Intro To Risk And Insurance

Question 1

What is Insurance

Answer 1

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

Question 2

Risk

Answer 2

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

Question 3

What is speculative risk

Answer 3

Speculative risk is the chance of a loss or no loss OR THE CHANCE OF A GAIN
*not insurable

Question 4

Pure Risk

Answer 4

Pure risk is the chance of a loss or no loss but no chance of a gain
pure risk is insurable

Question 5

What are the 3 types of insurable risks?

Give examples of each

Answer 5

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

Question 6

Describe the insurer

Answer 6

The Insurance company that agrees to indemnify for losses and does other insurance related operations

Question 7

What are the 3 lines of general insurance

Answer 7

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

Question 8

Define a peril

Give 2 examples

Answer 8

A peril is an event that caused a loss covered by the policy

Fire or windstorm

Question 9

Define burglary

Answer 9

Burglary is unlawful removal of property from premises with visible forced entry

Question 10

Define robbery

Answer 10

Robbery- unlawfully taking another’s property in the presence of them by violence or the threat of violence

Question 11

Define theft

Answer 11

Theft is wrongful taking of another’s property.

Includes larceny, pick pocketing, robbery and hold ups

Question 12

Define negligence

Answer 12

Negligence is failure to use the degree of caution expected from a reasonable/prudent person

Question 13

Define hazard and outline the two types of hazards

Answer 13

A risk or probability that event insured against may happen
Or a condition that increases the chance of a loss
***physical hazard
**moral hazard

Question 14

Define a physical hazard and give two examples

Answer 14

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

Question 15

Define moral hazard

Answer 15

Moral hazard is the characteristic of the insured or insured employees.
Ie- dishonesty, poor management, carelessness

Question 16

What are the 2 types or moral hazards

Answer 16

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

Question 17

Define an underwriter

Answer 17

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

Question 18

Define a proximate cause

Answer 18

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

Question 19

Define remote cause

Answer 19

Remote cause is not the proximate cause of a loss

insured cannot collect from a loss caused by a remote cause*

Question 20

Why must a peril be caused by a proximate cause and not a remote cause to be covered by insurance

Answer 20

Because an insurance policy has clearly defined perils and must be caused by a proximate cause not a remote or Immediate cause

Question 21

What are the 4 pre loss objectives of an organization

Answer 21

Social responsibility
External obligations
Peace of mind
Cost of risk

Question 22

What are the 5 post loss objectives of an organization

Answer 22

Social responsibility 
Survival 
Operational continuity
Stable earnings
Sustained growth

Question 23

Define cost of risk

Answer 23

Cost of risk is all costs associated with managing pure risk - insurance premiums and costs to recover from a loss

Question 24

What are the 5 steps in risk management process or planning

Answer 24

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

Question 25

What are 3 examples of loss control techniques

Answer 25

Loss prevention- regular inspection of equipment, personnel or property

Loss reduction- installing firewalls or sprinklers. Doesn’t prevent the loss but can reduce the severity of it

Separation or diversification- splitting contents of large warehouse into two

Non insurance loss transfer- contracting a hazardous process to an outside agency

Question 26

What are two methods to finance loss

Answer 26

Retention- is absorbing all or part of the loss. It may be called self insurance

Risk transfer- transferring risk to another agency- ie- insuring a risk with an insurance company or reinsurance

Question 27

Define hold harmless agreement

Answer 27

An agreement that allows one party to protect another part against any future loss from a particular activity
Also known as an indemnity agreement

Question 28

Define premium

Answer 28

The price of insurance protection for a specified risk for a specified length of time