Risk & Insurance 2

Front 1

Law of large numbers

Back 1

average losses for a random sample of n exposure units will follow a normal distribution because of the central limit theorem

Front 2

Basic characteristics of Insurance

Back 2

1. Pooling of losses

2.Payment of fortuitous losses

3. Risk transfer

4. indemnification

Front 3

fortuitous loss

Back 3

one that is unforeseen, unexpected, and occurs as a result of chance

Front 4

Indemnification

Back 4

the insured is restored to his or her approximate financial position prior to the occurrence of the loss

Front 5

Characteristics of an ideally insurable risk

Back 5

1. large number of exposure units

2. accidental and unintentional loss

3. determinable and measurable loss

4. no catastrophic loss

5. calculable chance of loss

6. economically feasible premium

Front 6

adverse selection

Back 6

persons with a higher-than-average chance of loss seek insurance at a standard rate

Front 7

expense loading

Back 7

the amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit

Front 8

Social costs of insurance

Back 8

1. cost of doing business

2. fraudulent claims

3. inflated claims