Elements Of Insurance Risk

Front 1

elements of insurance risk {chance}

Back 1

*Loss must be dur to chance- causeless, outside the insured's control

Front 2

*Loss must be" definite and measurable"

Back 2

time,place,amount,and when payable

Front 3

*Loss must be predictable

Back 3

statistically able to estimate the average frequency and severity

Front 4

*Loss cannot be catastrophic "

Back 4

must be reasonable, 1 trillion-dollar policy is not reasonable

Front 5

*Loss exposure to be insured must be large

Back 5

Ideally, common enough that the insurer can pool many homogeneous , or simular , exposure units (law of large numbers)

Front 6

*Loss must be randomly selected*

Back 6

Fair proportion of good and poor risks

Front 7

Law of large numbers

Back 7

the larger the amount of exposures that are combines into a group, the more certainty there is to the amount of loss incurred in any given period.

Hint 7

Law of numbers allows: *Prediction of individual and group losses based on past experience ,* An increased degree of accuracy in predicting losses in large groups

Front 8

Loss exposure

Back 8

is any situatuon that presents the possibility of a loss

Front 9

Homogeneous exposure units

Back 9

simular objects of insurance that are exposed to the same group of perils.

Hint 9

ex: insuring a large number of homes in the same geographical are against hail damage.

Front 10

Adverse selection

Back 10

insurers mst minimize adverse selection, defined as the tendecy for poorer than average risks to seek out insurance

Hint 10

ex ::person that takes 12 perscriptions is a poor risk.

Front 11

Risk management

Back 11

process of analyzing exposures that create risk and designing programs to handle them

Front 12

Treatment risk

Back 12

how people deal with risk

Front 13

Avoidance

Back 13

avoid the risk all together

Hint 13

avoidanced of car accident by never leaving the house

Front 14

Reduction

Back 14

take percautions , minimizing severity of a potential loss.

Hint 14

ex: you can reduce the risk of getting injured in a car accident by taking public transportation.

Front 15

Retention (Self insure)

Back 15

accpeting risk and confronting it if it occurs

Hint 15

ex: you would retain the risk of getting injured im a car accident by driving without insurance

Front 16

Transfer

Back 16

make someone else responsibke for a loss

Hint 16

ex: buying auto insurance transfers the cost associated with a car accident from the driver to the insurance company

Front 17

Risk Pooling (loss sharing)

Back 17

when a large group of people spread a risk for a small certain cost. Transfers risk of an individual to a group

Front 18

Risk sharing

Back 18

would be doctors pooling their mo9ney to cover malpractice exposures

Front 19

Reinsurance

Back 19

insurers deal with catastrophic loss through reinsurance , which is defined as a contractual arrangement that transfers exposure from one insurer to another insurer

Front 20

Principle of Indentity

Back 20

involves making a insured whole by restoring them to the same condition as before a loss.