insurability

Question 1

What is insurablitiy

Answer 1

Weather a risk can be insured or not

Question 2

What are the three ways to assess the insurability

Answer 2

Empirical, theoretical/technical, decision making context

Question 3

What is empirical insurability

Answer 3

Looking at what other insurers are doing to see what can be underwritten

Question 4

What are the technical criteria used (5)

Answer 4

• Randomness
• Size
• Reliability
• Un ambiguous
• Independence

Question 5

Randomness

Answer 5

Damage is not foreseen or manipulatable

Question 6

When do you see problems with randomness

Answer 6

asymmetry of information or there is the potential to cause a loss

Question 7

How do insurers prevent themselves from issues around randomness? (4)

Answer 7

Questions on proposal forms, deny coverage, adapt the insurance premium, apply waiting periods

Question 8

Moral hazard

Answer 8

Intent

Question 9

Morale hazard

Answer 9

Negligence

Question 10

What type of insurance do you see more morale hazards?

Answer 10

Liability insurance

Question 11

Independence

Answer 11

Risks pooled must not be correlated

Question 12

What are the issues with not having independence

Answer 12

The negatives will not be offset by the positives

Question 13

What are the three areas of problems in terms of independence?

Answer 13

Risk accumulation, Risk of fluctuating probabilities, risk of contagion

Question 14

Risk of accumulation

Answer 14

Risk that one event affects a number of risks (eg wind storm effects houses and buisnesses)

Question 15

Risk of contagion

Answer 15

The probability of damage/loss with one insured risk is increased if damage with another risk occurs

Question 16

Reciprocity

Answer 16

When insurers exchange risks to diversify their portfolio

Question 17

Risk of fluctuating basic probabilities

Answer 17

Probability rises and falls over time

Question 18

How can you combat the Risk of fluctuating basic probabilities

Answer 18

stop-loss reinsurance

Question 19

Rateablity

Answer 19

The ability to calculate net risk premium

Question 20

Why is reliability necessary

Answer 20

To prevent adverse selection

Question 21

Unambiguous

Answer 21

When a loss occurs you can determine the value of the loss and the indemnity

Question 22

Size

Answer 22

Risks should be of similar size when pooled

Question 23

Insurability in a decision making context

Answer 23

Identify factors for an insurers decision to underweight a risk

Question 24

There are 4 groups of factors in insurability in a decision making context

Answer 24

-Insurers attitude to risks
-The insurer’s situation to factors of production
-Is the premium obtainable
Aspects of the risk such as technical criteria mentioned above