Chapter 3 Flashcards
What are 2 benefits of Risk Management?
- Reduction in losses by managing hazards.
- Potential reduction in insurance premiums.
Is Formal Risk Management usually associated more with individuals or businesses?
Businesses
What are the 3 Risk Management steps?
- Risk Identification
- Risk Analysis
- Risk Control
Describe Risk Identification…
Identifying a firms existing and future threats.
Describe Risk Analysis…
Identified risks are evaluated to predict a loss.
Describe Risk Control…
Controlling the risk.
What are 5 Risk Control techniques?
- Avoidance
- Reduction
- Prevention
- Minimisation
- Transfer
What are the 2 Risk Control Aspects?
- Physical control
- Financial control
How does a broker assist a client with Risk Identification?
By conducting broker surveys and data capture.
How does a broker assist a client with Risk Analysis?
By examining clients claims history and suggesting how to manage these effectively.
How does a broker assist a client with Risk Control?
By assisting in areas of loss prevention.
What are the 2 different Risk Transfer methods?
- Captive insurance companies
- Alternative Risk Transfer (ART)
What is a Captive insurance company?
Insurance company which is provided by capital by the owning company- only takes on risks of the parent company.
What are 2 benefits of a Captive Insurance Comapany?
- Structured self-insurance
- Deals with claims more effectively
What is a Coverholder?
An entity which an insurer can give delegated authority.
What is a Managing General Agent (MGA)?
An organisation which underwrites risks - owes primary duties to one or more insurance company.
Why may an insurer delegate authority to a broker? (2 answers)
- To use brokers specialist knowledge.
- Access business they would not have done directly.
What MUST insurers have before entering a delegated authority contract?
A good business case.
What are 3 activities which can be delegated?
- Underwriting
- Claims
- Credit control
What are 2 POSITIVES of Delegated Authority to an INSURER?
- Lower operating costs
- Access of broker knowledge
What are 2 NEGATIVES of Delegated Authority to an INSURER?
- Loss of control
- Risk of reputation damage if broker fails
What are POSITIVES of Delegated Authority to a BROKER?
- Increased commission levels
- Access to unique products
What are 2 NEGATIVES of Delegated Authority to a BROKER?
- Risk of reputational damage if insurer fails
- Increased audit requirements
What is 1 POSITIVE of Delegated Authority to A CUSTOMER?
- Faster service
