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LM1 > Terminology (Chapt 1) > Flashcards

Terminology (Chapt 1) Flashcards

1
Q

What is the definition of risk?

A

Unfortunate happening
Unpredictability
Risk being insured, subject matter or thing insured

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2
Q

What are the 2 attitudes to risk?

A

Risk seeking

Risk adverse

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3
Q

What is the definition of risk management?

A

The identification, analysis and economic control of those risks which can threaten the assets or earning capacity of an enterprise

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4
Q

What are the 3 benefits of risk management?

A

Reduces potential for loss
Increases shareholder confidence
Disciplined approach to quantifying risk

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5
Q

The 3 stages of risk management

A

Identification - continuous and developing process of identifying risks. Insurer may give a report.

Analysis- risk manager can examine past data to evaluate risk

Control - control, reduce or eliminate risk

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6
Q

2 main ways of controlling risk

A

Physical - fire alarms etc. Can be an imposing requirement

Financial - contract wording, e.g. Cash responsibility when carried on person

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7
Q

What are the associations for risk?

A

Building research establishment (BRE), fire protection association (FPA). The Loss prevention council forms part of both of these

New construction methods, guidelines, reports on new processes to keep insurers informed

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8
Q

Components of risk

A

Uncertainty
Frequency and severity
Peril and hazard

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9
Q

Financial risk

A

A risk that can be financially measured such as by loss of profit.
Insurable

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10
Q

Non-financial risks

A

Such as the loss of a family heirloom that has sentimental value
Not insurable

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11
Q

Pure risk

A

A risk that is purely loss such as a fire etc. Applies to commercial setting

Can be insured

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12
Q

Speculative risk

A

Could be loss or gain
Lottery, stocks
Cannot insure risks that could gain

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13
Q

Fundamental risk

A

A risk that is so vast it is not insurable
War and nuclear risks
Insurers do not have capacity
Can appear in other London Market insurance such as marine cargo covered for war

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14
Q

Particular risk

A

A risk which is localised
E.g. There may have been a storm in a region, but it only affected some people
This can be insured. This is personal and therefore different to pure risks

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15
Q

Name the 3 insurable risks

A

Financial
Pure
Particular

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16
Q

Description of pooling risk

A

Equitable premiums put into pool which is used to cover losses
Each risk entered must have a proportionate premium (risk element)
Different pool for each class

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17
Q

Road traffic act 1988

A

Third party property and bodily damage
Related to movement of good under treaty of Rome
EU directed changes such as tracing insurer from license plate

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18
Q

Employers liability

A

1969
Minimum 5 mil
Employers liability tracing office allows to trace policies. Insurers publish to ELTO 3 months after inception

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19
Q

6 secondary functions of insurance

A

No safety net for business
Expansion
Job protection
Lower losses due to risk management
Economy - insurers are investors
Invisible exports

20
Q

3 primary functions of insurance

A

Spreading risk between insurers
Degree of certainty for premium
Transference of risk
PRE-RATE CARD

21
Q

Law of large numbers

A

If there is a larger number then the probability is closer to the expected e.g.
Flipping a coin

22
Q

4 conditions that the 3 insurable risks need to meet

A

Fortuitous- unexpected
Insurable interest - legally recognised relationship between object and person e.g. Car
Public policy- cannot insure against criminal fines
Homogenous exposures - helps to have historic data so that potential for loss is more accurate and insurer can gage
capacity

23
Q

Dangerous wild animals
1976, dangerous dogs 1991

A

Local authority must deem adequate
Insurers offer as extension of another policy such as liability of household

24
Q

Professional indemnity
insurance

A

Solicitors act 1974
Professional negligence
If insurance intermediary is covered by the FCA it must have cover
Appointed representatives and introducers use insurers cover
Cover up to 1 mil

25
Q

Claims personnel

A

Identify non valid claims
Assess and calculate costs
Instruct experts
Provide claims data

26
Q

Definition of insurance being a risk transfer mechanism?

A

Moving the financial impact of a loss of insurers

27
Q

What is not a main purpose of risk management?

A

Reducing the operating costs of a business

28
Q

What is a type of loss is an example of high frequency/low severity?

A

Low speed car crash

29
Q

How would you best describe the sentimental value of a piece of jewellery?

A

A non financial risk

30
Q

Explain the difference between peril and hazard?

A

Peril causes the loss and the hard can possibly make it worse

31
Q

How does a speculative risk differ from a pure risk?

A

A pure risk is one where there is no possibility of a positive outcome

32
Q

Which key insurance term is used to define something which is neither expected nor intended?

A

Fortuitous event

33
Q

For what main reason do insurers pool risk?

A

To enable them to charge each client a fair premium

34
Q

What is not a primary reason for purchasing insurance?

A

Investment in the insurance industry

35
Q

Which insurance is compulsory for individuals in the UK?

A

Third party motor

36
Q

Give an example of a low frequency high severity risk

A

Earthquake not many claims but claims are large

37
Q

The timing delay between claims occurring and eventually being settled/paid creates the what?

A

Claims reserve

38
Q

What is insurance essentially?

A

A risk transfer mechanism

39
Q

Identify six benefits of insurance to the economy as a whole

A

Releases capital
Encourages businesses to expand
Keeps employees in work
Reduces losses
Insurance companies are major investors
Invisible exports

40
Q

What are the different types of risks?

A

Financial
Non-financial
Pure
Speculative
Particular
Fundamental

41
Q

What are the main 4 things insurers will examine when deciding whether a risk is insurable?

A

Fortuitous event
Insurable interest
Public policy
Homogeneous exposure
Pure risk (not speculative)
Particular risk (some fundamental risks are insurable)

42
Q

What is a financial control method?

A

Transferring risk by taking out insurance or by contract.

43
Q

What is risk pooling?

A

Risk pooling is an insurance risk management practice which groups larger numbers of people together to minimize the cost impact of the highest-risk individuals.

44
Q

If someone takes out insurance on everything they can, they are known as?

A

Risk averse

45
Q

What is a particular risk?

A

A risk that is localized or even personal in their cause and effect E.G. Factory fire, car crash Etc..

LM1 (7 decks)

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