Intro

Question 1

Insurance

Answer 1

Transfer of risk from a person or a business to an insurer

Question 2

Risk

Answer 2

The possibility that a loss will occur

Question 3

The two types of risk

Answer 3

Speculative= a possibility of a gain or a loss (gambling) not insurable.

Pure= a risk only involving the possibility of a loss. These are insurable.

Question 4

Exposure

Answer 4

Possibility that a loss will occur
Examples:
Auto accident
Lost luggage on a trip
Pet biting mailman
Employee hurt on job
House fire

Question 5

Peril

Answer 5

The cause of a loss

Question 6

Loss

Answer 6

The unintended unforeseen damage to property

Question 7

Two kinds of loss

Answer 7

Direct - physical loss

Indirect - consequence of physical loss

Question 8

Hazard

Answer 8

Anything that increases the chance that a loss will occur

Question 9

Three types of hazards

Answer 9

Physical - the hazard can be seen
Moral - arising from an individuals character (dishonesty)
Morale - carelessness

Question 10

Methods of handling risk

Answer 10

STARR
Sharing
Transfer - insurance
Avoidance
Retention - maintaining the risk
Reduction - lessening the chance of loss or lessening the extent of a loss of it occurs

Question 11

Contract (policy)

Answer 11

An agreement between the insured and the insurer
1st party = insured
2nd party = insurer (insurance company)

Question 12

The law of large numbers

Answer 12

The larger the group, the more accurately losses can be predicted

Question 13

Elements of insurable risk

Answer 13

CANHAM
Calculable - premiums are calculable based on prior loss statistics
Affordable - premiums are affordable to the average consumer
Non-catastrophic - risk must be non catastrophic for the insurer
Homogeneous - the risks must be similar in nature so the same factors affect the chance of loss
Accidental - the loss must have been caused due to chance
Measurable - a divinities time and place

Question 14

Adverse selection

Answer 14

Risks that have a greater than average chance of loss. Why underwriting exists

Question 15

Reinsurance

Answer 15

Insurance for insurers

Question 16

Ceding insurer

Answer 16

In reinsurance, the company reducing its risk

Question 17

Reinsurer

Answer 17

The company assuming another insurance companies risk

Question 18

2 ways to reinsure

Answer 18

Facultative - the reinsurer considers each risk before allowing the ceding company to transfer its risk over
Treaty - the reinsurer accepts all risks of a certain type from the ceding company

Question 19

Stock insurers

Answer 19

Owned by stockholders
Dividend is not guaranteed 
Dividend is paid to stockholders
Dividend is taxable to stack holders
Issue non-participation policies

Question 20

Mutual insurer

Answer 20

Owned by policyholders
Dividend is not guaranteed 
Dividend is paid to policyholders
Dividend not taxable. Is a refund of overpaid premium
They issue participating policies

Question 21

Fraternal benefit societies

Answer 21

Provides insurance and other benefits
Must be a member to get benefits
Frat policies = certificates

Question 22

Reciprocal insurers

Answer 22

Unincorporated
Members pay if a loss occurs to any member of the group
Managed by attorney-in-fact

Question 23

Lloyd’s associations

Answer 23

Insurance provided by individual underwriters, not companies

Insure unusual risks

Question 24

Risk retention groups

Answer 24

Liability insurance for policyholders

All in the same industry

Question 25

Risk purchasing groups

Answer 25

A group of businesses in the same industry that join together to buy liability insurance from insurance companies

Question 26

Self insurers

Answer 26

Retention
A business that pays its own claims
May have reserve funds to cover losses