Unit 1 Flashcards
What is risk? What is an example of it?
Risk is the chance or uncertainty of loss. For example, the possibility that your house might be burglarized, although you might be hit by a car while crossing the street. It is the uncertainty of loss. You might have a loss or you might not.
what is an exposure?
a condition or situation that presents a possibility of loss. ex. a home that is built on a flood plain is EXPOSED to the possibility of flood damage
what is risk reduction? and what is it aka?
aka control… risk reduction helps with lowering the risk
What is one way to manage risk?
Transfer it… done through insurance. paying a premium to transfer risk onto a company
Insurance companies rely on what to develop any statistic?
law of large numbers. more people you screen the more data you have.
insurance companies can’t be used to handle speculative risks which are what?
risks that you could possibly gain on or lose. for ex a poker game
insurance companies can only be used to manage what type of risk? Describe it?
pure risks… involve only the possibility of a loss. ex. a person can buy insurance to protect against loss (theft)_ of a fur coat but not against if the value of the coat goes down.
if an answer to a questions is reduce or control and two answers are there with those two words, what do you do?
reduce trumps control
what is an insurable interest?
means that untils omeone has money into something like for ex a home, it isn’t an insurable interest. only becoems insurable interest when money is put in it
Risk or loss must be what?
sudden an unexpected… must be definite as well. meaning as to have a time and place
risk must be large enough to create what?
financial hardship for the individual involved…. aka large enough to bother with insurance
Loss must also aside from large enough be what?
calculable… must be able to put a price on it
Insurance should be what in order for the applicant (custoemr to get)
affordable. If it is too high to be insured you cant have insurance on it aand if you can afford it it must require premium that is a fraction of what it costs to insure it.
why must there be a large number of people who are st risk to suffer fromt he same potential loss?
bc there needs to be enough premium payed to cover people’s losses from the money pool
what is spread of risk?
insuring a few people from a lot of areas instewad of all the people in one place that way when a loss like a hail storm occurs it doesn’t cripple the company ebcause thent hey would have to pay out to everyone.
