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
2
Q
Main elements of risk?
A
- Uncertainty
- Unpredictability
3
Q
What is the primary function of insurance?
A
To act as a risk transfer mechanism
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.
5
Q
How does the insurer accept the unknown cost of the insured risk?
A
By promising to cover the loss.
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.
7
Q
What are the 2 attitudes to risk?
A
- Risk-seeking
- Risk-adverse
8
Q
What is ‘Risk-seeking’?
A
Willing to carry certain risks themselves.
9
Q
What is ‘Risk-adverse’?
A
Feeling happier minimising the risk they are exposed to.