Intro To Risk And Insurance Flashcards
What is Insurance
A contract in which 1 party for monetary consideration agrees to reimburse another for loss or liability for a loss on a defined subject caused by specified perils
Insurance is based on risk. If there is no risk- there can be no insurance
Risk
Risk is the chance of a loss.
The possible loss or destruction of property or incurring of liability.
Risk is known as the subject of an insurance contract
What is speculative risk
Speculative risk is the chance of a loss or no loss OR THE CHANCE OF A GAIN
*not insurable
Pure Risk
Pure risk is the chance of a loss or no loss but no chance of a gain
pure risk is insurable
What are the 3 types of insurable risks?
Give examples of each
Personal risks- death, illness or injury, medical costs
Property risk- the chance of loss from damage to property
(Direct and indirect loss)
**cost of repair on a damaged vehicle
**cost of losing rental income after fire
Liability risk- chance of loss from legal obligation to pay damages from injury or death to another through willful wrong action or inaction
Describe the insurer
The Insurance company that agrees to indemnify for losses and does other insurance related operations
What are the 3 lines of general insurance
Personal lines- homes, cars, jewelry, boats, travel insurance
Commercial lines- I suranné relating to commercial operations or businesses- stores, offices, contractors
Special risks- insurance relating to marine exposures, aviation and high risk operations
Define a peril
Give 2 examples
A peril is an event that caused a loss covered by the policy
Fire or windstorm
Define burglary
Burglary is unlawful removal of property from premises with visible forced entry
Define robbery
Robbery- unlawfully taking another’s property in the presence of them by violence or the threat of violence
Define theft
Theft is wrongful taking of another’s property.
Includes larceny, pick pocketing, robbery and hold ups
Define negligence
Negligence is failure to use the degree of caution expected from a reasonable/prudent person
Define hazard and outline the two types of hazards
A risk or probability that event insured against may happen
Or a condition that increases the chance of a loss
***physical hazard
**moral hazard
Define a physical hazard and give two examples
Physical hazard is a hazard from the physical condition or characteristic of the object that is insured
Example- loose floor tiles may cause someone to trip and fall
Old outdated wiring which could cause a fire
Define moral hazard
Moral hazard is the characteristic of the insured or insured employees.
Ie- dishonesty, poor management, carelessness
What are the 2 types or moral hazards
Moral hazards- characteristic of the insured that increase the chance or severity of loss
Morale hazards- a poor attitude on the part of the insured
Define an underwriter
Is the insurance company that insures a particular risk
OR
The person in an insurance company who specializes in that kind and chooses the risk the company is prepared to underwrite
Define a proximate cause
Proximate cause is the immediate and effective cause of a loss
A cause that in natural am unbroken sequence produces an event that caused the loss without which there would be no loss
Define remote cause
Remote cause is not the proximate cause of a loss
insured cannot collect from a loss caused by a remote cause*
Why must a peril be caused by a proximate cause and not a remote cause to be covered by insurance
Because an insurance policy has clearly defined perils and must be caused by a proximate cause not a remote or Immediate cause
What are the 4 pre loss objectives of an organization
Social responsibility
External obligations
Peace of mind
Cost of risk
What are the 5 post loss objectives of an organization
Social responsibility Survival Operational continuity Stable earnings Sustained growth
Define cost of risk
Cost of risk is all costs associated with managing pure risk - insurance premiums and costs to recover from a loss
What are the 5 steps in risk management process or planning
1—-Identify and analyze exposures- using inspections, flow charts, surveys
2—Formulate options- loss control techniques and loss financing in case a loss does occur
3—selecting the best techniques
4—implement the risk management plan
5–monitor results and modify plan
