Introduction to General Insurance
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Questions and Answers

What is the primary function of insurance according to the content?

  • Offering loans to consumers
  • Providing financial advice
  • Enhancing investment opportunities
  • Spread of risk among insured individuals (correct)

    • Which historic event is linked to the beginning of fire insurance?

  • A devastating flood in England
  • An oven fire in September 1666 (correct)
  • A major earthquake in London
  • The sinking of a merchant ship

    • How does insurance contribute to the credit system?

  • By providing collateral for borrowing
  • By freeing up credit for consumers (correct)
  • By eliminating financial risks completely
  • By reducing the number of loans available

    • What historical practice is highlighted as an early form of risk sharing?

    <p>Redistributing cargo among boat operators</p> Signup and view all the answers

    What effect does insurance have on anxiety related to future uncertainties?

    <p>Reduces anxiety by providing financial backup</p> Signup and view all the answers

    What percentage of insurance in Canada is provided by 10 companies?

    <p>67%</p> Signup and view all the answers

    What is one of the historical foundations of marine insurance?

    <p>Informal agreements among merchants</p> Signup and view all the answers

    What role does insurance play in encouraging entrepreneurship?

    <p>Provides peace of mind for financial investments</p> Signup and view all the answers

    What is a key characteristic of producers in a Direct Writing System?

    <p>They can only sell products from the insurer they are employed by.</p> Signup and view all the answers

    Which statement best describes the Independent Brokerage System?

    <p>It employs a significant number of people and sells the majority of property and casualty insurance.</p> Signup and view all the answers

    How are agencies distinct from brokers in the insurance context?

    <p>Agents represent one insurer while brokers represent multiple.</p> Signup and view all the answers

    What is the primary role of Lloyd's of London?

    <p>To facilitate risk-sharing among underwriters through syndicates.</p> Signup and view all the answers

    What defines a syndicate within Lloyd's of London?

    <p>A group of underwriters pooling resources to share risks.</p> Signup and view all the answers

    What differentiates Stock Companies from Mutual Companies?

    <p>Mutual Companies focus solely on non-profit motives, whereas Stock Companies aim for profit.</p> Signup and view all the answers

    What is the nature of ownership in a Mutual Company?

    <p>Owned by its policyholders with members having equal voting rights.</p> Signup and view all the answers

    What is a primary function of the underwriting agent in a syndicate?

    <p>To appoint expert underwriters for different classes of business.</p> Signup and view all the answers

    What is the primary focus of indemnity provided by insurance companies?

    <p>To cover unforeseen damages</p> Signup and view all the answers

    Which type of insurance represents more than 50% of all property and casualty premiums in Canada?

    <p>Automobile insurance</p> Signup and view all the answers

    What is a defining characteristic of mutual companies in the insurance industry?

    <p>Policyholders own the company</p> Signup and view all the answers

    How do private stock companies predominantly operate within the insurance market?

    <p>By focusing on deriving profit from shareholder investments</p> Signup and view all the answers

    What is the main role of liability insurance?

    <p>To protect against financial responsibility for injury or damage caused to others</p> Signup and view all the answers

    In Canada, which entity competes with private insurers for compulsory automobile insurance?

    <p>Provincial governments</p> Signup and view all the answers

    What distinguishes private insurers from government insurers in Canada?

    <p>Private insurers deal primarily in for-profit insurance services</p> Signup and view all the answers

    Which form of settlement can an insurance company use when handling a claim?

    <p>By repairing, replacing, or paying for the item</p> Signup and view all the answers

    What is one of the primary roles of the insurance industry beyond paying for losses?

    <p>Actively preventing and reducing the severity of losses</p> Signup and view all the answers

    What is meant by the term 'peril' in the context of insurance?

    <p>The cause of loss, such as fire or theft</p> Signup and view all the answers

    How does insurance typically determine the amount to be paid to the insured after a loss?

    <p>Based on the principle of indemnity to match the actual loss</p> Signup and view all the answers

    Which of the following roles do Canadian insurers provide in the economy?

