C16 Business of Insurance - Full Set
of Notes Comprehensive Questions
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Chapter 1) The Insurance Industry of Canada
What are the 2 Fundamental Principles of Insurance? - Answer: 1)
The premiums of the many are used to pay the losses of the few.
,(The premiums paid by policyholders who have not made a claim
fund the losses of others less fortunate. This is known as the
spread of risk or the transfer of risk.) Insurance companies collect
money from many policy holders and keep the funds until an
insured loss occurs.
Insurers have various ways to spread risk, such as using
reinsurance, subscribing on risks with other insurers, etc.
2) The premium shall commensurate with the risk.
If premiums charged were inadequate, and if too many losses had
to be paid, then insurance as a risk management system would
fail.
What is the Law of Large Numbers? - Answer: A mathematical
premise that states that the degree of certainty in probabilities
increases as the number of events increases. Insurance companies
rely on loss forecasts built by analyzing data from large groups of
similar risks.
What is a Retrocessionaire? - Answer: The reinsurer of the
reinsurer.
,The one who provides reinsurance for reinsurers
What is Adverse Selection? - Answer: May result when an
insurance company charges too high a premium for a risk. The
low-risk client will seek and obtain better rates with a competing
company who has priced the product more competitively.
Insureds with higher or substandard risk will most likely stay with
the existing company because they will be unable to solicit more
favourable terms from another company.
The existing company's book of business will begin to suffer from
adverse selection. Similarly, a company whose rates are lower for
unattractive risks will experience a problem with adverse
selection. In this context, the company offers coverage at a
premium that is not commensurate with the risk, as it does not
adequately reflect the actual risk exposure.
The broker is thus contributing to the adverse selection of both
insurers. The risk of adverse selection can be minimized through
the parties to the insurance contract or the party arranging the
contract following the principle of utmost good faith, whereby
they are legally obligated to transact business in an honest
manner.
The Insurance Contract Principles.
, In addition to the 2 fundamental principles of insurance, other
important principles of insurance relate to the insurance contract
itself.
The 3 best known of these principles are what?
What are other princples? - Answer: 1) Indemnity
2) Insurable Interest
3) Utmost good faith
Proximate cause, loss minimization, contribution, and
subrogation. The proximate cause of a loss must be a loss for
which the property is insured; otherwise, the loss will not be paid.
This is particularly important in legal liability claims. Loss
minimization requires the insured, following a loss, to prevent or
minimize any further loss to their insured property. Contribution
states that all insurers who cover the same insured property must
participate in the payment of a loss to that property. Subrogation
occurs after the insurer has paid the claim; the insurer is assigned
the rights of the insured to recover from those who are legally
liable for the loss.
Reinsurance - What are the 4 basic functions of Reinsurance?
of Notes Comprehensive Questions
(Frequently Tested) and Complete
Solutions Graded A+
Professional Academic Assistance Services
Services Offered
• Proctored Exam Assistance
• Online Class Management (Full Course Support)
• Exam Preparation & Study Materials
• Assignments and Coursework Support
• Essay and Research Paper Writing
• Discussion Posts & Responses
• Editing and Proofreading
• Confidential Academic Consultation
Contact Information
Email:
WhatsApp link: https://wa.me/254704846336
Fast Response | Confidential | Reliable Academic Support
Helping Students Achieve Academic Excellence
Chapter 1) The Insurance Industry of Canada
What are the 2 Fundamental Principles of Insurance? - Answer: 1)
The premiums of the many are used to pay the losses of the few.
,(The premiums paid by policyholders who have not made a claim
fund the losses of others less fortunate. This is known as the
spread of risk or the transfer of risk.) Insurance companies collect
money from many policy holders and keep the funds until an
insured loss occurs.
Insurers have various ways to spread risk, such as using
reinsurance, subscribing on risks with other insurers, etc.
2) The premium shall commensurate with the risk.
If premiums charged were inadequate, and if too many losses had
to be paid, then insurance as a risk management system would
fail.
What is the Law of Large Numbers? - Answer: A mathematical
premise that states that the degree of certainty in probabilities
increases as the number of events increases. Insurance companies
rely on loss forecasts built by analyzing data from large groups of
similar risks.
What is a Retrocessionaire? - Answer: The reinsurer of the
reinsurer.
,The one who provides reinsurance for reinsurers
What is Adverse Selection? - Answer: May result when an
insurance company charges too high a premium for a risk. The
low-risk client will seek and obtain better rates with a competing
company who has priced the product more competitively.
Insureds with higher or substandard risk will most likely stay with
the existing company because they will be unable to solicit more
favourable terms from another company.
The existing company's book of business will begin to suffer from
adverse selection. Similarly, a company whose rates are lower for
unattractive risks will experience a problem with adverse
selection. In this context, the company offers coverage at a
premium that is not commensurate with the risk, as it does not
adequately reflect the actual risk exposure.
The broker is thus contributing to the adverse selection of both
insurers. The risk of adverse selection can be minimized through
the parties to the insurance contract or the party arranging the
contract following the principle of utmost good faith, whereby
they are legally obligated to transact business in an honest
manner.
The Insurance Contract Principles.
, In addition to the 2 fundamental principles of insurance, other
important principles of insurance relate to the insurance contract
itself.
The 3 best known of these principles are what?
What are other princples? - Answer: 1) Indemnity
2) Insurable Interest
3) Utmost good faith
Proximate cause, loss minimization, contribution, and
subrogation. The proximate cause of a loss must be a loss for
which the property is insured; otherwise, the loss will not be paid.
This is particularly important in legal liability claims. Loss
minimization requires the insured, following a loss, to prevent or
minimize any further loss to their insured property. Contribution
states that all insurers who cover the same insured property must
participate in the payment of a loss to that property. Subrogation
occurs after the insurer has paid the claim; the insurer is assigned
the rights of the insured to recover from those who are legally
liable for the loss.
Reinsurance - What are the 4 basic functions of Reinsurance?
