Property and Causalty

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  1. Are all pure risk insurable?
  2. How many elements of insurable risk are there?
  3. What are the elements of insurable risk?
    • 1) the loss must be due to chance
    • 2) the loss must be definiate and me measurable
    • 3) the loss must be predictable
    • 4) the loss can not be castastrophic
    • 5) the loss exposure to be insured must be large
    • 6) the insurance must not be manitory
  4. Speculative Risk
    Involves the opportunity for either loss or gain
  5. What is the only type of Risk insurance companies will accept?
    Pure Risk
  6. What is the most common way to transfer risk from the individual?
  7. What are 2 other ways to transfer risk?
    • 1) Harmless agreements
    • 2) Contractual agreements
  8. Reduction includes...
    • 1) installing smoke dectors
    • 2) having annual physicals
    • 3) perhaps changing lifestyles
  9. Risk Transfer
    The most effective way to handle risk so that the loss is handled by another party
  10. Retention
    the planned assumption of risk by an insured through the use of deductibles, co-payments, or self insurance
  11. What are the 3 purposes of retention?
    • 1) to reduce expenses and improve cash flow
    • 2) to increase control of claim reserving and claims settlements
    • 3) to fund for losses that cannot be insured
  12. What would happen if there were no Insurance mecanism?
    If there was no insurance mechanism, the cost of loss would have to be borne soley by the individual who suffered the loss.
  13. Causuality Insurance insures against?
    The loss and/or damage of property and resulting liabilites
  14. Health Insurance insures against?
    The medical expenses and/or loss of income caused by the insured's sickness or accidently injury
  15. Life insurance insures against?
    The financial loss caused by the premature death of the insured
  16. What is an example of a morale hazard?
    "I'm not going to bother fixing this, if it breaks my insurance will pay to replace it.
  17. 1) How many groups are hazards classified in?

    2) What are these groups

    • 1) Physical
    • 2) Moral
    • 3) Morale
  18. What type of risk are not insurable?
    Speculative risk
  19. 1) How many factors are considered in determining rates for life insurance

    2) What are these factors

    • 1) the age of the insured
    • 2) medical history
    • 3) occupation
    • 4) sex
  20. Example of Avoidance
    If someone wanted to avoid dying in a plane crash they might choose to never fly
  21. What are some conditions that are hazards and may increase the chance of a loss occuring?
    • 1. Slippery floors
    • 2. Conjested traffic
  22. What is an example of Speculative Risk?
  23. What is the Basis of insurance?
    Sharing risk amoung the members of a large homogeneous group with simialr exposure to loss.
  24. Characteristics of "true loss must be predictable"
    1. risk occurance can be staticticly predicted

    2. this enables insurers to estimate the frequency and severaty of future losses and set rates
  25. Characteristic of "The loss must be definate and measurable"
    1. loss must be difinate as to cause, time, place, and amount

    2. insurer must be able to determine how much the benifit will be and when it becomes payable
  26. Characterisics of " The loss much be due to chance?
    1. risk must involve chance of loss outside the insured's control
  27. Characteristics of "the loss can not be catastriphic"
    1. there must be limits that insurers know their loss will not exceed

    2. policies generally exclude loss due to war or nuclear events because there is no data that allows for the development of rates needed to cover these events
  28. Characteristics of "the loss exposure to be insured must be large"
    1. there must be a large pool to be insured and those in the pool must be broken into smaller groups within similar risks so the insurer is able to predict losses bassed on the law of large numbers
  29. Characteristics of "the insurance must not be manditory"
    1. An insurer must not be required to insure every applicant

    2. insurer must have the ability to require cerain underwriting guidelines to be met.
  30. What are the 2 types of risk?
    Pure and speculative
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Property and Causalty
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