Week 1 Flashcards
Name the two parties in insurance?
The insured and the insurer
Insurance can be characterised by 3 points which are?
- Transfers risk from one person to group
- Shares losses from one person to group (insurance pooling)
- Provides financial compensation.
An insurance policy is what?
A limit and a deductible (limit to a claim and deductible being what you have to pay before insurance pays)
What is asymmetric information?
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.
What is a material fact?
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.
You will profit from insurance, is this correct and why?
Not this is wrong, insurance will return you to your pre-financial situation rather than allowing you to profit.
What is meant by indemnity in insurance?
Where the loss is covered by insurance but not profited upon.
What 2 ideas/ phrases supports indemnity?
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.
What is the common pool?
Its the idea that people pay towards insurance and those who need it can take from it.
Explain what adverse selection is?
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.
What can cause problems with common pools?
Adverse selection.
An insurance contract has what two features (thing basic)
A limit and a deductible
In insurance, what is meant by a deductible?
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)
What is insurable interest and give me an example of it?
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.
Explain how insurable interest stops others from profiting from the misfortune of others?
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.
Why might healthcare not be an indemnity contract?
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.
Explain how subrogation works if you had a crash and you were not at fault?
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.
What is Insurance Not? (3)
It is not a guarantee against loss, its not avaliable for all losses and is not for financial profiting/ a financial benefiting tool
Small essay Q, insurance absolute basics?
What insurance is (transfer loss, share loss one to group and financial compensation) and is not (available for all, available for all losses and to be profited on)
What is an insurance contract in basic?
A limit (max amount your insured for) and deductible (amount you must pay before your insurance kicks in) and financial contract (you pay a premium to the insurance company which basically gets you into the common pool)
What might you be able to talk about in information disclosure?
asymmetrical information, when one party holds more information than the other and its the other party who finds the information more valuable.
Material fact, if left out, vital information which could jurasticaly change outcomes with insurance if that’s as basic as car insruance quotes to building sites material facts being missed out such as wrong material or whatever.
What is insurable interest and what are 3 reasons it is important?
Insurable interest is the idea that you the insurer only take out insurance on items such as cars, houses or belongings which mean something to you, this could also be as people.
- Stops you from insuring everything
- gives incentive to stop incident
- stops you profiting from others misfortune
What could you talk about in indemnity?
Indemnity supports the idea of not profiting from insurance, two idea such as subrogation and contribution support this
The idea of insurance looking at what primarily caused an incident is referred to as what?
A proximate cause
What might you talk about in proximate cause? (7)
Proximate cause is looking at the primary reason for the incident which caused the claim to be made
There is:
a named, insured peril
a named, excluded peril
unnamed peril
These influence when a claim may or may not be accepted
Also these impact the claims processes
Efficient proximate cause have simple primary causes. Concurrent causation usually have multiple possible primary causes which increases difficulty for insurers finding the proximate cause.
When might proximate cause become a problem?
There are efficient proximate causes (easy primary cause) and concurrent causation (many potential causes)
