Risk Management Chapter 2 (Exam 1)

The flashcards below were created by user straightupdeme on FreezingBlue Flashcards.

  1. Insurance
    the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk
  2. Pooling
    the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss
  3. Law of Large Numbers
    the greater number of exposures, the more closely will the actual results approach the probable results that are expected from an infinite number of exposures
  4. Risk Transfer
    a pure risk is transferred fmor the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured
  5. Indemnification
    the insured is restored to his or her approximate financial position prior to the occurence of the loss
  6. Fortuitous Loss
    a loss that is unforeseen and unexpected by the insured and occurs as a result of chance
  7. Insurable Risk
    • -there must be a large number of exposure units
    • -the loss must be accidental and unintentional
    • -the loss must be determinable and measurable
    • -the loss should not be catastrophic
    • -the chance of loss must be calculable
    • -the premium must be economically feasible
  8. Adverse Selection
    the tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which if not controllerd by underwriting, results in higher-than-expected loss levels
  9. Underwriting
    the process of selecting and classifying applicants for insurance
  10. Life Insurance
    pays death benifits to designated beneficiaries when the insured dies
  11. Property Insurance
    indemnifies property owners against the loss or damage of real or personal property caused by various perils, such as fire, lightning, windstorm, or tornado
  12. Liability Insurance
    covers the insured's legal liability arising out of property damage or bodily injury to others; legal defense costs are also paid
  13. Casualty Insurance
    a broad field of insurance that covers whatever is not covered by fire, marine, and life insurance; casualty lines include auto, liability, burglary and theft, workers compensation, and health insriance
  14. Personal Lines
    coverages that insure the real estate and personal property of individuals and families or provide them with protecting against legal liability
  15. Commercial Lines
    to property and casualty coverages for business firms, nonprofits organizations, and government agencies
  16. Inland Marine Insurance
    covers goods being shipped on land, which include imports, exports, domestic shipments, and instrumentalities of transportation (bridges, tunnels, and pipelines)
  17. Ocean Marine Insurance
    covers ocean-going vessels and their cargo form loss or damage because of perils of the sea; contracts are also written to cover the legal liability of shippers and owners
  18. Fidelity Bonds
    covers loss caused by the dishonest or fradulent acts of employees, such as embezzlement and the theft of money
  19. Surety Bonds
    provide for monetary compensation in the case of failure by bonded persons to perform certain acts, such as failure of a contractor to construt a building on time
  20. Social Insurance
    government insurance programs with certain characterisitics that distinguish them from other government insurance plans
  21. Expense Loading
    the amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit
Card Set:
Risk Management Chapter 2 (Exam 1)
2012-09-26 11:31:35
RIsk Management Chapter

RIsk Management Chapter 2
Show Answers: