Risk Flashcards
What are 3 meanings of the term “risk”?
The peril (i.e. EOW) The subject matter (i.e. property) The subject matter and the range of potential circumstances that could occur (i.e. property - EOW, fire, flood etc)
Measuring risks and attempting to manage risks we face is collectively known as?
Risk management - indentification, analysis and control
What is the primary function of insurance?
Risk transfer mechanism
What does risk adverse mean?
Seeks to minimise risk
What does risk seeking mean?
Willing to carry risks themselves
What association are risk managers often members of?
AIRMIC - Association of Insurance and Risk Managers in Industry and Commerce
What are 3 measures of controling risk?
Physical control measures - i.e. putting locks on doors to reduce the risk of theft
Financial control measures - i.e. taking out insurance or by contract
Developing a good risk culture - education within a company
3 internal risk controls within a company are known as?
Detective - designed to detect errors
Corrective - designed to correct errors once detected
Preventative - designed to keep errors from occuring
What organisation carries out work on behalf of property insurers in loss prevention?
The Fire Prevention Association which researches into materials/methods of contruction and how they behave in a fire.
What organisation was formed in order to assist motot insurers manage and mitigate fraud?
The Motor Insurance Anti-Fraud and Theft Register - shared database
What does LPC stand for?
Loss Prevention Counci - researches risks and other initiatives to help insurers develop crime and control solutions.
What are benefit policies?
Policies which provide a customer with a fixed sum of money - examples include personal accident and sickness policies (with these kinds of policies there is no way of valuing precisely the loss of a limb etc so the insurer and customer will agree on a set amount when the policy is taken out in the event of sickness/accident)
What is a pure risk?
Insurable - risks where there is possibility of loss but no gain (i.e. a car accident)
What is a speculative risk?
Non-insurable - risks where there is possibility of gain (i.e. gambling, investing in stock market)
What is a fundamental risk?
Non-insurable- risks that occur on a large scale and effect large numbers of people (i.e. pandemic, war)
What is a particular risk?
Insurable - risks that are localised in their impact (i.e. a storm over a whole region but effects a particular area of that region worse)
What is a fiancial risk compared to a non-finanical risk?
For a risk to be insurable it’s value must be capable of financial measurement (i.e. a car or house). If the risk does not have a finanicial value (i.e. our choice of partner or enjoyment of a holiday) this is not insurable.
In addition to being pure, particular and financial, risks must also have what 3 features?
- The event being insured must be fortuitous (i.e. an accident not inevitable)
- There must be an insurable interest in the thing being insured (i.e. a legally recognised finanical relationship between the insured and the thing being insured - houses, cars etc)
- Insuring the risk must not go against public policy as this would undermine the purpose of rules/laws set out by society (i.e. you couldn’t insure yourself against getting a parking ticket)
Homogeneous exposures means?
Similar risks - insurers will look at historical patterns/trends when assessing risk in order to forecast future losses (known as objective risks)
What is the law of large numbers?
Technique used to predict fairly accurately the final cost of claims in a year. In theory, where there are a large number of similar situations, the actual number of of events occuring tends towards the expected number.
What is a peril?
Something which causes a loss (i.e. fire, flood, EOW)
What is a hazard?
Something which influences a peril (i.e. wet floor, dodgy plug)
What is a physical hazard?
Physical characteristics of risk (i.e. construction of a property, age of a customer applying for motor insurance)
What is a moral hazard?
Attitudes/behaviours relating to risk (i.e. social attitudes, dishonestly, carelessness)
What does an equitable premium mean?
To operate a pooling of risks system, each customer in the pool must be a fair premium. Insurers look at different elements of the risk brought to the pool by each customer in order to calculate this (known as discrimination factors)
Benefits of insurance?
- Releases capital within companies
- Companies can grow as insurance provides security
- Employees are kept in work
- Nation benefits from invisible exports
What is a premium reserve and a claim reserve?
