chapter 9

Question 1

5 characteristics of an insurable risk

Answer 1

1. a large number of similar objects
2. losses are accidental
3. losses can be determined and measured
4. loss should not be catastrophic to ins company
   5.large loss principle

Question 2

large number of similar objects

Answer 2

life insurance and car insurance
can create risk pools that create reliable stats and make for a good amount of data

Question 3

adverse selection

Answer 3

part of the large number of similar objects
when the buyers and sellers of the insurance plan do not have the same knowledge
example : the ins company may not know that you are a bad driver even tho u never got into an accident
use their private knowledge of the risk factors

Question 4

losses are accidental

Answer 4

need to be fortuitous in nature
must be some uncertainty
insured should have no control over inc freq or severity
doesn’t work too many losses and claims too high

Question 5

solutions to “accidental” losses

Answer 5

1. deductible or co-pay: keeps people in check from doing something on purpose and lying that it was an accident
2. claims investigations
3. policy limits - don’t cover anything

Question 6

losses should not be catostrophic

Answer 6

capostrophic to insured is ok but not to the company
creates insolvency for insurer not bankrupt

Question 7

solutions to catostrophic risk

Answer 7

1. good underwritting: person who decides to give insurance policy
2. diversify risk
   3.reinsurance- ins for ins company

Question 8

large loss principle

Answer 8

the maximum possible loss needs to be significant
don’t insure small items

Question 9

insurable interest

Answer 9

must demonstrate some personal loss in the event of a loss the insured must lose financially or inccur some other harm for a valid contract

Question 10

what constitutes ins interest

Answer 10

property- liab ins
pwnership
leese
bailee/bailor
related parties- temple plays at football

Question 11

life insurance

Answer 11

s= subject or the person insured
o= owner of the policy = buyer
b=beneficiary - who receives the money

Question 12

what does TRIA stand for ?

Answer 12

terrorism risk insurance act

Question 13

why was TRIA created

Answer 13

• TRIA was created to help companies buy terrorism insurance after its increase post 9/11
• Allowed the economy to recover and businesses to feel secure knowing coverage could be acquired

Question 14

what is the purpose of TRIA

Answer 14

• Terrorism is too unpredictable for insurance companies to be able to calculate so instead of them suffering a catastrophic risk, the government created TRIA to break up the risk for insurance companies

Question 15

Who sells flood insurance and who accepts the financial risk?

Answer 15

insurance company sells but goverment accepts the risk

Question 16

What happens to the premiums that people pay?

Answer 16

they are subsidized by the govermenttt

Question 17

what are some loss control for floods

Answer 17

• Proper grading away from foundation
• Sump pump underground
• Trench drain- creates artificial weakness
• Waterproof paint
• Properly maintained gutters
• Commercial structure- generators and electrical equipment away from basement