Questions and Answers
How do insurers predict the increase of individual risks?
Law of large numbers
Which of the following is considered to be an event or condition that increases the probability of an insured's loss?
An example of risk sharing would be?
Doctors pooling their money to cover malpractice exposures
All of the following are examples of pure risk EXCEPT?
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What is known as the immediate specific event causing loss and giving rise to risk?
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An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in?
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Insurance represents the process of risk?
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People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called?
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Insurance companies determine risk exposure by which of the following?
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Cause of a loss is referred to as a?
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Study Notes
Nature of Insurance, Risk, Perils, and Hazards
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Law of Large Numbers: A statistical principle used by insurers to predict and manage individual risks based on large volumes of data, allowing for more accurate forecasting of losses.
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Hazard: Events or conditions that increase the likelihood of loss occurring, contributing to the risks that insurance policies aim to cover.
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Risk Sharing: An example includes doctors pooling resources to manage potential malpractice claims, distributing risk among multiple parties to mitigate financial impact.
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Pure Risk: Risks that result only in a loss, with no potential for gain; notable examples exclude gambling losses like those incurred at a casino.
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Peril: The direct and specific event that causes loss, such as a fire or theft, which leads to the insured risk materializing.
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Risk Avoidance: The strategy of eliminating risk entirely; for instance, avoiding stock market investments to prevent financial loss.
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Risk Transference: The concept that insurance shifts the risk of loss from the individual to the insurer, allowing individuals to protect themselves against potential financial setbacks.
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Adverse Selection: A phenomenon where individuals with higher risk levels are more likely to purchase insurance, potentially leading to an imbalance in the insurer's risk pool.
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Determining Risk Exposure: Insurers assess risk exposure through the Law of Large Numbers and the practice of risk pooling, which collectively enhance the predictability of losses.
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Cause of Loss: The event responsible for incurring a loss is also referred to as a peril, highlighting its crucial role in risk assessment and insurance claims.
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Description
Explore the fundamental concepts of insurance including risk, perils, and hazards through these flashcards. This quiz is designed to enhance your understanding of how insurers predict risks and the nature of different hazards in insurance. Perfect for students studying insurance principles.
