Class 15

Question 1

transfer

Answer 1

• to shift the direct payment of loss as it occurs to another individual or org. (shift risk)
• the variability (RISK) is being transferred

Question 2

two-party transfer

Answer 2

• aka waiver or exculpatory clause
• contract should indicate who is responsible for what losses (who absorbs loss)
• agreements can only transfer risk associated with losses directly incurred by these two parties
• ex: lease agreements, purchase agreements, and construction agreements

Question 3

third part transfers

Answer 3

• aka indemnification and hold harmless agreements
• added agreement about who will pay for losses to a third party not associated with the underlying agreement
• generally involve liability losses
• transfer does not shift legal liability, just the financial responsibility

Question 4

who pays if a consumer is hurt using a product?

Answer 4

-probably both the retailer and the manufacturer

Question 5

who should pay?

Answer 5

assume the retailer indemnifies and holds harmless the manufacturer

Question 6

indemnify

Answer 6

• to return to original financial position (repay liabilities)
• -if man. gets sued and losses, retailer reimburses man. for any losses

Question 7

hold harmless

Answer 7

• promise not to sue for reimbursement

- retailer holds man. harmless, if retailer is sued and loses they cannot seek money from man.

Question 8

why would a retailer agree to indemnify and hold harmless a Manu.?

Answer 8

allows them to buy from man. for cheaper and eliminates court (trial) costs

Question 9

what do indemnity and hold harmless do?

Answer 9

• shift risk to the same entity in any given agreement

- which entity bears the risk depends on the negotiations btw the parties

Question 10

why transfer risk?

Answer 10

should allow us to be more efficient with resources

Question 11

insurance transfer

Answer 11

• insurance is a mechanism through which a group of insureds (policyholders) pool/share their losses
• they transfer risk to insurers and “pay” for losses through insurance premiums
• through insurance policyholders transfer a large potential loss for small certain loss which is the premium
• we do not transfer losses. We transfer RISK.

Question 12

where are costs of losses included?

Answer 12

in the premium the policyholder pays (paying more evenly)

Question 13

types of insurance

Answer 13

life, health, disability, property (including business incomes), liability (including worker’s comp)

Question 14

newly developing types of insurane

Answer 14

cyber risk

reputation risk

Question 15

types of insurers

Answer 15

commercial or personal

mutual or stock

Question 16

mutual insrurers

Answer 16

• owned by policyholders
• they get profits through dividends
• no opportunity to issue stock
• fewer opportunities to get money if in trouble
• need to have lower risk

Question 17

stock insurers

Answer 17

• shareholders (partial ownership)
• owner gets profits
• willing to have more risk because they can get money faster (issue stock)

Question 18

components of premiums

Answer 18

E(losses +los adjustment expenses)
\+ E(expenses)
\+risk charge
\+insurer profit
-investment return (bottom 4 referred to as premium loadings)

Question 19

what services do insurers provide policyholders?

Answer 19

• loss control/underwriting
• agent/broker/underwriter to assist in identifying problems and solutions
• claims adjuster to assist in understanding what went wrong that caused the loss
• actuary to help forecast the future
• investment experts to earn returns
• other

Question 20

who does the aunt work for?

Answer 20

legally for the insurer

Question 21

who does the broker work for?

Answer 21

for the policyholder

Question 22

what does a claims adjuster do?

Answer 22

determines if contract says they should be paid and how much

Question 23

what does the actuary do?

Answer 23

determines similar groups

estimates losses- provides prices for premiums and data analytics

Question 24

what does an independent agent do?

Answer 24

they can better investigate the market

Question 25

what does an exclusive agent do?

Answer 25

they understand the product really well