Term
| General Categories of Risk Management Techniques |
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Definition
| Avoidance, Prevention, Reduction, Transfer |
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Term
| Identify the mechanism through which individuals or businesses exchange the possibility of a large loss for the certainty of a much smaller, periodic payment. |
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Definition
| The possibility of a large loss is exchanged for the certainty of a much smaller, periodic payment. |
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Term
| Three prevalent examples of property-casualty insurance. |
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Definition
| Some examples include homeowners, auto, and commercial general liability. |
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Term
| Identify the three components required for an insurer to consider a loss exposure to be definite in the context of ideally insurable. |
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Definition
| Must know the time, the cause, and the location. |
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Term
| Six characteristics of an ideally insurable loss exposure |
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Definition
Pure risk - pure, not speculative.
Fortuitous losses - out of insured's control
Definite and measurable - known time, cause, and location.
Large number of similar exposure units
Independent and not catastrophic
Affordable premiums. |
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Term
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Definition
| Primary role is to indemnify individuals and organizations for covered losses. |
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Term
| Benefit - manage cash flow uncertainty |
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Definition
| Provides financial compensation when covered losses occur. |
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Term
| Benefit - Legal requirement |
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Definition
| Can be used both to meet statutory and contractual requirements of coverage and provide evidence of financial resources. |
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Term
| Benefit - Promote risk control activity |
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Definition
| Incentives to undertake risk control activities |
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Term
| Benefit - Efficient use of insured's resources |
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Definition
| Don't have to set aside large amount of money for financial consequences of loss. Money can be used for other things. |
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Term
| Benefit - Support for credit |
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Definition
| Guarantee lender will be paid if collateral for loan is destroyed or damaged. |
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Term
| Benefit - Source of investment funds |
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Definition
| Timing of insurer's cash flows, premiums collected, and claims enable insurers to invest funds in markets. |
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Term
| Benefit - Reduce social burden |
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Definition
| Reduce burden to society of uncompensated accident victims. |
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Term
| Five activities an attorney-in-fact of a reciprocal insurance exchange undertakes. |
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Definition
| Market and underwrite insurance coverage, collect premiums, invest funds, and handle claims. |
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Term
| Four main purposes of government insurance programs. |
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Definition
| Provide unmet need, facilitate compulsory purchases, market efficiency and customer convenience, achieve collateral social purpose. |
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Term
| Three levels at which the government can participate in an insurance program. |
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Definition
| Be an exclusive insurer (law or no private insurer offers competing plan), partnerships when private insurers are no longer able to adequately provide coverage, direct competition. |
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Term
| Four methods used to verify solvency. |
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Definition
| Establish financial requirements by which to measure solvency, conduct on-site field exams to ensure regulatory compliance, review annual financial statements, administer the insurance regulatory information system. |
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Term
| Five classes of businesses often insured by surplus lines. |
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Definition
| Unusual or unique loss exposures, nonstandard business, insureds needing high limits of coverage, needing unusually broad coverage, require new forms. |
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