Quiz 1 Flashcards
Names for Insurers/Insured
-Insurer: Insurance company, carrier, policy holder, insurance holder
Burdens of Risk on Society
- Expenditures to reduce risk: money spent for airbags
- Lost Opportunities from avoiding risk: Lost opps from avoiding risk
- Expenditures to finance potential losses (emergency funds)
- Cost of Losses
- Insurance Induced Fraud & Risk Taking
Risk Management Process
- Identify risks
- evaluate for potential losses
- select appropriate risk management technique
- Implement risk technique
- Review and revise the plan
Pure vs. Speculative
- Pure: Risks that result in only losses
- Speculative: Possibility of either gaming or losing
Static vs. Dynamic
- Static: Probability of a loss doesn’t change much over time. ex: Living to 130
- Dynamic: Probability of a loss changes frequently over time. ex: Dying in an auto crash (has gotten much safer over time)
Objective vs. Subjective
- Objective: Quantifiable risk that is measured. ex: chances of dying at the age of 60 can be measured.
- Subjective: Opinion based risk. ex: Fear based
Fundamental vs. Particular
- Fundamental: Risks affecting large populations. ex: Warfare, Hurricanes
- Particular: Risks affecting individuals and individual orgs. ex: house destroyed by fire, company going bankrupt
Uncertainty
Inability to make a defensible estimate of a future outcome. ex: estimating the price of googles stock in 5 years
Measure of objective risk
- The degree of objective risk: Likely range of losses/expected losses, Greater # means greater degree of risk
- Using probabilities to measure objective risk: Taking mean or standard deviation
4 Basic Management Techniques
- Avoidance
- Loss of Control
- Retention
- Risk Transfer
Avoidance
Avoid the risk
Loss Control
- Loss Prevention: Prior to losses occurring. ex: alarms and airbags
- Loss Reduction: After the losses have occurred. ex: Storing damaged vehicle an impound lot to protect against theft.
Retention
- Planned Retention
- Unplanned Retention
- Insurance deductible, purchasing state minimum of auto insurance
Risk Transfer
- Insurance: Transferred Risk over to the insurance company
- Non Insurance: Contracts, hold harmless agreements
Enterprise Risk Management
- Purpose: to help ensure a uniform approach to identifying risks, measuring them, prorating them, and implementing them
- Implemented using software programs and expert consultants
- Uses Risk maps
Law of Large Numbers
By insuring a large sample of risk exposures, and insurance company’s actual insurance claims rate will closely affect the rate for the entire population.
Intentional vs. Unintentional Torts
- Intentional: When a defendant intends, or desires to cause harm to another individual. ex: assault, battery
- Unintentional: Negligence - The failure to exercise the standard of care required by the law.
ORPMAN Standard
-Ordinary, Reasonable, Prudent man would act
Subrogation
Requires Insureds to give insurers the right to sue the negligent parties or giving insurers the right to recover their payouts should the injured insured be successful in a tort civil law suit. It also allows for insureds insurance company to collect from the negligent party’s insurance company.
Liability Damages
- Bodily Injuries: Can be sued for our negligence causing bodily harm
- Property Damage: Negligence might result in damages to someone else property
- Personal Injury: Damage to ones character or reputation
- Legal Expenses: Can be sued by anyone who says your negligence lead to their loss.
Real vs. Personal Property
- Real: Consists of land and anything permanently attached to it
- Personal: Any other property other than real ex: Jewelry, TV
Expenses at Death
- Funeral Costs
- Debts
- Probate: everything you own at your death is put into probate where you must go to court to determine who will receive the property
- Stress, Worry, Mental Anguish
Most frequent causes of death
Cancer & Heart Disease
CSO 2001 Mortality Tables
Summaries of death statistics gathered from a specific sample during a specific time period.
Tell us when someone will die based on sex and smoking
Unemployment Insurance
- Social Insurance given by the government to those who need insurance but are unemployed
- Varies per state
Lifestyle in Retirement
- Upon Retirement, the amount of money necessary to prevent a decline in one’s living standard is 75%-85% of the pre-retirement earnings.
- People don’t like cut back on their expenses and lifestyle when they retire, so financial planners put away same dollar amount for retirement.
When does Insurance Work Best
A potentially Large loss with a small likelihood of occurring is exchanged for a Small loss (premium paid to insurance) with a likelihood of certain to occur.`
Utmost Good Faith
- Principle that requires a higher degree of honesty and conduct from both parties to an insurance contract compared to other contracts
- Party that is lied to can void contracts through misrepresentations, warranties, concealments, and mistakes.
Indemnity
- Insureds may not collect more than their losses
- Can only collect on the predetermined value of their property
- Some indemnity classes include: Suicide clause, copays/deductibles
Valued Policies
- Apply to property whose market value fluctuates, making it difficult to come up with a reasonable estimate of loss. ex: Artwork, Family Heirlooms
- Submit receipts or appraisals for such items to insurance company
Insurable Losses (Insurable Interest)
- Do the policyowners have an insurable interest in who and what they want to ensure to prevent moral hazards, gambling, etc.
- Collect on insured loss if I have an insurable interest
Legal Capacities to enter into Insurance Contracts
- Cannot enter if…
- –Minors, People who are drunk or under the influence, mentally disabled people, and people acting without the authority to do so on behalf of someone else
Aleatory Contacts
Contracts in which the value of consideration exchanged has the potential to be greatly unequal. ex: Most insurance contracts
Unilateral Contracts
Only one of the parties to an insurance contract makes promises that are legally enforceable. That on party is the insurance company. Policyholders can cancel contract at any time.
Common things in Business Contracts
- Must be for a legal purpose
- Both parties must have legal capacity to form contracts
- There must be agreement - Valid offer and acceptance
- Exchange of Consideration
When does and insurance application become valid
Upon Offer and Acceptance
Amount of paycheck that goes towards Social Security
7.65%
Father of Insurance
Benjamin Franklin because houses were being burned down everywhere because they were made of wood