    <p>They contribute significantly to both employment and investment capital</p> Signup and view all the answers

    What does not accurately describe the purpose of insurance?

    <p>To enable individuals to profit from their losses</p> Signup and view all the answers

    What is the significance of 'indemnity' in insurance?

    <p>It restricts payments to the amount of the actual loss incurred</p> Signup and view all the answers

    Which aspect of insurance helps to minimize the risk of financial loss for individuals?

    <p>Shifting financial responsibility to the insurer</p> Signup and view all the answers

    Which of the following accurately captures the perspective of risk in insurance?

    <p>Risk represents the chance of financial loss from uncertain events</p> Signup and view all the answers

    Study Notes

    Introduction to General Insurance

    • Insurance is essentially "risk-sharing."
    • People have historically pooled resources to aid those in need.
    • Insurance formalizes this basic risk-sharing principle.

    History of Insurance

    • As early as 5000 BC, Chinese boat operators distributed cargoes to mitigate river risks.
    • As international trade grew, merchants needed a more formal system.
    • Fire insurance emerged in London in 1666, following a devastating fire.
    • A dentist in London initiated fire insurance, followed by other merchants.
    • Insurance soon became a full-time profession.
    • Today, over 67% of Canadian insurance is provided by 10 major companies.

    Five Functions of Insurance

    • (i) Spread of Risk*
    • Insurance spreads losses amongst many people.
    • Premiums from numerous individuals form a fund to pay claims.
    • This principle distributes financial burden.
    • (ii) Basis of Credit System*
    • Insurance facilitates credit by reassuring lenders.
    • Insurers' protection of investments helps loan access.
    • (iii) Eliminates Worry - Encourages Entrepreneurship*
    • Insurance allows people to undertake ventures without fear of catastrophic losses.
    • Insurance protects against unexpected financial burdens reducing anxiety about the future.
    • (iv) Loss Prevention and Loss Reduction*
    • Insurance companies actively prevent losses (e.g., road safety, fire prevention).
    • Collaboration with communities and officials are important.
    • Nationwide campaigns combat insurance fraud.
    • (v) Source of Employment and Investment Capital*
    • Insurance employs thousands of people (brokers, adjusters, etc) in various sectors.
    • Insurance has billions in annual claims and $114B in assets (2015) which is expected to double in a decade.

    Definition of Insurance

    • -Insurance is an agreement to compensate for financial loss or liability due to a specific risk, under the relevant provincial act.

    • Insurance means an undertaking in a certain risk or peril to pay for a certain amount upon an event.

    • Shifting financial responsibility for a loss: an insurance contract transfers the financial responsibility for a loss. 

    • Events or characteristics: Payment occurs in certain situations, and the amount is restricted.

    Payment and Indemnity

    • Payment is made in the event of a risk occurring.
    • Insurance payments cover the actual amount of loss.
    • The payment is restricted to the amount required to indemnify the insured/cover the loss
    • Insurance covers risks (e.g., loss, peril).

    Types of Insurance that are excluded

    • Deliberate losses or losses that happened already
    • Societies do not support losses caused deliberately.

    Insurance Distribution Methods

    • Direct writing system: Insurer employees directly sell products.
    • Independent brokerage system: Brokers represent numerous insurers, receiving commissions.
    • Agency system: Agents represent a single insurer.

    Additional insurance entities (Lloyd's)

    • Lloyd's is not an insurance company; syndicates of underwriters collectively insure large or complex risks.

    Property and Casualty Insurance

    • Automobile insurance is the most significant segment.
    • Property insurance covers damage to homes and businesses.
    • Liability insurance covers financial responsibility for injuries or damage caused to others.

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    Fundamentals of Insurance Chapter 1 PDF

    Description

    This quiz covers the fundamental principles of general insurance, including its historical development and key functions. Explore how insurance has evolved from ancient practices to a major profession today, providing risk-sharing solutions for individuals and businesses.

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