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CII: IF1 Insurance Legal and Regulatory > Chapter 1 - Risk and Insurance > Flashcards

Chapter 1 - Risk and Insurance Flashcards

1
Q

Risk is defined in terms of?

A

Uncertainty and unpredictability

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2
Q

What is insurance essentially?

A

A risk transfer mechanism

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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 averse

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5
Q

What does AIRMIC stand for?

A

Association of Insurance and Risk Managers in industry and commerce.

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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 3 stages of risk management?

A

Risk Identification, analysis and control

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8
Q

What is a physical control method?

A

Locks on doors etc.

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9
Q

What is a Financial control method?

A

Transferring risk by taking out insurance or by contract.

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10
Q

who are the ABI?

A

Association of British Insurers

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11
Q

what are the different types of risks?

A

Financial, Non-financial, pure, speculative,particular,fundamental

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12
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 or economic recession.

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13
Q

What is a pure risk?

A

A risk with the possibility of loss but no gain, where the best that can be achieved is a break-even situation. E.G travelling in a car is a pure risk as there is a chance you could crash.

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14
Q

What is a speculative risk?

A

A risk where there is a potential for gain, insurance does not apply to speculative risks. E.G. The lottery, Stock trading.

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15
Q

What is a particular risk?

A

A risk that is localized or even personal in their cause and effect E.G. Factory fire, car crash Etc..

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16
Q

What are the main 4 things insurers will examine when deciding on a risk?

A

Fortuitous event, Insurable interest, Public policy and Homogeneous exposure

17
Q

What are to components of a risk?

A

Uncertainty, Level of risk , peril and hazard

18
Q

Define a peril?

A

That which gives rise to a loss

19
Q

Define a Hazard?

A

That which influences the operation or effect of the peril

20
Q

Define a moral hazard?

A

That which is caused by the attitude and behavior of people E.G. Carelessness or Dishonesty.

21
Q

What is risk pooling?

A

This is a collection of the many (premiums) to pay for the few (losses), they must provide and element of profit for the insurer.

22
Q

What is the law of large numbers?

A

Enables the insurer to predict the final cost of claims for one year.

23
Q

What is an equitable premium?

A

This means that for a person to join the specified pool they must pair a equitable (fair) premium based on the risk they bring to the pool.

24
Q

What is the different types of risk sharing?

A

Co-insurance, Dual insurance, Self-insurance

25
Q

What is co-insurance?

A

This is an agreement between 2 insurers to proportionally share the risk between them in the event of a claim. The first insurer (leading office) has the largest share generally.

26
Q

What is an Excess?

A

A small fixed sum retained by the insured

27
Q

What is a deductible?

A

A large fixed sum retained by the insured

28
Q

What is dual-insurance?

A

This occurs when there are 2 or more policies in effect covering the same risk.

29
Q

What is self-insurance?

A

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

30
Q

What is the insured retention?

A

A part of a sum that the insured has decided to maintain, usually on substantial sums.

31
Q

What are the different types of insurance?

A

General, Pecuniary, Motor, Liability, Marine & Aviation, Health.

32
Q

What is pecuniary insurance?

A

This is the insurance of intangibles such as revenue or value E.G. Money insurance or business interruption.

33
Q

What is Liability insurance?

A

The insurance of legal liability to pay compensation and costs awarded against the insured in favor of another part. E.G. Public and employers liability.

34
Q

What are the main areas Marine insurance covers?

A

Cargo, Hull and Loss of income

35
Q

What are the main areas Aviation insurance covers?

A

Hull, Liability

36
Q

What severity and frequency is a train derailment?

A

Low frequency, high severity

CII: IF1 Insurance Legal and Regulatory (5 decks)

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