C16 The Business of Insurance
Comprehensive Questions
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Solutions Graded A+
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List the two fundamental principles of insurance. - Answer: 1. The
premiums of the many are used to pay the losses of the few.
2. The premiums shall be commensurate with the risk.
,-Insurance fulfils a societal need
-Provides consumers with financial security for particular types of
accidental losses. Also underpins the economy facilitating
economic growth and societal development
-Insurance is the promise to indemnify another person against the
possibility of a loss
-Significant claim is paid based on a nominal premium
Why would an insurer spread risks over diverse geographic areas?
- Answer: 1. Risks spread over a larger geographic area soften the
burden of localized disasters on insurers.
2. For example, a severe windstorm in one part of the country
would have a devastating effect on an insurer who had
concentrated its risks in this one area.
What is a risk pool? - Answer: 1. A risk pool is a sharing and
spreading of risk between insurers and re-insurers.
2. Formed risk pools are syndicates of insurance or reinsurance
companies that have organized to underwrite a particular risk or
group of similar risks.
,Explain the law of large numbers. - Answer: 1. A mathematical
premise which states that the degree of uncertainty is reduces as
the number of events increase.
2. Insurance relies on the forecasts of loss certainty in a large
group of similar risks.
3. Enough risks must be priced in such a way as to ensure that
sufficient capital enters the pool of funds to accommodate what is
being drawn out to pay for claims.
Define adverse selection. - Answer: 1. Describes the process by
which potential policyholders use their private knowledge of their
own high level of risk when deciding whether or not to buy
insurance.
2. High-risk individuals will try to buy lots of insurance and pay a
comparatively high rate of premium if they are allowed.
3. Low-risk clients might not buy any insurance because the price
is too high.
, In insurance, what is a tail? - Answer: 1. Refers to the amount of
time between an incident and the determination of the claim.
2. Short-tail lines are those where the injury becomes known
quite quickly.
3. Long-tail lines are those which a claim may be separated from
the circumstances that caused it by as many as 10, 15, 20 years or
more. Many product liability lines have long-tail exposures.
Name TWO concerns of Ontario automobile excess reinsurers that
relate to the effects of long-tail liabilities. - Answer: 1. Severe
Injuries.
2. Long-tail trends for prior accident years.
3. Inadequate reserving at the primary insurance level
-Primary insurance companies rely on reinsurers to back stop auto
coverage particularly for catastrophic claims that end up costing
over 1M.
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
List the two fundamental principles of insurance. - Answer: 1. The
premiums of the many are used to pay the losses of the few.
2. The premiums shall be commensurate with the risk.
,-Insurance fulfils a societal need
-Provides consumers with financial security for particular types of
accidental losses. Also underpins the economy facilitating
economic growth and societal development
-Insurance is the promise to indemnify another person against the
possibility of a loss
-Significant claim is paid based on a nominal premium
Why would an insurer spread risks over diverse geographic areas?
- Answer: 1. Risks spread over a larger geographic area soften the
burden of localized disasters on insurers.
2. For example, a severe windstorm in one part of the country
would have a devastating effect on an insurer who had
concentrated its risks in this one area.
What is a risk pool? - Answer: 1. A risk pool is a sharing and
spreading of risk between insurers and re-insurers.
2. Formed risk pools are syndicates of insurance or reinsurance
companies that have organized to underwrite a particular risk or
group of similar risks.
,Explain the law of large numbers. - Answer: 1. A mathematical
premise which states that the degree of uncertainty is reduces as
the number of events increase.
2. Insurance relies on the forecasts of loss certainty in a large
group of similar risks.
3. Enough risks must be priced in such a way as to ensure that
sufficient capital enters the pool of funds to accommodate what is
being drawn out to pay for claims.
Define adverse selection. - Answer: 1. Describes the process by
which potential policyholders use their private knowledge of their
own high level of risk when deciding whether or not to buy
insurance.
2. High-risk individuals will try to buy lots of insurance and pay a
comparatively high rate of premium if they are allowed.
3. Low-risk clients might not buy any insurance because the price
is too high.
, In insurance, what is a tail? - Answer: 1. Refers to the amount of
time between an incident and the determination of the claim.
2. Short-tail lines are those where the injury becomes known
quite quickly.
3. Long-tail lines are those which a claim may be separated from
the circumstances that caused it by as many as 10, 15, 20 years or
more. Many product liability lines have long-tail exposures.
Name TWO concerns of Ontario automobile excess reinsurers that
relate to the effects of long-tail liabilities. - Answer: 1. Severe
Injuries.
2. Long-tail trends for prior accident years.
3. Inadequate reserving at the primary insurance level
-Primary insurance companies rely on reinsurers to back stop auto
coverage particularly for catastrophic claims that end up costing
over 1M.
