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Chapter 1 fundamental principles of insurance, Functions of risk…
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Functions of risk management- the identification analysis and economic control of those risks which can threaten the assets or earning capacity of an enterprise
IDENTIFICATION ---- ANALYSIS ---- CONTROL
NON FINANCIAL RISKS - not capable of financial measurements but may have financial aspects, real risk arises from decisions motivated by other considerations i.e. we may place more value on a family heirloom - can be insured for marker value
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FINANCIAL RISK - for a risk to be insured the outcome of adverse events must be capable of measurements in financial terms i.e. accidental damage to a car , theft of property,
PURE RISK - possibility of a loss but not a gain best achieved is a break even situation
SPECULATIVE RISK -speculate with a view to making some kind of gain but also carries risk of a loss or break even
FUNDAMENTAL RISK - risks that occur on such a large scale that they're uninsurable i.e. famine or economic recession PARTICULAR RISK - localised or personal in cause i.e. factory fire, car collision, theft of personal possesion from a home
Homogeneous exposure mean similar risks, in the absence of this the task is harder as a pattern of expected future loss is harder to determine pooling of risk - losses of the few are met by contributions of the many who are exposed to similar potential loss, different pools for different classes of insurance
law of large numbers -in operating the pool insurers benefit from the law of large numbers this states that where there are a large number of similar situations the actual number of events occurring tends towards the expected number Equitable premiums - each insured wishing to join the pool must make an equitable premium contribution to the pool when considering the equitable premiums insurers consider the different elements of risks
Reasons for buying insurance - peace of mind , primary function is to act as a risk transfer mechanism Secondary functions - no need to set aside large sums of money as safety nets, can be confident to expand business, jobs protected, losses are reduced in size, insurers are large investors of funds benefiting the economy
physical hazard - physical characteristics of the risk and includes any measurable dimensions of the risk e.g. security cameras
moral hazard - arises from attitude and behaviour of people
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motor insurance - road traffic act 1988 public liability - Riding establishments act 1970 PI insurance - insurance intermediaries must have PI FCA rules require
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claims handling process - the insurer experienced is centered on claims handling, its important for an industry that relies on trust for customers to have confidence they are dealing with people who are putting there interests first
claims personnel- ensure proper use of financial resources - deal efficiently and fairly - identify valid and non valid claims - calculate and set aside funds - instruct experts - settle claims -