Exam Style Questions Flashcards
9 Requirements for risks to be insurable
*The policyholder must have a interest in the risk being insured.
*The risk must be of financial and reasonably quantifiable nature.
*The amount payable must bear some relationship to the financial loss incurred.
*Individual risk events should be independent of each other.
*The probability of the event should be relatively small.
*Large numbers of similar risks should be pooled together to lower the variance.
*There should be an ultimite limit on the insurer’s liability.
*Moral hazard should be eliminated as far as possible as they are difficult to quantify.
*There should be sufficient data to enable the insurer to estimate the size of the risk.
Canons of good lending
*Is the characteristics of the borrower satisfactory? (Is he trustworthy)?
*Is there a valid purpose to the loan and is the money for a good use?
*Is it a reasonable amount to loan given the purpose of the loan?
*Will the borrower be able to repay the loan (how much assets does the borrower have)?
