INSR 310 LATEST STUDY EXAM GUIDE QUESTIONS
AND ANSWERS SURE A+
✔✔two ways to transfer risk management - ✔✔1- through insurance
2- non-insurance techniques (setting up a corporation)
✔✔three ways to control risk management - ✔✔1- prevention
2- reduction
3- diversification
✔✔hedging/arbitrage - ✔✔less unique tool of risk management
✔✔how does insurance handle risk? - ✔✔1- legal contract
2- risk transfer and pooling
✔✔industrialized society - ✔✔- specialization of jobs/skills
- dependence on income
✔✔well organized legal system - ✔✔enforceable contracts
✔✔ethical environment - ✔✔supports contract enforceability
✔✔relatively stable economy - ✔✔- supports planning (insurance is FUTURE oriented)
, - greater disincentives for loss
✔✔elements of insurable risk from the insurer's perspective - ✔✔- large number of
homogeneous exposure units to increase predictability
- fortuitous/ unintentional losses only to reduce moral hazard and adverse selection
- definite/measurable losses; quantification vital for indemity
- non-catastrophic occurence
✔✔elements of insurable risk from the insured's perspective - ✔✔- large-loss principle
- cost of insurance transfer must be reasonable
✔✔types of commercially insurable risk - ✔✔1- personal
2- property
3- liability
4- failure to others
✔✔personal commercially insurable risk - ✔✔income streams/ cash flows
✔✔property commercially insurable risk - ✔✔direct / indirect losses of assets
✔✔liability commercially insurable risk - ✔✔others' losses caused by "you" (third
parties)
✔✔failure to others - ✔✔your losses due to other's failure or neglegence
✔✔insurance vs. gambling/speculation - ✔✔both are aleatory
✔✔insurance - ✔✔risk reducing activity for/by all parties to contract
✔✔gambling/speculation - ✔✔risk increasing activity fro all parties; typically does not
meet elements of "insurability"
✔✔some social benefits of insurance - ✔✔1- risk of loss transferred to parties better
able to bear it
2- risk transfer: reduces individual reserve commitment necessary
3- reduced mental anguish
4- capital market effects
5- transfer facilitates entrepreneurship; more focused investment/reinvestment of scarce
resources
6- pooling/investment; more capital available for all, and at lower costs
7- corporate activities of insurers/ loss control firms general employment and taxes
8- enhanced economic stability
9- protection from financial ruin
10- future-oriented planning processes
AND ANSWERS SURE A+
✔✔two ways to transfer risk management - ✔✔1- through insurance
2- non-insurance techniques (setting up a corporation)
✔✔three ways to control risk management - ✔✔1- prevention
2- reduction
3- diversification
✔✔hedging/arbitrage - ✔✔less unique tool of risk management
✔✔how does insurance handle risk? - ✔✔1- legal contract
2- risk transfer and pooling
✔✔industrialized society - ✔✔- specialization of jobs/skills
- dependence on income
✔✔well organized legal system - ✔✔enforceable contracts
✔✔ethical environment - ✔✔supports contract enforceability
✔✔relatively stable economy - ✔✔- supports planning (insurance is FUTURE oriented)
, - greater disincentives for loss
✔✔elements of insurable risk from the insurer's perspective - ✔✔- large number of
homogeneous exposure units to increase predictability
- fortuitous/ unintentional losses only to reduce moral hazard and adverse selection
- definite/measurable losses; quantification vital for indemity
- non-catastrophic occurence
✔✔elements of insurable risk from the insured's perspective - ✔✔- large-loss principle
- cost of insurance transfer must be reasonable
✔✔types of commercially insurable risk - ✔✔1- personal
2- property
3- liability
4- failure to others
✔✔personal commercially insurable risk - ✔✔income streams/ cash flows
✔✔property commercially insurable risk - ✔✔direct / indirect losses of assets
✔✔liability commercially insurable risk - ✔✔others' losses caused by "you" (third
parties)
✔✔failure to others - ✔✔your losses due to other's failure or neglegence
✔✔insurance vs. gambling/speculation - ✔✔both are aleatory
✔✔insurance - ✔✔risk reducing activity for/by all parties to contract
✔✔gambling/speculation - ✔✔risk increasing activity fro all parties; typically does not
meet elements of "insurability"
✔✔some social benefits of insurance - ✔✔1- risk of loss transferred to parties better
able to bear it
2- risk transfer: reduces individual reserve commitment necessary
3- reduced mental anguish
4- capital market effects
5- transfer facilitates entrepreneurship; more focused investment/reinvestment of scarce
resources
6- pooling/investment; more capital available for all, and at lower costs
7- corporate activities of insurers/ loss control firms general employment and taxes
8- enhanced economic stability
9- protection from financial ruin
10- future-oriented planning processes
