Training Solitions

Question 1

Definition of “Insurance”

Answer 1

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.

Question 2

What is “Risk”?

Answer 2

The uncertainty of a loss occurring.

Question 3

What is “Pure Risk”?

Answer 3

Risk that only involves the possibility of loss.

Question 4

What is “Speculative Risk”?

Answer 4

Risk that involves the possibility of loss or gain.
(Like investing or gambling).

Question 5

What is “Peril”?

Answer 5

The cause of a loss.

Question 6

Mention some “Peril” examples

Answer 6

-Fire or Lightning
-Explosion
-Windstorm or Hail
-Smoke
-Aircraft or Vehicles
-Riot or Civil Commotion
-Vandalism
-Sprinkler leakage
-Sinkhole Collapse
-Volcanic Action

Question 7

What is “Hazard”?

Answer 7

Anything that increases the chance of a loss

Question 8

Mention the four types of “Hazard”:

Answer 8

-Moral Hazard
-Morale Hazard
-Physical Hazard
-Legal Hazard

Question 9

What is a Moral Hazard?

Answer 9

Increase in chance of loss occurring because of the insured’s dishonesty (example: lying, cheating, stealing, arson, etc.)

Question 10

What is Morale Hazard?

Answer 10

Increase in chance of loss resulting from the insured worrying an triture of indifference about loss because of having insurance

Question 11

What would be a Morale Hazard example?

Answer 11

-Leaving car door unlocked
-Leaving keys in the car
-Leaving house windows open
-Leaving doors unlocked when you leave house

Question 12

What is “Physical Hazard”?

Answer 12

Increase a chance of loss due go a physical condition surrounding a person or property

Question 13

Mention some examples of physical hazard:

Answer 13

-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

Question 14

What is Legal Hazard?

Answer 14

Increases in chance of loss due characteristic of the legal environment or regulatory system

Question 15

Example of Legal Hazard:

Answer 15

Insurers being legally required to cover risk they would otherwise not cover, such as including coverage for alcoholism in health insurance

Question 16

What is Law of Large Numbers?

Answer 16

Statistics theorem that says the mire times an event is repeated, the more predictable the outcome becomes

Question 17

What are the four types of Loss Explosure?

Answer 17

-Property Loss Explosure
-Liability Loss Explosure
-Personal Loss Explosure
-Personnel Loss Explosure

Question 18

What is called “Transferring”?

Answer 18

When an individual or business manages risk from a loss exposure by purchasing insurance

Question 19

Characteristics of ideally insurance risk?

Answer 19

-Large group
-Cannot be catastrophic
-Hardship
-Uncertain
-Measurable
-Predictable

Question 20

What is principle I’d indemnity?

Answer 20

Basic principle of insurance that says the goal of insurance is ti restore one back to his previous condition that existed before the loss

Question 21

What does Utmost Good Faith doctrine days?

Answer 21

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

Question 22

What an Underwriters do?

Answer 22

-Analyze & evaluate risk
-Accept or reject risk
-Protects insurer against adverse selection

Question 23

What is Spread of risk?

Answer 23

Principle where insurers accept an appropriate mix of preferred, standar and substandard risk in an attempt to remain profitable.

Question 24

What is “deductible”?

Answer 24

A fixed dollar or percentage amount which the insured will be responsible for in a loss covered by an insurance policy.

Question 25

What are the benefits of deductibles?

Answer 25

-Helps eliminate small claims
-Reduce moral and morale hazards
-Premium affordability

Question 26

What is reinsurance?

Answer 26

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.