Study 1 - Introduction to Risk and Insurance - Perils & Hazards

Question 1

Insurer

Answer 1

The insurance company that undertakes to indemnify for losses and perform other insurance-related operations

Question 2

Peril

Answer 2

The event that caused a loss covered by the policy; for example, fire or windstorm.

Insurance is provided against loss arising from the occurrence of an insured peril

Question 3

Examples of a Peril

Answer 3

1. A house sustains heavy damage from a cooking fire that starts in the kitchen and spreads to the rest of the house. The peril is fire.
2. A car window is smashed by an angry mob rampaging through the neighborhood. The peril is riot.
3. A visitor slips on ice that the property owner neglected to clear and breaks her leg. The peril is the negligence of the property owner for failing to clear the ice.

Question 4

What perils are defineed in Burglary and Fidelity Insurance (Crime Insurance)?

Answer 4

Burglary, robbery, theft, holdup, dishonesty, embezzlement, and forgery

Question 5

What perils are covered by EBI (Equipment Breakdown Insurance or Boiler and Machinery)?

Answer 5

Breakdown and explosion

Question 6

Hazard

Answer 6

1. A risk or probability that the event insured against might occur
2. A condition that engenders or increases the chances of a loss

Question 7

Physical Hazard

Answer 7

A hazard arising from the physical condition or characteristics of the object that is insured.

It relates to a condition of or pertains to the property and may lead to the occurrence of a peril.

E.g. the construction of property, manufacturing processes, age of a vehicle, or location in relation to water supplies for firefighting

Question 8

Examples of Physical Hazard

Answer 8

Slippery floors, loose tiles, debris piled in basement or stairwells, poorly maintained heating and air conditioning units, bare electrical wires, etc.

Question 9

What are the 2 types of Moral Hazard

Answer 9

A hazard arising from the character, interest, habits, and lack of integrity of the insured or person concerned

1. Moral Hazard - characteristics of the insured (or applicant) that increase the probability or severity of loss.
2. Morale Hazard - a poor attitude on the part of the insured

Question 10

Examples of Moral Hazards

Answer 10

Marc is driving on a busy highway and accidently swerves into a car in the next lane. The collision damages the rear panel of his vehicle on the passenger side and causes minimal damage to the other vehicle on the rear driver’s side. Neither driver is injured.

When Marc reports the claim to his insurer, he states that the other vehicle made an illegal lane change and hit him. He claims that this vehicle sustained major damage, affecting the entire passenger side of the car, and that he has significant whiplash. To support the claim, Marc adds additional damage to his car and obtains fraudulent assistance from a medical clinic to support his injury claim. LYING

Question 11

Underwriters

Answer 11

1. The insurance company or group that underwrites or insures a particular risk
2. The individual within an insurance company whose responsibility it is to accept or reject business in the particular line in which she specializes and, in this way, choose the risks her principals are prepared to underwrite

Question 12

Morale Hazard

Answer 12

A hazard that is based on the insured’s attitude toward the insured belongings. This hazard exists when the insured no longer cares about the possessions because they are insured

E.g. insufficient upkeep of premises, or indifferent outlook