Module 4 Flashcards
Risk Avoidance
If a business wants to ensure that it will not have windows broken by vandals, it can avoid the risk by not having windows.
Risk reduction
business wants windows but is still concerned about vandals, it may choose to have windows made of a material that is very difficult to break.
Risk retention
the individual or business retains the risk. If a loss occurs, the individual or business pays the cost.
Risk transfer
This is primarily insurance, but can also be accomplished via
waivers or subcontracting.
High Frequency, High severity
risk avoidance/reduction
high frequency, low severity
risk retention/reduction
low frequency, high severity
risk transfer
low frequency, low severity
risk retention
Risk Retention Groups
insure their own members. The group must be
willing to engage in all of the activities of an insurance company, including (1) investing its own capital, (2) setting up insurance operations (underwriting,
administration, and claims handling), (3) approaching and finding willing reinsurance companies, and (4) pricing the product efficiently.Membership in the risk
retention group is limited to persons engaged in businesses or activities that share a similar position with regard to a given type of liability exposure.
Purchasing Groups
not insurers but rather are any group of persons, companies, or associations with similar risk exposures that form an organization with the purpose of purchasing insurance on a group basis. Unlike risk retention groups, these groups do not have to invest capital, submit a feasibility study, or make any
long-term commitments. Many insurance companies issue a master policy to the purchasing group, with
certificates to the insured members.
seven factors that insurance companies use to
limit an insurer’s liability covering losses.
Insurable interest. Actual cash value of the loss. Policy limits or face value. Other insurance. Coinsurance. Deductibles. Subrogation.
Insurable interest
insurable interest exists when the interested party will suffer a financial loss if the insured loss occurs
Actual cash value of the loss
Actual cash value, which is used with property
losses, is the replacement cost minus depreciation.
Policy limits or face value
the maximum amount that will be paid when the insured loss occurs.
Other insurance
Either one policy is considered primary with the other
paying for any uncovered loss, or the policies pay prorated shares of the loss
Coinsurance
It may be a splitting of costs, or it may refer to a minimum percentage of insurance that is required to avoid being penalized for inadequate insurance when there are partial losses
Deductibles.
A deductible is a retained risk. It is the portion of insured losses that the insured is expected to pay before the insurance company pays anything.
Subrogation
This prevents the insured from collecting twice for the same loss from two different companies.
Moral hazard
a result of the client being unethical or misrepresenting himself in order to obtain insurance or to induce the payment of a claim.
morale hazard
is indifference
Torts
When someone causes physical, emotional, or financial harm to another
four elements of negligence:
- A duty is owed (e.g., individuals have the duty to drive their vehicles in a
safe manner). - The duty was breached (e.g., the individual rear-ended another car).
- There were actual damages (e.g., the damage to the other car).
- There was proximate cause (i.e., an uninterrupted sequence of events that
brought about the damage).
collateral source rule
states that a tortfeasor (i.e., one who commits a tort)
will be liable for the full damages caused, regardless of other sources of reimbursement available to the victim.
subrogation clause
in an insurance policy prevents the collateral source rule from violating the principle of indemnity (the victim should be reimbursed for loss but not profit from it) by giving the insurer the right to recover an amount
from the tortfeasor that is up to the amount the insurer has paid to the victim
Survival of tort actions
means that the right to sue generally survives the death of
either the victim or the tortfeasor.
Attractive nuisance
to something about a property (e.g., a swimming pool)
that is likely to attract and possibly injure children.
Negligence per se
where the duty or standard of care owed by the defendant is determined by reference to a statute. This can happen where there is a statute that was enacted to protect the class of people to which the plaintiff belongs against the type of harm that occurred in the case. The other elements of a tort still must be proved.
Absolute liability
the standard imposed when a person or organization is held responsible for any damages, even where there has been no negligence in the usual sense of the word. Generally, there is no defense to absolute liability claims.
Vicarious liability
is when someone is held liable for the acts of another (e.g., the
person’s child, employee, or agent).
