Chapter 2
Peril
CAUSE of a loss
According to the law of large numbers, how would losses be affected if the number of similar insured units increases
Predictability of losses improved
Risk
The POTENTIAL for loss
Risk avoidance
The elimination of a hazard
Speculative Risk
This type of risk cannot be insured
A hold-harmless clause is an example of risk
Transfer. (It shifts liability for loss from one party to another)
As the number of insured units increases, the number of losses _______
decreases
An insurable risk requires
that the chance of loss be calculable
A condition that increases the possibility of financial loss is called a ________
Hazard
For insurance purposes, similar objects which are exposed to the same group of perils are referred to as _______
Homogeneous exposure units
Characteristics of the Law of Large Numbers
Larger groups provide better loss predictions. The higher the exposure, the more likely the event can be PREDICTED
A business becoming incorporated is an example of risk _______
Transfer
Which of the following involves sharing an uncertain risk with another similar group?
Transfer
Purchasing insurance is an example of risk ______
Transference (Transfer)
Which of the following types of risk is insurable?
Pure
An insurer has a contractual (contract) agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
Reinsurance contract
How can an insurance company minimize exposure to loss?
Reinsuring risks