Podcast
Questions and Answers
What is the primary function of insurance as a risk transfer system?
What is the primary function of insurance as a risk transfer system?
- To minimize the risk of losses
- To provide a guarantee against losses
- To distribute the costs of losses among all insureds (correct)
- To maximize the profit of insurers
How do insurers determine the total amount of premiums they must collect from insureds?
How do insurers determine the total amount of premiums they must collect from insureds?
- By analyzing the claims history of individual insureds
- By forecasting future losses based on economic trends
- By considering past loss experience and the law of large numbers (correct)
- By negotiating with insureds to determine the premium amount
What is the primary benefit of insurance to the insured?
What is the primary benefit of insurance to the insured?
- The ability to transfer risk to others
- The opportunity to invest in the insurance company
- The possibility of a large loss
- The certainty of a much smaller, periodic payment (correct)
What is the law of large numbers in the context of insurance?
What is the law of large numbers in the context of insurance?
What is the primary benefit of insurance to the insurer?
What is the primary benefit of insurance to the insurer?
What is the primary goal of loss reduction strategies?
What is the primary goal of loss reduction strategies?
What is risk retention in the context of insurance?
What is risk retention in the context of insurance?
What is the primary goal of risk transfer strategies?
What is the primary goal of risk transfer strategies?
What is the primary purpose of loss prevention measures in risk management?
What is the primary purpose of loss prevention measures in risk management?
Why might Ming choose to transfer his risk exposure rather than retaining or controlling it?
Why might Ming choose to transfer his risk exposure rather than retaining or controlling it?
What is a key difference between personal insurance customers and larger commercial insurance customers?
What is a key difference between personal insurance customers and larger commercial insurance customers?
What is the role of big data in the insurance industry?
What is the role of big data in the insurance industry?
What is the primary goal of loss reduction measures in risk management?
What is the primary goal of loss reduction measures in risk management?
What is an example of a loss prevention measure mentioned in the content?
What is an example of a loss prevention measure mentioned in the content?
Why might risk transfer be more economically viable for Ming compared to noninsurance transfer methods?
Why might risk transfer be more economically viable for Ming compared to noninsurance transfer methods?
What is a key benefit of using technology and big data in the insurance industry?
What is a key benefit of using technology and big data in the insurance industry?
What is the primary reason why controlling risks is preferred to insuring them from an economic viewpoint?
What is the primary reason why controlling risks is preferred to insuring them from an economic viewpoint?
What is the main purpose of risk control representatives in the insurance industry?
What is the main purpose of risk control representatives in the insurance industry?
What is the primary goal of risk control in the context of insurance?
What is the primary goal of risk control in the context of insurance?
What is the purpose of a premium audit in the insurance industry?
What is the purpose of a premium audit in the insurance industry?
What technique does risk control represent in the context of insurance?
What technique does risk control represent in the context of insurance?
What is the outcome of effective risk control in the insurance industry?
What is the outcome of effective risk control in the insurance industry?
What is the relationship between risk control and insurance in the context of large loss exposures?
What is the relationship between risk control and insurance in the context of large loss exposures?
What do risk control professionals do to help insureds reduce their risk exposure?
What do risk control professionals do to help insureds reduce their risk exposure?
Flashcards
Primary function of insurance
Primary function of insurance
Distributing the costs of losses among all policyholders.
Insurer premium calculation
Insurer premium calculation
Using historical loss data and the law of large numbers to calculate the total premiums needed from insured individuals.
Primary benefit of insurance to insured
Primary benefit of insurance to insured
The certainty of regular, predictable payments instead of the uncertainty of large, infrequent losses.
Law of large numbers
Law of large numbers
Signup and view all the flashcards
Primary benefit of insurance to insurer
Primary benefit of insurance to insurer
Signup and view all the flashcards
Loss reduction strategies
Loss reduction strategies
Signup and view all the flashcards
Risk retention
Risk retention
Signup and view all the flashcards
Risk transfer strategies
Risk transfer strategies
Signup and view all the flashcards
Loss prevention measures
Loss prevention measures
Signup and view all the flashcards
Ming's choice to transfer risk
Ming's choice to transfer risk
Signup and view all the flashcards
Difference between personal and commercial risk
Difference between personal and commercial risk
Signup and view all the flashcards
Big data in insurance
Big data in insurance
Signup and view all the flashcards
Loss reduction goal
Loss reduction goal
Signup and view all the flashcards
Example of loss prevention
Example of loss prevention
Signup and view all the flashcards
Economic viability of risk transfer
Economic viability of risk transfer
Signup and view all the flashcards
Benefit of technology in insurance
Benefit of technology in insurance
Signup and view all the flashcards
Economic advantage of risk control
Economic advantage of risk control
Signup and view all the flashcards
Role of risk control representatives
Role of risk control representatives
Signup and view all the flashcards
Goal of risk control in insurance
Goal of risk control in insurance
Signup and view all the flashcards
Purpose of premium audit
Purpose of premium audit
Signup and view all the flashcards
Risk control technique
Risk control technique
Signup and view all the flashcards
Outcome of effective risk control
Outcome of effective risk control
Signup and view all the flashcards
Risk control with large loss exposures
Risk control with large loss exposures
Signup and view all the flashcards
Role of risk control professionals
Role of risk control professionals
Signup and view all the flashcards
Study Notes
Insurance as a Risk Transfer System
- Insurance enables individuals, families, or organizations to transfer the costs of losses to an insurer.
- The insurer pays claims for covered losses from the premiums it has collected and distributes the costs of the losses among all its insureds.
- Insurance is a system of both transferring and sharing the costs of losses.
Law of Large Numbers
- A mathematical principle stating that as the number of similar but independent exposure units increases, the insurer can predict the number of losses that all similar exposure units combined are likely to experience.
Risk Control
- Controlling risks is preferable to insuring them because it generally costs less.
- Risk control involves conscious acts or decisions to reduce the frequency and/or severity of losses or make losses more predictable.
- Risk control professionals can work directly with insureds, providing suggestions on which loss control techniques would be most effective at lowering the amount of risk they face.
Premium Audit
- A methodical examination of a policyholder's operations to determine if any adjustments to the premium are required, based on the insured's actual loss exposures during a policy period.
Risk Management Techniques
- Risk retention: bearing the financial consequences of a loss.
- Risk avoidance: avoiding activities that create loss exposures.
- Risk control: reducing the frequency and/or severity of losses.
- Risk transfer: transferring the financial consequences of a loss to another party, such as through insurance.
Use of Technology and Big Data
- Insurance professionals can use an abundance of new data to analyze an insured's history and needs.
- Technology and big data can help recommend coverages, risk control, and loss prevention techniques that make the recommended coverages more affordable.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Learn about insurance as a risk transfer system, how it enables individuals and organizations to transfer costs of losses, and the role of the Law of Large Numbers in insurance.
