W1 Flashcards
What is the mechanism through which insurers transfer risk?
Reinsurance
What is a Peril?
Cause of possible loss, e.g. death, liability, disability
What is Risk?
Financial cost of the peril.
What is risk management?
The minimization (at a minimum cost) of the detrimental effects of risk by identifying, measuring and controlling the risk
What are the 4 main ways of managing risk?
Avoidance, Reduction, Transfer and Retention.
What does avoidance refer to?
Taking actions to avoid potential risk (not engaging in dangerous sports)
What does reduction refer to?
Taking actions to reduce the probability of a risk (peril?) occurring. (wearing helmet while biking)
What does transfer (AKA Sharing) refer to?
Taking actions to transfer the risk with another party (insurance)
What does retention refer to?
Simply accepting the risk, not buying insurance
What is the premium formula?
Premium = Mortality Cost + Operating Expenses – Investment Return
What does morbidity refers to?
Incidence of disease or injury (Incidence of morbidity > incidence of mortality)
What are some factor of morbidity?
Family & individual health history, Person’s character & financial circumstances
What are material facts?
Facts that have a definite influence on the decision of the parties to enter a contract, (May impact validity of the contract, All parties are obliged to disclose pertinent information)
What is misrepresentation?
Presenting information as fact that may not actually be a true fact (forgetting a doctor’s note for massage and stating that one was not received). Can render a contract voidable.
What is fraudulent misrepresentation?
Untrue fact purposely submitted on application causing carrier to accept the risk (dishonesty regarding smoking status)