Premium reserve - time delay between when premium is recieved and occurence of claims
Claim reserve - time delay before claim is made and then paid out
What is co-insurance? (2 meanings)
Risk sharing between insurers - insurers agree rating/terms and issue a collective policy. The leading office is the first named insurer and is responsible for issuing documentation and carries the largest share of the risk. The insured has a direct contractual relationship with each insurer.
Risk sharing with the insured - refers to the amount of risk the insured keeps. A small fixed sum is kept by the insured known as the XS, a large sum is known as a deductible.
What is dual insurance?
When there are 2 or more policies covering the same risk (i.e. household and phone insurance overlap)
What is self insurance?
When an individual or company has decided not to use insurance and carry the risk themselves through means of funding. The amount set aside is known as the insurred’s retention.
Property insurance - fire, special perils and all risks policies
Covers material property such as buildings, contents and stock.
Property insurance - theft
Covers loss/damage to property caused by theft.
Property insurance - engineering/breakdown
Covers explosion, breakdown or AD to plant (boilers, engine plant, lifting machinery, computers)
Property insurance - glass
Covers a range of glass
Property insurance - livestock
Covers livestock (horses, cattle etc) against death through AD, disease or theft
Property insurance - money
Covers loss or damage of money (money is a wide term and can include fixed payments if staff suffer injury or damage to their clothing when a robbery takes place)
Pecuniary insurance - fidelity gurantee
Covers risk of loosing money or stock by fraud or dishonesty of a person holding a posistion of trust
Pecuniary insurance - legal expenses
Insurance to enable individuals, families and businesses to meet the cost of legal advice and pursuing/defending civil actions
Pecuniary insurance - credit
Insurance which covers businesses against the risk on non-payment
Pecuniary insurance - business interuption
Insurance against losses due to interuption
Pecuniary insurance - political risk
Insurance taken out by businesses against the risk of revolution or political conditions which result in a loss
Pecuniary insurance - guranteed asset protection
Insurance designed to cover the gap between the amount paid out by a motor insurance policy and the amount still to be repaid on the finance that was taken out to buy the vehicle.
Liability insurance - employers liability
Insurance designed to compensate employers in relation to their legal liability to employees (injury at work, death etc) - this is compulsory by law.
Liability insurance - public liability
Insurance designed to compensate the insured in relation to claims from TP’s (public or companies) for AD/injury to their property due to the insured’s negligence.
Liability insurance - product liability
Covers legal liability for TP bodily injury or property damage caused by products, goods or services sold/supplied.
Liability insurance - directors and officers liability
Covers personal liability of directors and officers for finanical loss resulting from their negligence to furfil legal responsibilities.
Liability insurance - professional indemnity
Covers a person against claims alleging that injury or loss has resulted from their negligent actions/advice. Compulsory for certain professions like solicitors.
What are the 3 main areas marine insurance covers?
- phsyical damage to ship/goods (cargo)
- liabilities to other parties
- Loss of income
What are the 2 main areas aviation insurance covers?
- loss/damage to aircraft (hull)
- legal liability to TP’s and passengers
(Aviation cargo is covered under a marine policy)
Combined policies - household
Covers buildings/contents against a range of perils - also includes public liability.
Combined policies - travel
Covers injury, death, medical expenses, loss of luggage and cancellation charges
Combined policies - commercial package
Designed to provide a range of covers for particular trade sectors (hoteliers, hairdressers, shopkeepers).
Combined policies - commercial combined
These policies pre-date the commercialpackage policies and were originally introduced to cater for small business risks.
Health insurance - personal accident
Provides payment in the event of accidental death or injury
Health insurance - sickness
Provides payments for inability to work due to sickness
Health insurance - private medical insurance
Provides cover for individuals using medical treatment outside the NHS when they are ill
Health insurance - payment protection indemnity
Provides fixed benefits for those who suffer an accident, are ill or loose their jobs in order for them to still pay the bills (i.e. mortgage)
Health insurance - critical illness
Provides payment in the event of diagnosis or a range of serious illnesses
