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