chapter 6

Question 1

risk transfer of a financing type

Answer 1

seek external sources to finance loss
you own the asset but transfer the financial responsibility

Question 2

insurance

Answer 2

Transferring the financial responsibility of the loss to the insurer but not the asset

Question 3

lease

Answer 3

Tennent is responsible for all property losses while living there

Question 4

hold harmless agreement

Answer 4

when someone accepts risk for you through a contract
ex: vendor completing a task or a contractor doing a project

Question 5

retention

Answer 5

a firm is engaging in retention assumes the financial responsibility and they don’t buy insurance

Question 6

funded retention

Answer 6

where a firm sets aside funds periodically to pay for potential losses
good for losses that are predictable and high in severity

Question 7

unfunded retention

Answer 7

don’t put money aside
pay for losses as they occur
better for losses that have low frequency and severity ex: losing a pen

Question 8

active retention

Answer 8

the deliberate decision to practice retention
you know you will experience a loss and dont choose to cover the loss

Question 9

passive retention

Answer 9

you may be unaware that you could experience a loss

Question 10

planned active and funded retention

Answer 10

also known as self insurance
formal strategic program
done for significant loss exposures

Question 11

self insurance ideal characteristics

Answer 11

risks that are fairly predictable
long payout period

Question 12

advantages to self insurance - flexibility

Answer 12

can avoid state mandated benefit laws
you can pick coverages so you wont have a standard insurance contract

Question 13

advantages to self insurance- no loading

Answer 13

basically no admin cost , no marketing expense added and no taxed added to the premium

Question 14

advantages to self insurance- time value of money

Answer 14

any money you dont spend on a loss goes back directly to your pocket

Question 15

disadvantages to self insurance

Answer 15

one large loss can wipe you out
you have to preform the admin functions
pr nightmare - cant pass the blame for denying claims
cant return back to insurance market after you leave
cant hold money in reserve- no write off future claims for income tax treatment

Question 16

aso or tpa

Answer 16

aso - admin service only you can hire to do the admin work
tpa- third party admin hire to do admin work

Question 17

history of captives

Answer 17

during the hard markets - hard to purchase insurance bc of high cost like for terrorism insurance after 9/11
captives were created to handle hard markets

Question 18

captive insurer

Answer 18

you own the insurance company and are the customer
parent company provides capital to start captive

Question 19

2 categories of captives

Answer 19

single parent
group captive- universities example

Question 20

captive insurer advantage

Answer 20

located outside of us for regulatory freedom
bermuda or cayman island
save money on premium due to hard market costs
can write off for taxes if group captive as long as no member hold 30% of the portfolio