G1:  Basic Insurance Concepts & Principles


Code & Ethics Flashcards on G1:  Basic Insurance Concepts & Principles, created by Det Ferraris on 05/29/2013.
Det Ferraris
Flashcards by Det Ferraris, updated more than 1 year ago
Det Ferraris
Created by Det Ferraris almost 10 years ago

Resource summary

Question Answer
Underwriting Department Department responsible for making decisions whether or not a policy will be issued.
Underwriter Person that works in the Underwriting Department
Principle of Indemnity Goal of insurance is to restore one back to his previous condition that existed before the loss.
Underwriter Responsibilities 1. Analyze and Evaluate Risks 2. Accept or Reject Risks 3. Protect again Adverse Selection
Adverse Selection The tendency of higher risk person to seek out insurance more aggressively.
Principle Distribution Exposure Principle where insurers accept risks that are spread geographically so as to not have catastrophic losses if its only in one area.
Profitable Distribution of Exposures AKA Spread of Risks Dont put all eggs in one basket. Spread the risk geographically in case of catastrophic events.
Insurance A contract that the insurer protects the insured against loss, damage, or liability from a contingent or unknown event.
Large Group Characteristic to be Ideally Insurable. Group must be large enough so that enough premiums can be collected by the risk pool to cover losses of individuals within than group. Loss must create an ECONOMIC HARDSHIP.
Hardship Characteristic to be Ideally Insurable. Any insured loss must create an economic hardship to prevent moral and morale hazards. example: setting fire to your own home just collect insurance would also create economic loss.
Catastrophic Losses covered by an insurance company CANNOT be catastrophic. Example: Flood is the most damaging peril and insurance exclude flood in regular home insurance because its catastrophic.
Uncertain Characteristic to be Ideally Insurable. The risk of losses to the insured must be uncertain, accidental and due to chance.
Definite and Measurable Characteristic to be Ideally Insurable. Must be measurable=Insurer must be able measure amount of loss Definite=spell out time and place
Predictable Charateristic to be Ideally Insurable. Insured losses must be predictable to determine premiums etc.
Large C-H-U-M-P Characteristic to be Ideally Insurable. Large= Large Group C=Catastropic H-Economic Hardship U=Uncertain & Accidental M= Measurable & Definite P=Predictable
Insurable Interest Having legal and economic interest in the safety and preservation of the person/property insured.
Loss Exposure Any situation with a risk of loss.
4 Types of Loss Exposure 1. Property Loss 2. Liability Loss 3. Personal (Human) Loss 4. Personnel Loss
Property Loss Exposure Risk of loss to ones property due to theft or destruction.
Liability Loss Exposure Risk of having to pay for injuries to another person or for damage to anothers property.
Personal (Human) Loss Exposure Risk of financial loss due to injury, sickness, death or unemployment.
Personnel Loss Exposure Risked faced by a business due to death, disability, retirement or resignation of a key employee.
Peril Cause of a Loss. Example: Fire, Theft
Hazard Anything that increases the chances of loss occuring.
3 Types of Hazards 1. Physical 2. Moral 3. Morale
Physical Hazard Physical condition of person/thing that increases the chance of loss. example: health of a person or Faulty breaks on a car
Moral Hazard Increase chance of loss due to the insured dishonesty. ex: lying about health
Morale Hazard Increased loss due to insureds carelessness and indifference because they carry insurance. Example: leaving keys in car because insurance will cover the cost of a new one.
Law of Large Numbers Used for statistical prediction of losses so accurate rates can be determined. "The larger the number individual, but similar risks combined into a group, the more certainty as to the number of losses within that group" Can predict the losses within a group but DOES not predict losses for an individual.
Pure Risks Involves the possibility of a Loss. No gain and is insurable. example: car accident (no gain in wrecking a car)
Speculative Risks Involves the possibility of both Loss & Gain. UNinsurable. example: Gambling (gain=winning)
Risk The UNCERTAINTY of loss occuring.
2 Types of Risks 1. Pure 2. Speculative
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