The nature of insurance Flashcards
What is Adverse Selection?
Adverse Selection is the tendency of people with higher risks to seek or continue insurance more than those with lower risks. It occurs when the percentage of poor risks among those covered exceeds the ratio predicted by actuaries.
What is a Hazard?
A Hazard is any factor, condition, or situation that increases the possibility that a peril will occur.
What are Homogeneous Exposure Units?
Homogeneous Exposure Units are similar objects of insurance exposed to the same group of perils, such as a person, business, or piece of property.
What does Indemnify mean?
Indemnify is the act of restoring insureds to the financial condition that existed prior to a loss.
What is Indemnity?
Indemnity is the amount needed to restore an individual to their financial condition before suffering a loss.
What is an Indemnity Contract?
An Indemnity Contract is a contract that attempts to return the insured to her original financial position.
What is the Law of Large Numbers?
The Law of Large Numbers is a principle stating that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss in a given period.
How does the insurance industry define Loss?
Loss is defined as the unintentional decrease in the monetary value of an asset due to a peril.
What is Loss Exposure?
Loss Exposure is the risk of a possible loss.
What is a Loss Exposure Unit?
A Loss Exposure Unit refers to each individual, organization, or asset exposed to potential financial loss due to a defined peril.
What is Moral Hazard?
Moral Hazard exists due to the effect of an insured’s personal reputation, character, associates, living habits, or degree of financial responsibility.
What is Morale Hazard?
Morale Hazard arises from an insured’s indifference to loss because of the existence of insurance, often associated with a careless attitude.
What is a Peril?
A Peril is the immediate, specific event that causes loss and gives rise to risk.
What is a Physical Hazard?
A Physical Hazard is a tangible condition that makes a loss more likely to occur.
What does Primary Insurance Company mean?
Primary Insurance Company refers to the first policy to pay when more than one policy covers the same claim or the insurer that writes a policy to cover a risk in the marketplace.
