Insurance Lecture

Question 1

2 types of risk

Answer 1

1) Speculative Risk:
Win, lose, or no change
Risk is taken on by choice
Normally not insurable

2) Pure Risk:
Events beyond one’s control
Outcome: loss. 
Insurance covers pure risk
Allows for protection against loss, but does not allow for possibility of gain.

Question 2

4 risk management techniques

Answer 2

1. Risk Avoidance
   - elimination
   - substitution
   - separation
2. Loss Control
   - loss prevention before
   - loss reduction after
3. Risk Retention
   - self insure - high frequency, low severity losses
   - losses that are unlikely
4. Risk Transfer
   - liability waver
   - insurance transfer

Question 3

Insurance

how it actually works

Answer 3

Risk pooling- transfers risk from one to everyone in a group or pool

Law of large numbers-
that which is unpredictable for an individual is predictable for a group

Question 4

characteristics of insurable risk

Answer 4

1. Must be a Chance event
2. Loss must be Definite – In time and in $$ amount.

a) Contract of Indemnity – covers actual amount of loss (sometimes to a stated maximum)
b) Valued Contract – amount payable is fixed and know

3. Loss must be Significant
4. Rate of loss must be Predictable
5. The loss must not be too large for the insurer to bear

Question 5

Problems with insurance

Answer 5

FRAUD
- on application (eg: pre-existing conditions)

• in making claims (false claims)
• in details of claims (scope and scale of losses)
• conspiracy to defraud

Question 6

Benefits administration is a prime candidate for outsourcing due to (4)

What services are outsourced? (4)

Answer 6

1. Complexity of the function
2. Efficiencies from specialized service providers
3. Competitive pricing, due to business volume and specialization
4. Ease of implementing technology
   today: web-based ee self-service portal, apps, and drug cards from insurers
5. Enrolment
6. Communications
7. Claims administration
8. Reporting