Podcast
Questions and Answers
The insurance industry emerged in the fourteenth century primarily due to the rise of the airline industry seeking to protect their aircraft and passengers.
The insurance industry emerged in the fourteenth century primarily due to the rise of the airline industry seeking to protect their aircraft and passengers.
False (B)
Less than 50 percent of world trade is transported by sea or other waterways, making maritime risks a minor concern for the insurance industry.
Less than 50 percent of world trade is transported by sea or other waterways, making maritime risks a minor concern for the insurance industry.
False (B)
Shifting production to countries with lower wages provides savings and guarantees higher production quality, eliminating the risk of product recalls.
Shifting production to countries with lower wages provides savings and guarantees higher production quality, eliminating the risk of product recalls.
False (B)
Liability losses from pharmaceutical products' side effects are uniform across all countries, with no particular legal systems having higher damage awards.
Liability losses from pharmaceutical products' side effects are uniform across all countries, with no particular legal systems having higher damage awards.
Reinsurers operate by assuming the primary risk directly from insured parties, rather than providing a secondary market for insurance companies.
Reinsurers operate by assuming the primary risk directly from insured parties, rather than providing a secondary market for insurance companies.
Diversification of risks across different regions and business classes increases the capital efficiency of direct insurers, who then do not need reinsurers.
Diversification of risks across different regions and business classes increases the capital efficiency of direct insurers, who then do not need reinsurers.
The September 11 attacks primarily impacted life insurance claims, with minimal effect on other insurance classes like fire and business interruption.
The September 11 attacks primarily impacted life insurance claims, with minimal effect on other insurance classes like fire and business interruption.
The insurance of large risks slows down economies, because insurance reduces the incentives to reduce the risk.
The insurance of large risks slows down economies, because insurance reduces the incentives to reduce the risk.
Following the 2004 tsunami, the insurance industry covered on average 75% of the losses incurred in the affected regions.
Following the 2004 tsunami, the insurance industry covered on average 75% of the losses incurred in the affected regions.
As the global risk landscape remains static, the insurance industry can rely on existing concepts without needing to innovate for their clients.
As the global risk landscape remains static, the insurance industry can rely on existing concepts without needing to innovate for their clients.
Flashcards
Internationalisation
Internationalisation
The increasing integration of economies internationally that prompted the development of insurance.
Reinsurance
Reinsurance
A secondary market for insurance companies to place large risks, spreading the load among multiple carriers.
Accumulation Risks
Accumulation Risks
Events that cause huge financial losses across different types of insurance.
Outsourcing risks
Outsourcing risks
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Insurance & Economic Impact
Insurance & Economic Impact
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Pharmaceutical Liability
Pharmaceutical Liability
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Study Notes
- Internationalisation, not just globalisation, spurred the insurance industry from the 14th century as shipowners protected ship values.
Challenges of International Trade Risks
- Complex international trade risks affect all insurance business classes.
- Over 90% of global trade moves via sea or waterways.
- Modern container ships can hold cargo worth over $1 billion.
- Ports like Singapore or Hamburg store goods worth tens of billions daily.
- Outsourcing to low-wage countries cuts costs but can lower quality.
- Defective goods lead to recalls and product liability costs, like lead-painted toys or contaminated toothpaste.
- Pharmaceutical liability losses can be extreme due to dangerous side effects.
- US laws have seen very high damage awards in liability cases
Reinsurance
- Insurance companies use reinsurance to cover large risks.
- Reinsurers spread risks among carriers.
- Diversification across regions and business classes balances portfolios.
- Reinsurers achieve capital efficiency, offering reasonable prices for risk coverage.
- Reinsurers play a vital role in major loss events.
September 11, 2001
- The attack on the World Trade Center exemplified complex risks, accumulating losses across fire, business interruption, liability, life, and health insurance.
- Significant capital market losses compounded the impact
Importance of Insurance
- Insuring large risks aids sustainable economic development.
- Countries with less insurance suffer more from losses.
- The 2004 tsunami caused over US$10 billion in losses, with the insurance industry covering less than US$1 billion due to low insurance density in affected areas.
Impact of Underdeveloped Insurance
- Countries without developed insurance systems suffer more from catastrophes
- Professional risk carriers can cover losses.
Modern Challenges
- The global economy's increasing interconnectedness and complexities of risk require new insurance concepts to meet clients' needs.
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