Training Solitions Flashcards
Definition of “Insurance”
Insurance is a contract whereby an insurer indemnifies (protects) an insured against loss, damage, or liability arising from contingent (may or may not happen) or unknown event.
What is “Risk”?
The uncertainty of a loss occurring.
What is “Pure Risk”?
Risk that only involves the possibility of loss.
What is “Speculative Risk”?
Risk that involves the possibility of loss or gain.
(Like investing or gambling).
What is “Peril”?
The cause of a loss.
Mention some “Peril” examples
-Fire or Lightning
-Explosion
-Windstorm or Hail
-Smoke
-Aircraft or Vehicles
-Riot or Civil Commotion
-Vandalism
-Sprinkler leakage
-Sinkhole Collapse
-Volcanic Action
What is “Hazard”?
Anything that increases the chance of a loss
Mention the four types of “Hazard”:
-Moral Hazard
-Morale Hazard
-Physical Hazard
-Legal Hazard
What is a Moral Hazard?
Increase in chance of loss occurring because of the insured’s dishonesty (example: lying, cheating, stealing, arson, etc.)
What is Morale Hazard?
Increase in chance of loss resulting from the insured worrying an triture of indifference about loss because of having insurance
What would be a Morale Hazard example?
-Leaving car door unlocked
-Leaving keys in the car
-Leaving house windows open
-Leaving doors unlocked when you leave house
What is “Physical Hazard”?
Increase a chance of loss due go a physical condition surrounding a person or property
Mention some examples of physical hazard:
-Property: heavy weight of snow on roof increases chance of roof collapse
-Person: smoking and being overweight increases chances of heart attack, stroke, diabetes, etc
-Car: driving tired or drunk increases chances of a car accident
What is Legal Hazard?
Increases in chance of loss due characteristic of the legal environment or regulatory system
Example of Legal Hazard:
Insurers being legally required to cover risk they would otherwise not cover, such as including coverage for alcoholism in health insurance
What is Law of Large Numbers?
Statistics theorem that says the mire times an event is repeated, the more predictable the outcome becomes
What are the four types of Loss Explosure?
-Property Loss Explosure
-Liability Loss Explosure
-Personal Loss Explosure
-Personnel Loss Explosure
What is called “Transferring”?
When an individual or business manages risk from a loss exposure by purchasing insurance
Characteristics of ideally insurance risk?
-Large group
-Cannot be catastrophic
-Hardship
-Uncertain
-Measurable
-Predictable
What is principle I’d indemnity?
Basic principle of insurance that says the goal of insurance is ti restore one back to his previous condition that existed before the loss
What does Utmost Good Faith doctrine days?
That each party is legally entitled ti rely upon the representation and declaration of the other and that each party has a duty ti reveal all material information relating ti the contract in question
What an Underwriters do?
-Analyze & evaluate risk
-Accept or reject risk
-Protects insurer against adverse selection
What is Spread of risk?
Principle where insurers accept an appropriate mix of preferred, standar and substandard risk in an attempt to remain profitable.
What is “deductible”?
A fixed dollar or percentage amount which the insured will be responsible for in a loss covered by an insurance policy.
What are the benefits of deductibles?
-Helps eliminate small claims
-Reduce moral and morale hazards
-Premium affordability
What is reinsurance?
A mechanism for spreading risk between two or more insurers in which one insurer (reinsurer) agrees to pay for losses that exceed the other insurer’s ( ceding company) established retention limit.
