General Terms Flashcards
1) Uncertainty arising from the possible occurrence of given events 2) The insured or the property to which an insurance policy relates
Risk
The insurance company that undertakes to indemnify for losses and perform other insurance-related operations.
Insurer
The state of being subject to loss because of some hazard or contingency. Also used as a measure of the rating units or the premium base of risk.
Exposure
1) The basis of a claim for damages under the terms of a policy. 2) Loss of assets resulting from a pure risk. Broadly categorized, the types of losses of concern to risk managers include personal loss, prop loss, time element loss and legal liability loss.
Loss
Conditions that increase the probability of loss. Examples include poor housekeeping in a factory and inadequate lighting in a crime-prone area.
Hazard
The tendencies or traits of an individual that increase the chance of a loss.
Moral Hazards
Individual tendencies that arise from a state of mind, attitude or indifference to loss. Not locking a car or driving recklessly.
Morale Hazard
Characteristics that increase the chance of loss. They exist due to the presence of some physical condition ir or surrounding the property.
Physical Hazard
Cause of loss - Fire, windstorm, collision, flood, theft
Peril
Immediate result of an event. Dmg from house fire.
Direct Loss
Remote ramification that results in a loss from a covered peril. i.e.: ALE for a house fire
Indirect Loss
An occurrence that may or may not become a claim. Some claims-made coverages allow for reporting events.
Event
Ways to manage RISK
avoid, control, share, retain and transfer
A risk management technique whereby risk is prevented in its entirety by not engaging in activities that present risk. Ex: construction firm may decide not take on environmental remediation projects to avoid the risks associated with this type of work.
Avoid
“Risk distribution”. The premiums and losses of each member of a group of policyholders are allocated within the group based on predetermined formulas. Risk is considered to be shares if there is no policyholder-specific correlation between premiums paid into a captive and losses paid from the captive’s reserve pool.
Risk Sharing
“Do nothing option”. Rather than avoid, person/business may use it’s own funds to pay for any losses that occur.
Risk Retention
When an individual/business transfers the risk of loss to another party, ie: buying insurance
Risk Transfer
To make compensation to an entity, person or insured for incurred injury, loss or damage.
Indemnify
Restoration to the victim of a loss up to the amount of the loss.
Indemnity
As the number of independent events increases, the likelihood that actual results will be close to the expected results also increases
Law of large numbers
Risk that involved only the chance of a loss. Gain is not possible.
Pure Risk
Risk that can result in loss or gain. ie: stock market. Uninsurable
Speculative Risk
Numerical measure for likelihood that particular event will occur. Generally measured 0 to 1. A probability near 0 indicates an unlikely outcome. 1, almost certain to occur.
Probability
The loss record of an insured or of a class of coverage 2) Classified stats of events connected with insurance, actual or estimated
Experience
Estimated loss frequency multiplied by estimated loss severity, summed for all exposures. This measure os refers to a best estimate of the total losses of a particular type. ie: workers comp or gen liab. of an organization that is expected during a given time period.
Expected Loss
Individual, often holding a professional designation. ie: Casualty Actuarial Society (FCAS), who computes stats relating to insurance, estimating loss reserves and developing premium rates.
Actuary
Process of determining whether to accept risk and if so, what amount of insurance the company will write on the acceptable risk and at what rate.
Underwriting
Imbalance in an exposure group created when persons who perceive a high probability of loss themselves seek to buy insurance to a much greater degree than those who perceive low probability of loss.
Adverse Selection
