Chapter 2: Flashcards

1
Q

Adverse selection:

A

Adverse selection is broadly, defined as a selection against the company. It includes the tendency of people with higher risks to seek or continue insurance to a greater extent than those with little or less risk. Adverse selection also includes the tenancy of policy owners to take advantage of favorable options and insurance contracts.

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2
Q

Hazard:

A

A hazard is any factor, condition, or situation that creates an increased possibility that a peril (a cause of loss) will actually occur.

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3
Q

Homogeneous exposure units:

A

Homogenous exposure units are similar objects of insurance that are exposed to the same group of perils.

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4
Q

Law of large numbers:

A

The law of large numbers is a fundamental principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.

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5
Q

Loss:

A

Loss is the unintentional decrease in the value of an asset due to peril.

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6
Q

Loss exposure:

A

Loss exposure is the risk of a possible loss.

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7
Q

Moral hazard:

A

Moral hazard is a hazard brought on by the fact of personal reputation, character, associates, personal living habits, financial responsibility, and environment, as a distinguished from physical health, upon an individuals general insurability.

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8
Q

Morale Hazard:

A

Morale hazard is a hazard arising from indifference to loss because of the existence of insurance. Morale hazards are often associated with having a careless attitude.

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9
Q

Peril:

A

Peril is the immediate, specific event causing loss and giving rise to risk.

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10
Q

Physical hazard:

A

Physical hazards are physical or tangible conditions existing in a manner that makes a loss more likely to occur.

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11
Q

Pure risk:

A

Pure risk is a type of risk that involves a chance of loss. Only there is no opportunity for gain, It is insurable.

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12
Q

Reinsurance:

A

Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

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13
Q

Risk:

A

Risk is the uncertainty regarding loss, the probability of a loss occurring for an insured or prospect.

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14
Q

Risk avoidance:

A

Risk avoidance occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.

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15
Q

Risk management:

A

Risk management is the process of analyzing exposure that creates risk and designing programs to handle them is called risk management.

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16
Q

Risk pulling / loss sharing:

A

Risk pulling and loss sharing spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group.

17
Q

Risk reduction:

A

Risk reduction takes place when the chance of a loss our lessened, or the severity of a potential loss is minimized.

18
Q

Risk retention:

A

Risk retention is the act of analyzing the exposure presented by a risk and determining that the potential loss is acceptable. Risk retention is often as associated with “self insurance”.

19
Q

Risk transfer:

A

Risk transfer is the act of shifting the responsibility of risk to another in the form of an insurance.

20
Q

Speculative risk:

A

Speculative risk is a type of risk that involves a chance of both loss and gain; it is not insurable.