General Insurance

Sharing

Dealing with risk for a group of individual persons of businesses with the same or similar exposure to a loss to share the loss that occur within that group.

Avoidance

Eliminating exposure to a loss. (Never ride/drive in a plane)

Loss

Reduction, or decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss.

Exposure

A unit of measure used to determine rates charged for insurance coverage. - Age of the insured - medical history - occupation - sex Homogeneous is units having the same or similar exposure to a loss.

Peril

Causes of loss insured against in an insurance policy.

Hazard

Conditions or situations that increase the probability of an insured loss occurring.

Morale

Similar to Moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. actions taken without forethought. (Example - I'm not going to spend my money for a flu shot. If I get sick my insurance will pay for my care).

Moral hazard

Tendencies towards increased risk. (Example - applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer).

Insurable Risk

Pure Risk - Due to chance - a loss that is outside the insureds control Definite and measurable - a loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable. Statistically predictable- Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates. Not catastrophic- Insurers need to be reasonably certain their losses will not exceed specific limits. Randomly selected and large loss exposure- There must be a significantly large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location.

Risk

Uncertainty or chance of a loss occurring

Physical hazard

Individual characteristics that increase the chances of the cause of the loss. (Example - past medical history, or a condition at birth)

Transfer

Insurance is the most common method of transferring risk from an individual or group to an insurance company.

Speculative Risk

Involves the opportunity for either loss or gain (example - gambling).

Reduction

Lessen the possibility or severity of a loss. (Example - installing smoke detectors or having annual physical exams to detect health problems.

Retention

Planned assumption of risk by an insured through the use of deductibles, co-payments or self- insurance. The purpose of retention is 1. To reduce expenses and improve cash flow 2. To increase control of claim reserving and claims settlements; and 3. To fund for losses that cannot be insured.

Pure Risk

Refers to situations that can only result in a loss or no change.