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Questions and Answers
An example of risk sharing would be?
Insurance represents the process of risk?
How do insurers predict the increase of individual risks?
What is known as the immediate specific event causing loss and giving rise to risk?
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All of the following are examples of pure risk EXCEPT?
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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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Which of these techniques will remove the risk of losing money in the stock market by never purchasing stocks?
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Insurance companies determine risk exposure by which of the following?
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Which of the following is considered to be an event or condition that increases the probability of an insured's loss?
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The cause of a loss is referred to as a(n)
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Study Notes
Risk Sharing and Insurance Concepts
- Risk Sharing: Illustrated by doctors pooling funds to cover malpractice risks.
- Insurance Process: Involves transference, shifting risk from individual to insurer.
Risk Prediction
- Law of Large Numbers: Foundation for insurers' ability to predict risk increases through aggregate data.
Peril and Hazard
- Peril: Defined as an immediate event leading to loss; crucial for understanding insurance policies.
- Hazard: An event or condition enhancing the likelihood of an insured loss.
Types of Risk
- Pure Risk: Represents scenarios with only potential for loss; includes injuries or theft. Notable exception: gambling losses, which are speculative.
Adverse Selection
- Occurs when individuals with high risk are more inclined to buy insurance, highlighting challenges for insurers.
Risk Management Techniques
- Risk Avoidance: Eliminates financial loss by forgoing stock market investments.
- Risk Pooling: Insurers assess risk exposure using the law of large numbers and pooling of risks among many clients.
Key Terminology
- Insurable Interest: A fundamental principle that determines eligibility for insurance coverage.
- Indemnity: Concept aimed at restoring the insured to their pre-loss financial position.
Summary of Key Definitions
- Peril: The cause of loss in an insurance context.
- Hazard: A condition that increases the probability of loss occurring.
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Description
Test your knowledge of risk management concepts with these flashcards from XCEL Chapter 2. Focus on understanding key terms and definitions related to risk sharing and insurance processes. Perfect for reviewing important information ahead of exams.
