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Chapter Two: Insurance & Risk - Coggle Diagram
Chapter Two: Insurance & Risk
definition of insurance
Basic Characteristics of Insurance
Pooling of losses
■ Payment of fortuitous losses
■ Risk transfer
■ Indemnification
Characteristics of an ideally insurable Risk
■ There must be a large number of exposure units.
■ The loss must be accidental and unintentional.
■ The loss must be determinable and measurable.
■ The loss should not be catastrophic.
■ The chance of loss must be calculable.
■ The premium must be economically feasible.
Two Applications
Risk of Fire
Unemployment
Adverse selection: is the tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher-than-expected loss levels
Underwriting
the process of selecting and classifying applicants for insurance
Insurance& Gambling
gambling creates a new speculative risk, while insurance is a technique for handling an already existing pure risk
gambling can be socially unproductive, because the winner’s gain comes at the expense of the loser
insurance & Hedging
an insurance transaction typically involves the transfer of pure risks because the characteristics of an insurable risk generally can be met
hedging is a technique for handling speculative risks that may be uninsurable, such as protection against a decline in the price of agricultural products and a decline in the price of agricultural products and raw materials.
that insurance can reduce the objective risk of an insurer by application of the law of large numbers
Insurance of insurance
private
Life Insurance
Health Insurance
Property and Liability Insurance
Goverment
personal lines
Private passenger auto insurance
Homeowners insurance
Personal umbrella liability insurance
Earthquake insurance
Flood insurance
Commercial lines
Fire and allied lines insurance
Commercial multiple-peril insurance
General liability insurance
Products liability insurance
Workers compensation insurance
Commercial auto insurance
Accident and health insurance
nland marine and ocean marine insurance
Professional liability insurance
Directors and officers liability insurance
Boiler and machinery insurance (also known as mechanical breakdown, equipment breakdown, or systems breakdown coverage)
Fidelity bonds and surety bonds
Crime insurance
Other coverages
government insurance
Social Insurance
Types
■ Old-Age, Survivors, and Disability Insurance
(Social Security)
■ Medicare
■ Unemployment insurance
Workers compensation
Compulsory temporary disability insurance
Railroad Retirement Act
Railroad Unemployment Insurance Act
Benefits of Insurance to Society
Indemnification for loss
Reduction of worry and fear
Source of investment funds
Loss prevention
Enhancement of credit
Cost of Insurance to Society
■ Cost of doing business
■ Fraudulent claims
■ Inflated claims