Study 1: The Insurance Industry In Canada Flashcards
What mathematical premise does the insurance system rely on?
A) The law of large numbers
B) Actuarial statistical computation
C) Mathematical estimation
D) Foundations of metamathematical concepts
A) The law of large numbers.
The insurance system relies on the law of large numbers, a mathematical premise that states that the degree of certainty in probabilities increases as the number of events increases.
The process by which policyholders use private knowledge of their own high level of risk when deciding whether or not to buy insurance is known as what?
A) Natural selection
B) Adverse selection
C) Personal selection
D) Directional selection
A) Adverse selection.
Adverse selection may result when an insurance company charges too high a premium for a risk or when a broker places its poorer risks with one insurer and its better risks with another.
Which of the following is NOT one of the four basic functions of insurance?
A) Financing
B) Stabilization
C) Spreading the risk
D) Resource protection against catastrophes
C) Spreading the risk
The four basic functions of reinsurance are financing, stabilization, capacity, and resource protection against catastrophes.
Why is insurance a challenging concept to explain?
A) Insurance protection is a theory that has never been tested
B) Insurance protection is a moral idea
C) Insurance protection is a cooperative endeavour
D) Insurance protection is intangible.
D) Insurance protection is intangible.
To some degree, insurance can be a challenging concept to explain because insurance protection is intangible as it is a promise to indemnify another person against the possibility of a loss, or liability for a loss, that has been transferred to the insurer.
What type of force is insurance in society?
A) A constructive force
B) A destructive force
C) Force of nature
D) Unbelievable force
A) A constructive force
Insurance is a constructive force in society and the economy, providing security, confidence, savings, investment stimulus, and, for consumers, reductions in the price of goods.
What would happen to the economy if insurance was not a part of it?
A) The divide between rich and poor would be greater
B) The economy would be in a riskier position
C) The economy would be flat
D) The economy would be in recession
B) The economy would be in a riskier position
Without insurance the economy would be in a far riskier position. While it cannot eliminate the risk of bad business decisions, it can provide protection for businesses, consumers, and employees.
What does the insurance industry need to do to improve its public image?
A) Better discounts for products it sells
B) Better marketing companies
C) Positive public relations activities
D) More transparency for the consumer
C) Positive public relations activities.
The industry needs some positive public relations activities to improve its image. This can happen by improving its relationships with consumers through education and improving awareness among consumers.
Why is the language of insurance so complex?
A) Because it aims to confuse the consumer on purpose
B) Because it is based on legal precedent
C) Because it is so difficult to explain
D) Because it draws from many other disciplines such as economics, law, medicine, engineering, and analytics.
D) Because it draws from many other disciplines such as economics, law, medicine, engineering, and analytics.
While the industry has moved to plain-language policies for consumer benefit, the reason why it is so complex is because the language of insurance draws from many other disciplines such as economics, law, medicine, engineering, and analytics.
A federally regulated company may outsource the management of its investment portfolios to another country if it receives approval from whom?
A) FSRA
B) Head office
C) OSFI
D) IBC
C) OSFI
A federally regulated company may outsource the task to another country if it receives approval from the Office of the Superintendent of Financial Institutions (OSFI).
Which of the following is an effect of insurance?
A) A better relationship with international governments
B) Actuarial statistical computations that are more accurate
C) Better public relations for the industry
D) Banks that are willing to issue mortgages on buildings that are insured
D) Banks that are willing to issue mortgages on building that are insured
Insurance is a constructive force in society and the economy, providing security, confidence, savings, investment stimulus, and, for consumers, reductions in the price of goods. Banks issuing mortgages on insured buildings is an outcome of this.
Narrative: Outline 5 examples of the effects of insurance on society and the economy (5 marks)
Any five of the following:
1) Banks are willing to issue mortgages on buildings that are insured
2) Developers are willing to advance funds to building contractors on projects guaranteed by surety bonds
3) Retailers are more willing to accept the commercial risk of operating a business when able to purchase liability insurance
4) Lawyers, architects, engineers, and other professionals are more willing to provide their services when able to insure against the risk of liability for malpractice
5) Manufacturers are more willing to accept the risks associated with shipping goods when the goods are insured against transportation risks.
6) Members of society are more willing to sanction the use of automobiles as long as motorists carry third-party insurance
Narrative: Explain the economic impacts of insurance (5 marks)
Any five of the following:
1) Facilitates economic growth
2) Aids societal development
3) Allows for financial security
4) Gives peace of mind that people need to fully participate in today’s world
5) Provides employment to thousands of Canadians
6) Provides salaries, benefits, and the costs of goods and services to operate a business
Narrative: Explain the goal of reinsurance and its 4 basic functions (5 marks)
Reinsurance gives the insurers peace of mind; it allows insurers to feel confident that a major unplanned event or negative trend will not cause them, their policyholders, and their shareholders any undue financial concern.
Functions:
1) Financing
2) Stabilization
3) Capacity
4) Resource protection against catastrophes
