Podcast
Questions and Answers
What is the primary effect of adverse selection in insurance?
What is the primary effect of adverse selection in insurance?
What does a hazard represent in the context of insurance?
What does a hazard represent in the context of insurance?
Homogeneous exposure units are primarily characterized by their:
Homogeneous exposure units are primarily characterized by their:
What is the main goal of an indemnity contract in insurance?
What is the main goal of an indemnity contract in insurance?
Signup and view all the answers
The law of large numbers indicates that as the size of a group increases, what happens to the prediction of loss?
The law of large numbers indicates that as the size of a group increases, what happens to the prediction of loss?
Signup and view all the answers
Study Notes
Adverse Selection
- Refers to the phenomenon where individuals with greater risks are more likely to pursue or maintain insurance compared to those with lower risks.
- Policyholders may exploit favorable terms in insurance contracts due to their higher risk profile.
Hazard
- Defined as a condition, factor, or situation that increases the likelihood of a peril occurring.
- Hazards contribute to higher chances of loss events manifesting.
Homogeneous Exposure Units
- Comprises groups of similar objects that share the same risk profile.
- Insurance risks are categorized by these units to ensure they are exposed to identical perils.
Indemnity Contract
- These contracts are structured to restore the insured to their pre-loss financial status.
- They focus on compensating for actual losses rather than providing a profit or bonus.
Law of Large Numbers
- A core principle in insurance indicating that as the size of a risk pool increases, the prediction of losses becomes more reliable.
- This principle underpins the actuarial practices used in underwriting and premium pricing.
Loss
- Represented as an unintentional reduction in asset value resulting from a peril.
- Loss quantification is essential for assessing claims and determining payouts in insurance.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Explore the fundamental concepts of insurance, including the important idea of adverse selection. This quiz will enhance your understanding of key terms that are crucial for grasping the complexities of the insurance industry. Prepare to dive into essential definitions that shape the chapter's content.
