General Insurance #3

Question 1

What are the five methods of handling risk?

Answer 1

Avoidance, Retention, Sharing, Reduction and Transfer

Question 2

What are the six elements of an insurable risk?

Answer 2

1. The loss must be due to chance
2. Must be definite and measurable
3. Must be statistically predictable
4. Cannot be catastrophic
5. The loss exposure must be large
6. The insurance must not be mandatory

Question 3

Insuring risk that are of a poorer class than the average risk, seek insurance more often

Answer 3

Adverse selection

Question 4

The larger the number of similar exposure units considered, the more closely the losses reported will equal the probability of loss.

Answer 4

The Law of Large Numbers

Question 5

Contract where 1 insurer agrees to indemnify another insurer for its losses

Answer 5

Reinsurance

Question 6

What are the 4 types of insurers?

Answer 6

Stock: owned by stockholders, taxable dividend
Mutual: started with policyholder premium dollars, non-taxable dividend
Fraternal Benefit Society: NFP, can only insure members
Lloyds Association: not an insurance company, each individual underwrite assumes part of the risk.