CONCEPT OF RISK AND TRANSFER Flashcards

1
Q

What is ‘risk’?

A
  • The possibility of an unfortunate occurrence
  • Doubt concerning the outcome of a situation
  • Unpredictability
  • The possibility of loss
  • The chance of gain
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2
Q

Main elements of risk?

A
  • Uncertainty
  • Unpredictability
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3
Q

What is the primary function of insurance?

A

To act as a risk transfer mechanism

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4
Q

How is a risk transferred?

A

By the owner paying a known premium to an insurer in return for the insurer accepting the future unknown cost of the insured risk.

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5
Q

How does the insurer accept the unknown cost of the insured risk?

A

By promising to cover the loss.

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6
Q

What are the 3 OTHER meanings of ‘risk’?

A
  • The peril or contingency that is insured
  • The thing (or liability) actually insured.
  • When quoting for a risk, an Underwriter will mean both the thing insured + scope of cover required.
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7
Q

What are the 2 attitudes to risk?

A
  • Risk-seeking
  • Risk-adverse
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8
Q

What is ‘Risk-seeking’?

A

Willing to carry certain risks themselves.

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9
Q

What is ‘Risk-adverse’?

A

Feeling happier minimising the risk they are exposed to.

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