Week 1

Question 1

Name the two parties in insurance?

Answer 1

The insured and the insurer

Question 1

Insurance can be characterised by 3 points which are?

Answer 1

1. Transfers risk from one person to group,
2. Minimises losses occurred by sharing with group
3. Provides financial compensation.

Question 2

An insurance policy is what?

Answer 2

A limit and a deductible (limit to a claim and deductible being what you have to pay before insurance pays)

Question 3

What is asymmetric information?

Answer 3

When one party knows more information, in this case the insured will know more than the insurer as it is their information they are passing on.

Question 4

What is a material fact?

Answer 4

Information which can affect whether or not an insurance group will give out a policy. For example, if you crashed your car twice in the past year, this is a material fact as the insurance group will see you may crash again and so may want to avoid you or increase your premiums.

Question 5

You will profit from insurance, is this correct and why?

Answer 5

Not this is wrong, insurance will return you to your pre-financial situation rather than allowing you to profit.

Question 6

What is meant by indemnity in insurance?

Answer 6

Where the loss is covered by insurance but not profited upon.

Question 7

What 2 ideas/ phrases supports indemnity?

Answer 7

Subrogation- Insurers can take back funds which it has given/ that you have claimed

Contribution- If you hold multiple insurance policies you cannot claim the full amount, instead the different insurance groups will chip in an equal amount to cover the cost of the loss.

Question 8

What is the common pool?

Answer 8

Its the idea that people pay towards insurance and those who need it can take from it.

Question 9

Explain what adverse selection is?

Answer 9

In basic, this is when a person from a certain situation is more or less likely to pick insurance due to something that they know. For example someone whom is fat is more likely to buy health insurance than someone whom is not.

Question 10

What can cause problems with common pools?

Answer 10

Adverse selection.

Question 11

An insurance contract has what two features (thing basic)

Answer 11

A limit and a deductible

Question 12

In insurance, what is meant by a deductible?

Answer 12

The amount of financial loss you must take/ money you must pay before insurance steps in (for example you said in car insurance you would pay the first £600, that is your deductible, above that insurance would pay)

Question 13

What is insurable interest and give me an example of it?

Answer 13

Insurable interest is when someone will take insurance out for something which may financially impact them which may not occur on their behalf but must be connected very close to them, such as a father taking health insurance out for his son.

Question 14

Explain how insurable interest stops others from profiting from the misfortune of others?

Answer 14

Since you can’t take insurance out on a neighbours house, you can’t claim. You must be married or family related to the person.

Question 15

Why might healthcare not be an indemnity contract?

Answer 15

Because the idea is not to put you to a pre-financial loss, its there to support your financial loss, since you pay the same amount from younger to older, your consistently higher payments means that you can have a higher claim. The same goes with personal accidents.

Question 16

Explain how subrogation works if you had a crash and you were not at fault?

Answer 16

You have a crash, your insurance gives you money to pay for the fix of your car, however its not your fault and so your insurance goes to their insurance to claim the money that they paid you to fix the car.