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Chapter Two: Insurance & Risk - Coggle Diagram
Chapter Two: Insurance & Risk
Meaning of Insurance
Definition of Insurance
Basic Characteristics of Insurance
Pooling of losses
Payment of fortuitous losses
Risk transfer
Indemnification
requirements of an Ideally Insurable Risk
General Requirements
Large number of exposure units
Accidental and unintentional loss
Determinable and measurable loss
No catastrophic loss
Calculable chance of loss
Economically feasible premium
Application of the Requirements
The risk of fire to a private dwelling satisfies the requirements.
The risk of unemployment does not completely meet all requirements.
Adverse Selection and Insurance
Nature of adverse selection
Consequences of adverse selection
insurance and Gambling Compared
Insurance eliminates a pure risk, while gambling creates a new speculative risk
Insurance is socially productive, while gambling is socially unproductive.
insurance and Hedging Compared
Insurance transfers a pure risk, while hedging involves the transfer of a speculative risk.
Insurance reduces objective risk, while hedging does not.
types of Insurance
Private Insurance
Life insurance
Health insurance
Property and liability insurance
Government Insurance
Social insurance
Other government insurance programs
social Benefits and Costs of Insurance
Benefits of Insurance to Society
Less worry and fear
indemnification for loss
Source of investment funds
Loss prevention
Enhancement of credit
Costs of Insurance to Society
Cost of doing business
Fraudulent claims
inflated claims