XCEL Chapter 2: Nature of Insurance, Risk, Perils, and Hazards
The law of large numbers enables an insurer to
Predict losses
For insurance purposes, similar objects which are exposed to the same group of perils are referred to as
Homogeneous exposure units
Which of the following is NOT an example of risk retention?
Not doing a business deal after deciding it would be too risky
Which of the following can be defined as a cause of a loss?
Peril
According to the law of large numbers, how would losses be affected if the number of similar insured units increases?
Predictability of losses will be improved
How can an insurance company minimize exposure to loss?
Re-insuring risks
An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
Reinsurance contract
Which of the following describes the act of insuring a risk against possible loss?
Risk transfer
What type of risk involves the potential for loss AND the possibility for gain?
Speculative
A business becoming incorporated is an example of risk ___.
Transfer