Chaptet 3

Question 1

What is concentration risk?

Answer 1

This can occur when too much is outsourced to one single provider. Another type is geographical concentration ie outsourcing to multiple suppliers all located in the same geographical area

Question 2

What is volatility risk in terms of it affecting insurance companies?

Answer 2

The overriding risk for insurers in unpredictability in terms of the insurance risks they take on. Not possible to predict exactly the total amount of claims in a year and the timing of their occurrence.

Question 3

What is futures and hedging?

Answer 3

In Europe commercial contracts called futures and hedges have been used to manage risk since medieval times. For example a farmer might agree to sell it for an agreed price to apply when the grain was due to be harvested in two months time