CHAPTER 1

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What are the 3 main components of risk?
1. Uncertainty 2. Level of Risk 3. Peril and Hazard
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How is risk perceived?
Each persons perception of risk is different. We all take decisions based on an assessment of risk. This is risk management.
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What is the 3 stage process of risk management?
1. Risk Identification 2. Risk Analysis 3. Risk Control
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What are the 3 aspects of controlling risk?
1. Physical control measure 2. Financial control measure 3. Developing a good risk culture
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What are the 3 types of risk?
1. Financial and non-financial 2. Pure and speculative 3. Particular and fundamental
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What is non-financial risk?
A risk that is not capable of financial measurement. E.g. a loss of enjoyment on holiday or the choice of a marriage partner
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What is a financial risk?
A risk capable of financial measurement. E.g. accidental damage to a motor vehicle, theft of property, loss of business profits following a fire or legal liability to pay compensation for personal injury
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What is a speculative risk?
Where you make a risk in hope of a gain. Examples include gambling or investing in stock markets. Insurance doesn't apply to this type of risk.
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What is a pure risk?
Where there is the possiblity of a loss but not of a gain. E.g. travelling in a car - you can hope for a safe arrival but you cannot guaruntee whether or not you'll have an accident. Other examples are a fire or machinery breakdown
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What is a particular risk?
A risk that is local and personalised in it's cause and effect. E.g. a factory fire, car collision or theft from your home
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What is a fundamental risk?
A risk that happens on such a vast scale that it is uninsurable. An example ncludes earthquake or war. They arise from social, economic, political or natural causes and are widespread in their effect.
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What is a fortuitous event?
An event that is accidental or unexpected and not inevitable
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What must a risk not be against?
Public policy - Insurers are not allowed to provide cover against public policy such as reimbursement should you get fined for speeding or get a parking ticket
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What is homogenous exposure?
Similar risks - Risks that are more likely to be in most people's every day lives such as theft, fire etc. It is otherwise known as the law of large numbers. Other insurance policies exist such as insuring a pianists fingers. This is the opposite.
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What are examples of insurable risks?
Financial, Pure, Particular, Fortuitous event, Insurable interest, Not against public policy, Homogenous exposure
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What are examples of uninsurable risks?
Non-financiall, Speculative, Fundamental (generally), Deliberate act, No insurable interest, Against public interest, One-offs (generally)
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How is the level of risk determined?
Severity and frequency - Severity is regarding the value of pssible loss and frequency is how often a claim is likely to arise. This is what insurer's base decisions on.
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What is the difference between a peril and a hazard?
A peril is what gives rise to a loss (i.e. fire, escape of water) and a hazard is what contributes or influences the operation or effect of a peril. (i.e. fire at a thatched cottage. the thatched roof is the hazard as it makes the fire spread faster)
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What are the 2 types of hazards?
Physical hazards and Moral Hazards
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What is a physical hazard?
the pphysical characteristics of the risk including measurable dimensions (i.e. security protection at a shop, the construction of a property, the age of an insured and type of vehicle for car insurance)
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What is a moral hazard?
A hazard that arises from the attitude a behaviour of people (i.e. carelessness, dishonesty, social attitudes)
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What is the primary function of insurance?
To act as a risktransfer mechanism. It assists in providing financial security and piece of mind?
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What is pooling of risks?
Where the losses of a few are paid by the many through the cost of premiums who face the same risk but suffer no loss.
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What is the law of large numbers?
The law of large numbers is where the higher the number of similar situations, the more accurate the prediction. (e.g. toss a coin example 20 times compared to 5,000 times. More likely to be 50/50 in the 5,000 times than it is the 20)
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How do insurers determine how high a premum should be to an insured?
The premium charged depends on the amount of risk the insured brings to the pool. (i.e. more road accidents are likely in London in rush hour than they are in a quiet village in the middle of the night)
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What is the EU Gender Directive?
Where insurers are unable to use gender as a factor in pricing or benefits
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What act brought in the EU Gender Directive?
Equality Act 2010 (Amendment) Regulations 2012
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How can an insurer risk share with another insurance company?
Through reinsurance or co-insurance
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How can an insurer risk share with an insured?
Put an excess on the claim so the insured has to pay an agreed amount before the insurer will pay it making it less likely for the insured to claim small losses
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What is dual insurance?
Where an insured is covered by 2 or more policies for the same risk
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What is self-insurance
Where an insured does not use the risk transfer mechanism and takes on the risk themselves.
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What is property insurance?
This isn't just buildings. This is things such as buildings, contents, livestock, money (think or car or home insurance)
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What is pecuniary insurance?
This is in relation to money. This relates to things such as legal expenses, credit, business interruption
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What are the 5 types of liability insurance?
1. Public liability, 2. Employers liability, 3. Professional Indemnity, 4. Products liability and 5. Directors' and officers' liability
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What are the 3 main areas covered by Marine insurance?
1. physical damage, 2. liability and 3. loss of income
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What is Aviation insurance?
Loss or damage to aircraft and legal liabity to third parties and passengers
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Card 2

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Each persons perception of risk is different. We all take decisions based on an assessment of risk. This is risk management.

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Card 4

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What are the 3 aspects of controlling risk?

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Card 5

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