Risk Management Test 1 Set 4

Front 1

refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of losses.

Back 1

legal hazard

Front 2

the tendency of persons with a higher than average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher than expected loss levels.

Back 2

adverse selection

Front 3

states that as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience.

Back 3

law of large numbers

Front 4

the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss

Back 4

pool of risks

Front 5

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

Back 5

Indemnification

Front 6

an insurer owned by a parent firm for the purpose of insuring the parent firm’s loss exposures

Back 6

captive insurer

Front 7

(also called a pure captive) is an insurer owned by only one parent, such as a corporation

Back 7

single parent captive

Front 8

is an insurer owned by several parents

Back 8

association or group captive

Front 9

turning away from or preventing risk. how much you are willing to pay for coverage

Back 9

risk aversion

Front 10

the occurrence of one event affects the occurrence of the other

Back 10

dependent events

Front 11

the occurrence does not affect the occurrence of another event.

Back 11

independent events

Front 12

refers to that portion of the rate needed to pay losses and loss adjustment expenses

Back 12

pure premium

Front 13

refers to the amount that must be added to the pure premium for other expenses, profit, and a margin for contingencies

Back 13

loading

Front 14

Paid by the insured consists of the gross rate multiplied by the number of exposure units. (e.g. If gross rate is 10 cents per 100 dollars of property insurance, the gross premium for a 500,000 dollar building would be 500 dollars)

Back 14

gross premium

Front 15

is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance.

Back 15

reinsurance

Front 16

an insurer domicile in the state; it must be licensed in the state as well as in other states where it does business.

Back 16

domestic insurer

Front 17

an out of state insurer that is chartered by another state; it must be licensed to do business in the state.

Back 17

foreign insurer

Front 18

is an insurer chartered by a foreign country. It must also meet certain licensing requirements to operate in the state

Back 18

alien insurer