Chapter 1 - Risk and Insurance Flashcards
What insurance policy pays benefits in the event of an accident
Personal accident
What are the 3 stages of risk management?
Risk identification
Risk analysis
Risk control
What policy indemnifies a shop for compensation and legal costs they incur if a customer is injured in a shop and sues them
Public liability
What is the MIAFTR?
Motor Insurance Anti Fraud & Theft Register
A shared database of motor claims that helps insurers detect fraud.
The timing delay between insurers receiving premiums and the occurrence of claims creates the what?
Premium reserve
Define a moral hazard?
That which is caused by the attitude and behavior of people e.g. carelessness or dishonesty.
What policy covers loss or damage caused by theft
Theft
What is liability insurance? - list 5 types
The insurance of legal liability to pay compensation and costs awarded against the insured in favour of another party.
- Employers liability
- Public liability
- Products liability
- Professional Indemnity
- Management Liability
What are the main areas Marine insurance covers?
Marine cargo (Physical damage to cargo)
Marine Hull (Physical damage to ship)
Loss of income (Loss of hire or freight or passage money
Marine liabilities (liabilities to passengers, crew and other ships - often insured with mutual P& clubs)
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What is the LPRC
Loss Prevention Research Council undertakes risk based reasearch to reduce losses eg crime losses
What is a fundamental risk?
A risk that occurs on such a vast scale that it cannot be insured such as war, famine or economic recession.
What is an equitable premium?
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.
What policy indemnifies an employer for compensation and legal costs they incur if an employee injured at work sues them?
Employers liability
What policy covers theft of cash from shop
Money
Who are the ABI?
Association of British Insurers
What is a financial risk?
A risk which can be quantified in money eg theft of car
Give an example of a high frequency low severity risk
Motor windscreen damage (lots of small claims)
What is the role of the Fire Protection Association
Researches construction and materials used in buildings and methods of fire extinguishment to improve fire safety
If someone carries a risk themselves they are known as?
Risk seeking
What pecuniary policy will protect their business in the event of one of their customers not paying a debt for good or services they have been supplied with
Credit insurance
Risk is defined in terms of?
Uncertainty and unpredictability
What does Airmic stand for?
Association of Insurance and Risk Managers in industry and commerce.
What pecuniary policy indemnifies a company if a change in political conditions or revolution cause them a loss
Political risks
What policy will pay an insured mortgage or loan repayments in the event they can not work eg due to an accident or redundancy
Payment protection insurance
What is an Excess?
A small fixed sum retained/selfinsured by the insured. If the loss is £1,000 and the excess is £250 insurers pay £750.
What policy covers the cost of replacing windows damaged in a department store
Glass
What are 3 other meanings of “risk” in insurance (other than uncertainty)
- The peril being insured e.g. Fire risk
- The thing being insured e.g. the ship
- The thing insured and the scope of cover eg health insurance risk
What is dual-insurance?
This occurs when there are 2 or more policies in effect covering the same risk eg watch covered by Travel and Household policy.
What is a non financial risk?
A risk which can not be quantified in money eg your choice of partner
What policy indemnifies directors for compensation and legal costs they incur if they are negligent or breach their statutory duties whilst running a company
Directors and officers liability
Identify 5 types of health insurance
- Personal accident
- Sickness
- Private medical
- Payment protection indemnity
- Critical illness
What is a particular risk?
A risk that is localized or even personal in their cause and effect E.G. Factory fire, car crash Etc..
If someone takes out insurance on everything they can, they are known as?
Risk averse
What policy covers the risk of fire damage to a factory
Fire or “all risks “ insurance
What is risk pooling?
Risk pooling is an insurance risk management practice which groups larger numbers of people together to minimize the cost impact of the highest-risk individuals.
What pecuniary policy will pay the cost of individuals or companies seeking legal advice
Legal expenses
What is a combined policy? Identify 4 types
One that brings together a range of covers in one document
- Household (buildings + contents)
- Travel (personal accident, medical expenses, cancellation, baggage)
- Commercial package inflexible designed for trades eg shops, hotels, hairdressers
- Commercial combined - tailored to small business select which covers
What are the main areas aviation insurance covers?
Hull (physical damage to aircraft)
Liability (passengers)
Satellites
Define a hazard?
