Chapter 6: Fundamentals of Insurance Flashcards

1
Q

Insurance (Financial Definition)

A

transfer of risk of incurred loss to a risk pool administered by insurer and insurer redistributes cost of such loss across all pool members

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2
Q

Premium

A

Price of insurance based on expected cost of incurred loses

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3
Q

Premium Equation

A

= Insured loss claims + loading expense - investment income + fair rate return

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4
Q

Insurance (legal definition)

A

contract in which insurer agrees to compensate insured for loses covered by contract

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5
Q

Insurer

A

covers loss, provides insurance

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6
Q

insured

A

policyholder, incurs loss, buys insurance

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7
Q

Policy

A

insurance contract

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8
Q

Exposure to loss

A

insured probability of loss

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9
Q

Insurance Contract

A

Contract where insured pays premium to insurer in exchange for financial losses suffered by insured to be covered by the insurer outlined in insurance policy

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10
Q

Insurable Loss

A

Unplanned reduction of economic value

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11
Q

Expense

A

Planned loss

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12
Q

Chance of loss and expressed as

A

probability of suffering loss expressed as a function

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13
Q

Priori

A

expected loss/ total loss

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14
Q

Ex Post

A

Actual loss / total exposures

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15
Q

Peril

A

cause of loss

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16
Q

Specified Peril

A

policies identify/ list covered perils

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17
Q

Open peril

A

insurer agrees to cover all losses except perils specifically excluded

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18
Q

Proximate cause

A

first peril in chain of events that result in loss

19
Q

Hazard

A

increase severity/chance of risk or loss

20
Q

Physical Hazard

A

related to the physical environment that increase likelihood of loss

21
Q

Moral Hazard

A

Behavioural attitude that increases severity or frequency of loss claims AFTER insurance is bought, etc speeding

22
Q

Insurance Fraud

A

Loss is exaggerated or intentionally caused to obtain insurance

23
Q

Social Insurance

A

funded by government, financed in premiums and taxes

24
Q

Private insurance

A

offered by nongovernment body, contracts and financed by insured. Premiums

25
Q

Personal Risk Exposures

A

perils that cause great financial harm to individual

26
Q

Life insurance

A

protection from peril of death,

27
Q

Annuity

A

insured receives predetermined amount until their death or contract maturity

28
Q

Health Insurance

A

Protection from perils of medical relation or expense

29
Q

Disability Insurance

A

Protection from peril of disability, inability to work due to sickness, medical condition or injury

30
Q

Group Insurance Plans

A

protect multiple people of employee group that joined for reason unrelated to insurance but to job position

31
Q

Property insurance

A

protection of physical property, home, equipment, building

32
Q

Liability Insurance

A

paying for legal judgments owed to claimants, cost to defend from such litigation

33
Q

Business Interruption Coverage

A

payment for indirect losses associated with property damage

34
Q

Casualty Insurance

A

protection against auto, health, workers comp, liability risk

35
Q

Personal Lines Insurance

A

serve personal risks need for individual and family

36
Q

Commercial Lines Insurance

A

Meet needs of commercial organizations: liability, workers comp, property, commercial

37
Q

Other Insurance

A

weather, change of law, motion picture

38
Q

Loss Ratio

A

loss and claims/premium

39
Q

Loading Expense

A

Cost to administer insurance

40
Q

Expense Ratio

A

Administrative expense/ premiums written

41
Q

Investment Income Revenue

A

income earned by insurers from policyholders months or years in advance of paying insured claims and invest premiums

42
Q

Combined Ratio

A

sum of expense and loss ratio if less than 100% profitable insurance company

43
Q

Profit equation

A

Premiums + investment income - insured loss claim - expense