional indemnity insurance?
Solicitors Act 1974
56
Do insurance intermediaries authorised by the FCA have to have PI insurance?
Yes Appointed representatives and introducer appointed representatives do not require as undertaken by principal that is responsible
57
What is the CII Code of Ethics?
Treat customers fairly
58
What is the role of claims personnel?
Deal with claims Claims that are/are not valid Reserves - calculate funds to set aside Instruct necessary experts Settle claims cost effectively

LM1 DB (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions