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49 Cards in this Set
- Front
- Back
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If suitable alternatives aren't available in the private market (market failure) then who may provide insurance?
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State or federal governments
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6 Characteristics of an ideally insurable loss exposure ************************************ |
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********Please Follow Directions Like I Am*********** 1. Pure risk (not speculative) 2. Fortuitious losses 3. Definite and measurable 4. Large number of similar exposure units 5. Independent and not catastrophic 6. Affordable ************************************ |
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Even though a loss exposure has the characteristics of an ideally insurable loss exposure, why might an insurer choose not to cover it?
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*Internal constraints - lack of expertise/resources in that line of business
*External constraints - State laws, high financial requirements, substantial paperwork required, slow regulatory approval |
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Why is pure risk an important part of an ideally insurable risk?
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Because the purpose of insurance is to indemnify...not to facilitate profit
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What affect would it have on premiums if insurers insured speculative risks?
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Premiums would offset any profits...removing the incentive for insured to purchase insurance.
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Fortuitous Loss
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A loss that is accidental and unexpected.
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From whose perspective must a loss be fortuitous? Give examples.
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*Victim's/insured's POV - vandalism and theft
*Everyone - windstorm, hail, etc. |
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Along what dimensions must a loss exposure be definite? Why?
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*Time
*Cause *Location *All policies have a policy period that specifies dates/times |
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If a loss can't be defined in time or measured...
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It would be hard for an insurer to write a policy that says what claims it will pay and how much it will pay for them.
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With the ideally insurable risk characteristic: Large number of similar exposure units...what are some common loss exposures that satisfy the requirement?
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*Homes
*Offices *Autos |
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What are the 3 criteria of the Law of Large Numbers?
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1. Events have occurred in the past under identical conditions, and resulted from unchanging, basic causal forces
2. Events should happen in the future under same conditions 3. The events are independent and sufficiently numerous |
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What 3 things can help insurers improve independence of loss exposures and minimize catastrophic exposure?
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1. Geographic diversification
2. Line of business diversification 3. Reinsurance |
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What is an economically feasible premium?
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One that the insured can afford to pay!
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What is the most important characteristic of an ideally insurable loss exposure? Why?
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Economically feasible premium...because if not, there will be no demand.
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What loss exposures are usually considered uninsurable?
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*Small losses
*High probability of loss |
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In what ways do Windstorm and Flood causes of loss to Commercial property NOT meet the 6 ideally insurable criteria?
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1. Large number of similar exposure units
2. Can be catastrophic 3. Premium might not be feasible |
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Why does the Windstorm COL not meet the criteria for large number of similar exposure units?
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Windstorm COL can be insured on many similar buildings, but some of these buildings face larger risks due to geographical concentration...making pooling of large, independent numbers difficult
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For small insurers in geographic locations that are exposed to windstorm activity, the windstorm COL can be _______.
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catastrophic
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How is adverse selection seen with windstorm insurance?
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Property owners in windstorm-prone areas are more likely to demand insurance than those not in these areas.
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As _________ improves, it may lead to economically infeasible premiums for some insureds.
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Catastrophe modeling
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Homeowners unable to obtain private insurance coverage for windstorm damage can obtain it through ____________.
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State-run windstorm pools
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Is flood damage insurable to property?
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No, for fixed loctions (houses)
Yes, for autos and other personal property |
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Why is flood loss to real property not typically insured by private insurers?
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Flood cause of loss is geographically concentrated, so loss exposures aren't independent, and can be catastrophic from insurer's perspective.
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How do the characteristics of flood losses affect flood loss premiums?
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Flood loss premiums are high and can be economically unfeasible to insure for some organizations.
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Who provides flood insurance?
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*Federal government
*National Flood Insurance Program (NFIP) |
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What type of liability loss exosures for an organization exhibit all 6 characteristics of an ideally insurable loss exposure?
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Premises and operations liability loss exposures
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Some organizations are more exposed to premises and operations liability loss exposures than others. Give an example, and tell why this isn't that big a deal.
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Retail stores
But...there is a large number of insured retail stores in the U.S. so a lot of similar exposures. |
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In what ways do products liability losses not meet 6 characteristics of ideally insurable loss?
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*losses not necessarily definite in cause (several possible causes, one of them being product failure) or easily measurable (how much is an injury worth?)
*If product widely distributed, could be catastrophic in terms of # of claims *Because of this, some products may not be economically feasible to insure. |
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__________________ are generally not insured through property-casualty insurers
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Personnel loss exposures
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Personnel loss exposures resulting from the death of a key person can be insured by ___________.
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Employer-owned life insurance policies.
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In what ways does the Death COL not meet the 6 ideally insurable characteristics?
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*Losses definite and measurable (difficult to measure actual loss to organization...what was the person's value)
*Losses are among a large number of similar exposure units (how to compare them?) |
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In what ways does the Retirement COL not meet the 6 ideally insurable characteristics?
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*Loss may not be fortuitous
*It may not be economically feasible to insure |
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Net income losses associated with property losses...are they insurable?
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Yes.
Insured by a variety of business income insurance coverages |
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In what way does Net Income loss associated with property loss not meet the 6 ideally insurable characteristics?
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Net income losses may not be independent and can be caatastrophic if the property losses they spring from were caused by catastrophic causes of loss (windstorm)
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There are no insurance products that provide coverage for what type of net income loss?
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Net income losses springing from liability losses
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What is the main difference between net income losses springing from propety loss and those springing from liability loss?
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Those springing from liability losses are harder to measure...we don't know when customers will return!
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Why are personal property (homes) easier to group together than commercial property exposures?
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They all serve the same function!
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What sorts of personal liability exposures do we need insurance against?
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*Our behavior toward others
*Liab loss expsures from a pet *Real property ownership (premises) *Auto liab loss exposures |
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Which of the 6 characteristics of an ideally insurable loss exposure do premises and auto liab loss exposures meet?
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All of them!
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For personal net income losses as a result of unemployment, what is the one thing up in the air?
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Was the unemployement fortuitous?
If a person quits, they would not be covered. |
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For most people, which of the 6 characteristics of an ideally insurable loss exposure do life exposures meet?
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All 6 of them
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Health insurance is subject to what types of hazard?
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Moral and morale...many causes of loss to health are under some control of individual involved
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Individuals are not able to purchase _______ insurance because....
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Retirement
Becasue the individual has control over savings and choice of retirement dates (not fortuitous) |
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What are some examples of social insurance and financial security plans?
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Social security and unemployment insurance
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The primary objective of private insurance is to provide ______ equity. Publice insurance programs usually try to provide ______ equity.
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Actuarial (fairness by charging premiums proportional to loss exposurer)
Social (Robin Hood...using residual markets for auto insurance) |
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************************************What are the primary reasons government becomes involved in insurance?
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1. In response to market failure 2. To fill insurance needs unmet by private insurers 3. To compel people to buy a particular type of insurance (if we make 'em have it, we better make sure they can get it - workers' comp and auto insur) 4. To increase efficiency and provide convenience to buyers 5. For the good of society ************************************ |
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Terrorism Risk Insurance Program (TRIP)
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Government acted as a temporary provider of reinsurance for losses caused by terrorism
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************************************What are the 3 levels of Government participation in Insurance?
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1. Exclusive insurer 2. Partner with private insurer (when reinsuring part of a risk) 3. Competitor with private insurers. ************************************ |
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Why might government compete with private insurers? ************************************ |
************************************Even if the market has not failed, if it is not operating as efficiently as regulators would like.
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