Risk and Insurance

Question 1

How is the term risk used in the insurance business?

Answer 1

A peril insured against
A person or property protected by insurance

Question 2

What are the common elements in all definitions of risk?

Answer 2

Indeterminacy
Loss

Question 3

How do actuaries define risk?

Answer 3

A condition of the real world in which there is a possibility of an adverse deviation from an expected or desired outcome.

Question 4

What does uncertainty refer to?

Answer 4

A state of mind characterized by doubt, based on a lack of knowledge about what will or will not happen in the future

Question 5

What is subjective risk?

Answer 5

A person’s perception of risk

Question 6

What is a peril?

Answer 6

Something which causes a loss to occure

Question 7

What is a hazard?

Answer 7

A condition that may create or increase the chance of a loss arising from a given peril

Question 8

What are the categories of hazards?

Answer 8

Physical Hazards
Consist of those physical properties that increase the chance of loss from the various perils

Moral Hazards
Increases losses in insurace, because of a change in attitude toward losses that will be paid by insurance

Question 9

What are the classes of risk?

Answer 9

1. Financial and Non-financial risk
   Some risks involve financial loss
2. Fundamental risks = involves losses that are impersonal in origin and consequence.
   Group risks caused by economic, social and political phenomena and can also result from physical occurences
3. Particular risks = involves losses that arise out of individual events and are felt by individuals rather than by an entire group
4. Pure risk = used to designate those situations that involve only the chance of loss or no loss (Only pure risks insurable)
5. Speculative risk = A situation where there is a possibility of loss, but also a possibility of gain