That which influences the operation or effect of the peril e,g, smoking
Identify the three types of physical risk control
1 Detective - detects errors eg smoke alarm
- Corrective - corrects errors eg sprinkler
- Preventative - prevents errors occurring eg no smoking policy
What policy indemnifies a profession for compensation and legal costs they incur if a customer alleges they have suffered injury or loss as a result of their advice
Professional indemnity
What policy pays a benefit if a person is unable to work due to sickness
Sickness
What is a financial control method?
Transferring risk by taking out insurance or by contract.
What is a deductible?
A large fixed sum retained by the insured usually chosen by the insured works the same as an excess i.e. if there is a loss of £100,000 and there is a deductible of £25,000 insurers pay £75,000.
What are the main 5 things insurers will examine when deciding whether a risk is insurable?
- Fortuitous event
- Insurable interest
- Public policy
- Homogeneous exposure
- Pure risk (not speculative)
- Particular risk (some fundamental risks are insurable)
Identify four types of motor insurance
- Private motor
- Motorcycle
- Commercial motor
- Motor trade (garages, showrooms)
What are the different types of risks?
Financial
Non-financial
Pure
Speculative
Particular
Fundamental
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What is the law of large numbers?
Enables the insurer to predict the final cost of claims for one year as they are covering a large number of homogeneous (similar) exposures e.g. many cars, many houses.
What is coinsurance by the insured?
The insured bearing a specified percentage of a claim e.g. they incure £10,000 of medical expenses but have a 20% coinsurance, insurers pay £8,000 and the insured pays £2,000
Identify six benefits of insurance to the economy as a whole
- Releases capital
- Encourages businesses to expand
- Keeps employees in work
- Reduces losses
- Insurance companies are major investors
- Invisible exports
What is self-insurance?
Where an insured has decided not to take out insurance and rather carry the risk themselves. Choosing to have a deductible or retention is an example of self insurance
What is insurance essentially?
A risk transfer mechanism
The timing delay between claims occurring and eventually being settled/paid creates the what?
Claims reserve
What are property insurances - list six types?
Cover risks to actual property
- Fire, special perils, “allrisks” damage to buildings
- Theft
- Engineering breakdown
- Glass
- Livestock
- Money
What is co-insurance (between insurers)?
This is an agreement between 2 or more insurers to proportionally share the risk between them in the event of a claim e. one insurer has 60% of the risk gets paid 60% of the premium and pays 60% of claims the other has 40% of risk gets 40% of premium and pays 40% of claims.
Why is risk management important?
It reduces the potential for loss
Gives shareholders a greater degree of confidence,
Provides a disciplined approach to quantifying risks.
What is a pure risk?
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.
What policy indemnifies a manufacturer for compensation and legal costs they incur if a customer sues them who has been injured by their product?
Products liability
Give an example of a low frequency high severity risk
Earthquake not many claims but claims are large
What are the components of a risk?
Uncertainty
level of risk
peril
hazard
What policy covers the difference between the amount paid out by a motor policy in the event of a total loss and the outstanding loan on the car
Guaranteed asset protection (GAP)
What is a physical control method?
Locks on doors etc.
What policy covers death, theft or unexplained diappearance of horses and cattle
Livestock (Bloodstock for horses)
Identify 4 primary benefits of insurance to the insured
- Risk transfer
- Protection
- Certainty
- Peace of mind
What is a speculative risk?
A risk where there is a potential for gain, insurance does not apply to speculative risks. e.g. The lottery, Stock trading.
What severity and frequency is a train derailment?
Low frequency, high severity
What are the different types of risk sharing?
Co-insurance
Dual insurance
Self-insurance
What pecuniary policy covers a business’ loss of profit if they can no trade due to a fire.
Business interruption
What is pecuniary insurance - list six types
This is the insurance of intangibles such as revenue or value
- Fidelity Guarantee
- Legal expenses
- Credit
- Business interruption
- Political risk
- Guaranteed asset protection (GAP)
Define a peril?
A specific risk or cause of loss, e.g. a fire
What pecuniary policy indemnifies a company if one of their employees defrauds the company of money
Fidelity guarantee
What policy pays medical and dental treatment costs for individuals who are treated outside of NHS?
Private medical insurance
What is the insured retention?
A part of a sum that the insured has decided to maintain, usually on substantial sums. Also called excess or deductible.
