Chapter 2 Summary

Question 1

Accident, health, property, and casualty insurance contracts are all contracts of

Question 2

A principle of actuarial scien that states that the higher the numbe of risks insured in the same risk pool; the more predictable losses become.

Answer 2

Law of Large Numbers

Question 3

A ____ is something that can cause a financial loss.

Answer 3

Peril

Question 4

A _____ is something that can cause a financial loss

Answer 4

Peril

Question 5

_______ or ______ ______ individually list perils that they cover

Answer 5

Specified or Named Perils

Question 6

these insurance policies do not name the perils they cover but instead begine by saying they cover all direct causes of loss.

Answer 6

Special or Open Peril

Question 7

an unintentional decrease in the value of an assest due to a peril is known as?

Answer 7

Loss

Question 8

results when a person or property is damaged, destroyed, or killed by a peril, without any intervening cause.

Answer 8

Direct Loss

Question 9

An indirect loss is also known as ?

Answer 9

Consequential Loss

Question 10

any event that causes a loss

Answer 10

Occurence

Question 11

A condition or situation that creates or increases a chance of loss.

Answer 11

Hazard

Question 12

Types of Hazards Include?

Answer 12

Physical Hazard, Moral Hazard, Morale Hazrd

Question 13

Physical or tangible conditions existing in a manner that makes a loss more likely to occur

Answer 13

Physical Hazards

Question 14

Make the loss more likely to occur due to the dishonest or villainous character of the insured.

Answer 14

Moral Hazards

Question 15

is created based as a result of the presonal or subjective thought process of the insured.

Answer 15

Morale hazard

Question 16

___ is defined as the potential for loss

Answer 16

Risk

Question 17

There are two type of risks

Answer 17

Pure Risk & Speculative Risk

Question 18

Considered to have an average potential for loss

Answer 18

Standard Risks

Question 19

Considered to be a poor risk for the insurance company and have a higher potential for loss.

Answer 19

Substandard risks

Question 20

Also known as loss sharing, spreads risk by sharing the possibility of loss over alarge number of people

Answer 20

Risk Pooling

Question 21

Insurers must minimized _____ ______, which is defined as the tendency for poorer than average risk to seek out insurance.

Answer 21

Adverse Selection

Question 22

Sound and competent underwriting may reduce the chance of ______ _______

Answer 22

Adverse Selection

Question 23

The process of analyzing exposures that create risk and designing programs to handle them is called?

Answer 23

Risk Management

Question 24

Treatment of risk includes implementing the following strategies

Answer 24

Risk Avoidance,Reduction,Retention,Transfer, Sharing

Question 25

Risk can be avoided by?

Answer 25

Elimating a hazard

Question 26

Risk can be reduced by?

Answer 26

Minimizing the severity of a potential loss.

Question 27

Risk can be retained through

Answer 27

Self-Insurance

Question 28

Risk can be transferred or passed from one party to another through an

Answer 28

Insurance Contract

Question 29

Risk Can be ______ by multiple parties.

Answer 29

Shared

Question 30

the spreading of risk from one insurer to one or more other insures.

Answer 30

Reinsurance

Question 31

Involves taking actions to eliminate damage or loss.

Answer 31

Loss Prevention