FEATURES OF INSURABLE RISKS Flashcards
For a risk to be insurable, what are the 3 features that must be present?
- A fortuitous event
- Insurable interest
- Not against public policy
What is a fortuitous event
Accidental + Unexpected
Example of a non-fortuitous loss?
A policyholder who deliberately damages their car.
What is insurable interest?
The legally recognised financial relationship between the insured and the object or liability that is being insured.
Example of insurable interest?
You can insure against the theft of your own car because you suffer financial loss if it is stolen.
When covering a risk, what must insurers ensure it upholds?
Public Policy
What is Public policy
In the best interest of the public.
Example of going against public policy?
Insuring the risk of incurring a fine for a criminal offence.
What are homogenous exposures?
Exposures to similar risks
Given a sufficient number of homogenous exposures to similar risks, what can an insurer now forecast?
The expected frequency and likely extent of losses.
What theory is used that allows insurers to forecast the expected frequency and likely extent of loss?
The Law of Large Numbers.
What is The Law of Large Numbers
A theory that determines that predictions become more accurate as the base of data used increases in size.
